Variable Life Insurance- Agent Licensing Exam Prep Test

A unit trust is established through a trust deed, which allows a trustee to hold the pool of money and assets on behalf of the investor. This means that the investor does not directly own shares in the trust, but rather has their investment held in trust by a trustee. This structure provides legal protection and ensures that the investor's interests are safeguarded.

It is important for the customer to understand the sales proposal in full because the impact of changes in investment conditions on a variable life policy is solely borne by the customer. This means that any fluctuations or risks associated with the investments made by the insurer will directly affect the customer's policy and potential returns. Therefore, understanding the sales proposal allows the customer to make an informed decision about the potential risks and rewards of the policy.

Variable life policies do not allow policy holders to take loans against the entire withdrawal value of their policies. They can only take loans up to a certain percentage of the cash value of the policy.

Fixed income securities are the most suitable investment instrument for an investor who wants to protect their principal and receive a steady stream of income. These securities include bonds, certificates of deposit, and treasury bills, which offer a fixed rate of return over a specified period of time. Unlike equity or warrants, which are more volatile and can result in a loss of principal, fixed income securities provide a more stable and predictable income stream. Variable life policies may offer some protection of principal but do not guarantee a steady income, making them less suitable for this particular investor.

The correct answer is "Misinterpretation is a specific form of twisting." This statement is false because misinterpretation is not a specific form of twisting. Twisting refers to the act of persuading a policyholder to surrender an existing insurance policy in order to purchase a new one, while misinterpretation refers to providing false or misleading information about an insurance policy. These are two separate concepts and are not interchangeable.

A single premium variable life insurance policy must be issued with minimum death benefits because it is a type of life insurance policy that combines a death benefit with an investment component. The policyholder pays a lump sum premium, and the policy's cash value is invested in various investment options. The death benefit is determined by the policy's cash value and can fluctuate based on the performance of the investments. Therefore, the policy must have a minimum death benefit to provide financial protection to the beneficiaries in case of the policyholder's death.

The withdrawal value after a year is calculated by subtracting the charges and fees from the initial investment and then applying the growth rate of the unit price. In this case, the initial investment is 432,000.00. After deducting the policy fee, admin and mortality charge, top-up fee, and admin for top-up, the remaining amount is 420,069.02. Then, the growth rate of the unit price (8%) is applied to this amount, resulting in a withdrawal value of 401,107.58.

The correct answer is I, III and IV. This is because variable life insurance policies do not guarantee investment returns, as stated in option I. The returns are also linked to the performance of the investment fund management by the life company, as mentioned in option III. Additionally, the returns fluctuate according to the risk and fall of market price, which is stated in option IV.

Variable life insurance policies allow policy owners to switch their investments between different investment options offered by the insurance company. This switching facility is useful for the policy owner to adjust their investments based on their financial goals and risk tolerance. It allows them to plan and manage their finances effectively by choosing investment options that align with their financial objectives.

The risk-return graph for cash funds, bond funds, balanced funds, managed funds, and equity funds shows that higher returns typically come with higher risk. This is supported by the fact that equity funds, which are at the top end of the graph, are known for their higher returns but also higher risk. On the other hand, cash funds, which are at the bottom end of the graph, are considered relatively risk-less but offer lower returns. Therefore, options II, III, and IV correctly reflect the risk-return profile of these funds.

Diversification in investment involves reducing the risk of investment by putting one fund under management into several categories of investment. By spreading investments across different categories, such as stocks, bonds, and real estate, the risk is minimized as losses in one category may be offset by gains in another. This strategy helps to protect against potential losses and increase the chances of overall portfolio growth.

Policy owners who invest in variable life funds with high equity investment face greater risk but can expect to achieve higher return than the traditional life insurance product over the long term. This statement is true because variable life funds invest in a combination of stocks, bonds, and other investments, including equity. Equity investments are generally riskier but have the potential for higher returns. Therefore, policy owners who are willing to take on more risk can potentially benefit from higher returns in the long run compared to traditional life insurance products.

The objective of satisfying customer needs profitability can be achieved by an agent through extensive investment training by the company (II) and the use of a sales plan, where sales goals, strategic and objective are coordinated with market analysis, segmentation, and targeting (III). These two options focus on improving the agent's skills and knowledge and aligning sales strategies with customer needs, which can ultimately lead to increased profitability. The giving of freebies to customers (I) and the giving of monetary assistance and discounts to customers (IV) may attract customers but may not necessarily result in long-term profitability.

The correct answer is "Amount invested in cash depends on the size of the cash flow requirements." This statement is true because the amount of cash that is invested depends on the specific needs and obligations of an individual or organization. If there are higher cash flow requirements, more money will be invested in cash to meet those needs. Conversely, if there are lower cash flow requirements, less money will be invested in cash. This statement highlights the importance of considering cash flow needs when making investment decisions.

The policy fee payable by the variable life insurance policy owner is to cover the administrative expenses of setting up the policy. This includes the costs associated with processing the application, underwriting the policy, and issuing the policy documents. These administrative expenses are separate from the mortality costs, which are the costs associated with providing the life insurance coverage, and the handling charges by professional investment managers, which are related to the investment component of the policy. The policy fee is a one-time or recurring fee that helps cover the administrative costs of establishing the policy.

Variable life insurance policyholders can withdraw funds by either redeeming a specific number of units or a fixed monetary amount through the cancellation of units. This flexible option allows for adjustments in both the number of units and the withdrawal amount, providing policyholders with greater control over their investment.

Rebating is prohibited under the insurance code because it involves offering the prospect a social inducement to purchase a policy. However, the statement that rebating will enhance the sales performance and uphold the prestige of an agent is not true.

The correct answer is "The policy benefits are directly linked to the investment performance of the underlying assets." This means that the value of the policy benefits will fluctuate based on how well the investments within the policy perform. If the investments do well, the policy benefits will increase, but if the investments perform poorly, the policy benefits will decrease.

The duties of a trustee of a unit trust include ensuring that the fund manager adheres to the provisions of the trust deeds, acting generally to protect the unit-holders, and holding the pool of money and assets in trust on behalf of the investors. However, managing the portfolio of investment and administering the buying and selling of shares in the unit of trust itself is not one of the trustee's responsibilities.

The selling price under a variable life insurance policy refers to the price at which the units under the policy are offered for sale by the life insurance company. This means that individuals who hold the policy can sell their units back to the company at this price. It is important to note that this selling price can fluctuate based on market conditions and the performance of the underlying investments.

Based on the information provided, Mr. Juan Dela Cruz is currently earning a moderate income and has a reasonable amount of savings. Additionally, he has a moderate level of risk tolerance. Variable Life Policies would be the recommended policy for him to buy. Variable life insurance offers both a death benefit and an investment component. It allows policyholders to invest their premiums in a variety of investment options, such as stocks and bonds, providing potential for higher returns. This would be suitable for someone with a moderate risk tolerance and the desire for potential growth on their investments.

The correct answer is II, III. The first statement is not a disadvantage of investing in common shares, as it is common for dividends to not have fixed rates. However, the second statement is a disadvantage, as investing in common shares exposes investors to market and specific risks. The third statement is also a disadvantage, as shares can indeed become worthless if the company becomes insolvent. Therefore, the correct answer is II, III.

Twisting is not about offering a special inducement to purchase a policy. It is actually the act of inducing a policy holder to discontinue their current policy with another company without fully disclosing the disadvantages of doing so.

The benefits of investing in variable life funds include having access to pooled or diversified portfolios of investment, being able to easily change the level of premium payments due to clear product design, and gaining access to variable life funds managed by professional investment managers with proven track records.

The statement "People invest money in fixed deposits to produce high-end guaranteed returns" is false because while fixed deposits do offer guaranteed returns, they may not necessarily be high-end. The returns on fixed deposits are typically lower compared to other investment options such as stocks or mutual funds.

The correct answer is II and IV. This is because the two particular categories of risk in relation to investment mentioned in the question are: the risk of the rate of return on the investment not matching up to the individual's expectation (II) and the risk of losing some or all of the person's initial investment (IV).

The correct answer is "Invest in shares of stock and investors who buy such assets usually aim for capital appreciation." This is because investing in shares of stock typically involves buying ownership in a company, and investors who buy stocks usually do so with the expectation that the value of the stock will increase over time, allowing them to make a profit through capital appreciation.

Investing in bonds offers several advantages, including protection of the principal and a guaranteed steady stream of income. It also serves as a temporary refuge for investors during uncertain market conditions, allowing them a chance for capital preservation. However, bonds do not typically provide an opportunity for capital appreciation, which means that the value of the investment does not generally increase over time.

This statement is false because there is no guarantee of a definite high yield in variable life funds. While the fund may be managed by professionals who are experienced in managing investment risks, there are still inherent risks in investing in variable life funds that can lead to fluctuations in returns. Therefore, it is incorrect to claim that a definite high yield is ensured for investors.

The correct answer is "All of the above". This is because all of the options listed in the answer choices are examples of the flexibility benefits of investing in variable life funds. These benefits include the ability for policy owners to change the level of sum assured and switch their investment between funds, take premium holidays and add single premium top-ups, have a simple product design with a clear structure for investment and insurance protection, and change the level of their premium payment.

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Variable Life Insurance Policies offer investors policies with values that are directly linked to the investment performance of the life company, not indirectly linked. The investment element of these policies varies according to the underlying assets of the portfolio.

The correct answer is II, IV, I, III. This ranking is based on the liquidity of the assets listed. Property (II) is the least liquid asset as it can take a significant amount of time and effort to convert it into cash. Equities (IV) are also less liquid compared to cash (I) as they need to be sold in the market, which may take time and potentially result in a loss. Short-Term Securities (I) are more liquid than equities but less liquid than cash. Therefore, the correct ranking is II, IV, I, III.

Variable life policies have two main characteristics. First, they can be used for investment, serving as a source of regular savings and protection. Second, the withdrawal values and protection benefits are determined by the investment performance of the underlying assets. These policies do not have a fixed cash value but rather fluctuate based on the performance of the investments. The third statement about net cash values and dividends is not a characteristic of variable life policies.

The statement "The withdrawal value is not guaranteed" is true because variable life policies are subject to market fluctuations and the value of the policy can decrease over time. The statement "The volatility of the returns depends on the investment strategy of the fund" is also true because the returns on variable life policies are directly tied to the performance of the underlying investment funds, which can be volatile depending on the investment strategy chosen. The statement "The variable life policy holder has direct control over the investment decisions of the variable life funds" is not true because although policyholders may have some input or choice in the investment options, the actual investment decisions are made by professional fund managers.

The production cost under a variable life insurance policy is generally covered by cancellation of units in the fund, met by explicit charges stipulated openly on the policy terms, and vary with age of policy owner and level of cover.

The policy value of endowment policies is the cash value plus any accumulated dividends less any outstanding loans due at the time of surrender. The life company needs to maintain a separate account for variable life policies distinct from the general account.

The statement is false because Whole Life and Endowment Policies are generally not considered variable life insurance products. Variable life insurance policies are specifically designed to have a cash value that is tied to the performance of underlying investment options. In contrast, Whole Life and Endowment Policies typically provide a guaranteed cash value and do not directly link their cash values to the performance of underlying investments.

Under variable life insurance policies:



1. There is no guaranteed minimum sum assured for the purpose of declaring dividends.

   - This statement is true. Variable life insurance policies do not typically have guaranteed minimum sums assured for dividend purposes.



2. There is not guaranteed minimum sum assured as a level of life insurance protection

   - This statement is also true. Variable life insurance policies do not provide a guaranteed minimum sum assured for life insurance protection. The death benefit can vary based on the performance of the underlying investments.



3. Each of the policy owner’s premiums will be used to purchase units, the number of which is dependent on the selling price of each unit

   - This statement is true. In variable life insurance, premiums paid by the policy owner are typically used to purchase units in the separate accounts, and the number of units purchased depends on the unit price at the time of purchase.



4. Purchase of units can only be made from the variable life fund itself, which will then create new units and add the investment monies to the value of the fund

   - This statement is true. In a variable life insurance policy, policyholders can typically purchase units directly from the variable life fund, and when they do so, new units are created and the invested funds are added to the overall value of the fund.



So, all four statements are accurate descriptions of variable life insurance policies.

A variable life insurance policy has several characteristics. Firstly, its withdrawal value and protection benefits are determined by the investment performance of the underlying assets, meaning that the policy value can fluctuate based on how well the investments perform. Secondly, the policy's commission and company expenses are met by explicit charges, which are typically disclosed to the policy owner with 6 months' notice. Lastly, the withdrawal value of the policy is typically calculated based on the value of units allocated to the policy owner, calculated at the bid price. Therefore, the correct answer is I, III, and IV.

The correct answer is I and II. The variable life funds offer policy holders an access to pooled or diversified portfolios, allowing them to benefit from the expertise of professional fund managers. Additionally, variable life policy holders have the flexibility to vary their premium payments, take premium holidays, add single premium top-ups, and change the level of sum assured easily.

The correct answer is II, III and IV. This is because the statement in option II states that the investment elements of variable life insurance policies are made known to the policy owner, which implies that there are more choices in terms of the type of investment funds compared to traditional participating policies. Option III states that variable life insurance policies offer the potential for higher returns, which is a fundamental difference from traditional participating policies. Option IV states that traditional participating policies aim to produce a steady return by smoothing out market fluctuations, which is another fundamental difference from variable life insurance policies.

Under a regular premium variable whole life insurance plan, premium top-ups and holidays are usually allowed, subject to the life company's administrative rules. The main objective of the plan is life protection, with investment as a nominal purpose. Withdrawals after payment of a few years' premium are usually allowed. However, a single premium contribution is not made to the policy, as stated in option IV. Therefore, the correct answer is I, II, and III.

Variable life policies generally have a larger exposure to equity investment than with participating and other traditional policies. This means that a larger portion of the policy's funds are invested in stocks and other equities, which can lead to higher potential returns but also higher risks. Commissions and company expenses are met by a variety of explicit charges, some of which are variable. This means that the policyholder pays explicit charges, such as fees and commissions, which can vary depending on the policy and the company. These charges help cover the costs of running the policy and compensate the agents and companies involved.

The correct answer is II, III and IV. This means that allocations to policy owners in the form of dividends are not linked to the life company's investment performance, have already been smothered by the life company, and do not have the highs and lows of investment return as in good investment years of the Life Company. Additionally, these allocations are not fixed at the inception of the policy but are greatly dependent on the investment performance of the life company.

Variable life policies and endowment policies differ in terms of their policy values and the flexibility of premiums and benefits. The statement that the policy values of variable life and endowment policies directly reflect the performance of the fund of the life company is false. In variable life policies, the policy values are directly linked to the performance of the underlying investment funds chosen by the policyholder, while in endowment policies, the policy values are not directly linked to the performance of the fund. The statement that the benefits and risks of variable life and endowment policies directly accrue to the policyholders is also false, as the risks and benefits of these policies are shared between the policyholders and the life company.

Statement II is true because the margin between the bid and offer price in a variable life policy is often used to cover management costs.

Statement III is true as the policy value is typically calculated based on the bid price of the units allocated into the policy.

Statement I is incorrect because the bid price, not the offer price, is generally used to determine the number of units to be canceled from the account.

Both of the statements I and II are accurate. However, the statement "Policyholders have the flexibility of varying the level cover" is not universally true for all single premium variable life policies. The flexibility to vary the level of coverage may vary from one policy to another, and it's not a universal feature.

The net cash surrender value of a participating policy includes the surrender value of the paid-up addition up to the date of surrender. This means that if a policyholder surrenders their participating policy, they will receive the surrender value of any paid-up additions that have been accumulated up to that point. This is a feature specific to participating policies and is not applicable to non-participating policies. The surrender value of a participating policy is usually higher than that of a non-participating policy and varies based on the age of the policyholder, with lower values at older ages.