Variable Life Insurance- Agent Licensing Exam Prep Test

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Variable Life Insurance- Agent Licensing Exam Prep Test - Quiz

Are you aspiring to become a life insurance agent? And preparing to clear the final exam to earn your license? Before that, you need to have a clear idea of all the legal terms and policies in this field. This quiz especially focuses on the Variable Life Insurance policy. So, to give you the best preparation environment, we have included the fifty most important questions that will help you revise what you already learned.


Questions and Answers
  • 1. 

    Variable life insurance policy owners may make a withdrawal in terms of________.

    • A.

      Number of units or fixed monetary amount through cancellation of units.

    • B.

      Number of units or fixed monetary amount through reduction of the life cover sum assured

    • C.

      Fixed monetary amount only through reduction of the life cover sum assured

    • D.

      Number of units through cancellation of units

    Correct Answer
    A. Number of units or fixed monetary amount through cancellation of units.
    Explanation
    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.

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  • 2. 

    Which of the following statements about the flexibility features of variable life policies is FALSE?

    • A.

      Policy holders may request for a partial withdrawal of the policy and the withdrawal amount will be met by casting the units at bid price.

    • B.

      Policy holders can take loans against their variable life policies up to the entire withdrawal value of their policies.

    • C.

      Policy holders have the flexibility of switching from one fund to another provided it satisfies the company’s switching of criteria.

    • D.

      Policy holders have the flexibility of increasing or decreasing their premiums variable life policies.

    Correct Answer
    B. Policy holders can take loans against their variable life policies up to the entire withdrawal value of their policies.
    Explanation
    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.

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  • 3. 

    The investment returns under variable life insurance policy_______.
    1. Are not guaranteed.
    2. Are Assured
    3. Are linked to the performance of the investment fund management by the life company.
    4. Fluctuate according to the risk and fall of market price

    • A.

      I, II and III

    • B.

      I, II and IV

    • C.

      I, III and IV

    • D.

      II, III and IV

    Correct Answer
    C. I, III and IV
    Explanation
    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.

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  • 4. 

    Which of the following statements are TRUE?
    1. The policy value of variable life policies is determined by the offer price at the time of valuation.
    2. The policy value of endowment policies is the cash value plus any accumulated dividends less any outstanding loans due at time of surrender.
    3. The life company needs to maintain a separate account for variable life policies distinct from the general account.

    • A.

      I and II

    • B.

      I, II and III

    • C.

      I and III

    • D.

      II and III

    Correct Answer
    D. II and III
    Explanation
    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.

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  • 5. 

    Which of the following statement is FALSE?

    • A.

      Rebating is to offer a prospect a special inducement to purchase a policy.

    • B.

      Twisting is a specific form of misinterpretation.

    • C.

      Misinterpretation is a specific form of twisting.

    • D.

      Switching is a facility allowing policy holders to switch to another variable life funds offered by company.

    Correct Answer
    C. Misinterpretation is a specific form of twisting.
    Explanation
    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.

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  • 6. 

    1. Which of the following statements about variable life policies are TRUE?
    1. Offer price is used to determine the number of units to be cancelled to the account.
    2. The margin between the bid and offer price is used to cover the management cost of the policy.
    3. The policy value is calculated based on the bid price of the units allocated into the policy.

    • A.

      I, II and III

    • B.

      I and II

    • C.

      I and III

    • D.

      II and III

    Correct Answer
    B. I and II
    Explanation
    Variable life policies use offer price to determine the number of units to be cancelled to the account and the margin between the bid and offer price is used to cover the management cost of the policy. The policy value is not calculated based on the bid price of the units allocated into the policy.

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  • 7. 

    What is the most suitable investment instrument for an investor who is interested in protecting his principal and receiving a steady stream of income?

    • A.

      Equity

    • B.

      Warrants

    • C.

      Variable life policies

    • D.

      Fixed Income securities

    Correct Answer
    D. Fixed Income securities
    Explanation
    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.

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  • 8. 

    What are the disadvantages of investing in common shares?
    1. Dividends are paid not more than fixed rates.
    2. Investors are exposed to market and specific risks.
    3. Shares can become worthless if company becomes insolvent.

    • A.

      I, II

    • B.

      I, III

    • C.

      II, III

    • D.

      I, II and III

    Correct Answer
    C. II, III
    Explanation
    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.

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  • 9. 

    1. Which of the following statement about the difference between variable life policies and endowment policies are FALSE?
    1. The policy values of variable life and endowment policies directly reflect the performance of the fund of the life company.
    2. The premiums and benefits of the endowment policies are described at inception of the policy whereas variable life policies are flexible.
    3. The benefits and risks variable life and endowment policies directly accrue to the policy holders.

    • A.

      I and II

    • B.

      I, II and III

    • C.

      I and III

    • D.

      II and III

    Correct Answer
    C. I and III
    Explanation
    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.

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  • 10. 

    1. Which of the following statements about twisting is FALSE?

    • A.

      Twisting is a special form of misinterpretation.

    • B.

      It refers to an agent inducing a policy holder to discontinue policy with another company without disclosing the disadvantage of doing so.

    • C.

      It includes misleading or incomplete comparison of policies.

    • D.

      It refers to an agent offering a prospect a special inducement to purchase a policy

    Correct Answer
    D. It refers to an agent offering a prospect a special inducement to purchase a policy
    Explanation
    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.

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  • 11. 

    Mr. Juan Dela Cruz is currently earning P30, 000/month. He is 35 years old and has a reasonable amount of savings. He has a moderate level of risk tolerance. What kind of policy would you recommend for him to buy?

    • A.

      Participating Endowment

    • B.

      Variable Life Policies

    • C.

      Participating Whole Life

    • D.

      Annuities

    Correct Answer
    B. Variable Life Policies
    Explanation
    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.

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  • 12. 

    1. What are the benefits available when investing a variable life funds?
    1. The variable life funds offer policy holders an access to pooled or diversified portfolios.
    2. The variable life policy holder can vary his premium payments, take premium holidays, add single premium top-ups and change the level of sum assured easily.
    3. The variable life policy holder can have access to a pool of qualified and trained professional fund managers.

    • A.

      I and II

    • B.

      I and III

    • C.

      I, II and III

    • D.

      II and III

    Correct Answer
    A. I and II
    Explanation
    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.

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  • 13. 

    Rank the following in terms of their liquidity, from the least liquid to the most liquid:
    1. Short-Term Securities
    2. Property
    3. Cash
    4. Equities

    • A.

      IV, II, III, I

    • B.

      III, I, IV, II

    • C.

      II, I, IV, III

    • D.

      II, IV, I, III

    Correct Answer
    D. II, IV, I, III
    Explanation
    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.

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  • 14. 

    A UNIT TRUST IS__________.

    • A.

      Established by a trust deed which enables a trustee to hold the pool of money and assets in trust on behalf of the investor.

    • B.

      A close-end fund and does not have to dispose of its assets if large number of investors sell their shares.

    • C.

      One whereby investor buyunit in the trust itself and not shares in the company.

    • D.

      An organization registered under the SECURITY AND ESCHANGE COMMISSION (SEC) which usually invest in a wide range of equities and other investments

    Correct Answer
    A. Established by a trust deed which enables a trustee to hold the pool of money and assets in trust on behalf of the investor.
    Explanation
    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.

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  • 15. 

    Under variable life insurance policies______.
    1. There is no guaranteed minimum sum assured for the purpose of declaring dividends.
    2. There is not guaranteed minimum sum assured as a level of life insurance protection.
    3. Each of the policy owner’s premiums will be used to purchase units the number of which is dependents on the selling price of each unit.
    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

    • A.

      I and IV

    • B.

      II and IV

    • C.

      III and IV

    • D.

      II and III

    • E.

      All of the above

    Correct Answer
    E. All of the above
    Explanation
    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.

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  • 16. 

    The benefits of investing in variable life funds include__.
    1. Policy owners have access to pooled or diversified portfolios of investment.
    2. Policy owners can easily change the level of the premium payments as the product design of variable life insurance policies have clear structures which cater separately for investment and insurance protection.
    3. Policy owners can gain access to variable life funds managed by professional investment managers with proven track records.
    Policy owners can buy a variable life insurance policy only with a high initial investment.

    • A.

      I, II and IV

    • B.

      I, III and IV

    • C.

      I, II and III

    • D.

      I and IV

    Correct Answer
    C. I, II and III
    Explanation
    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.

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  • 17. 

    Which of the BEST describes the policy benefits variable life policies?

    • A.

      The policy benefits are payable only on death or disability.

    • B.

      The policy benefits will depend on the long-term performance of the life company.

    • C.

      The policy benefits are directly linked to the investment performance of the underlying assets.

    • D.

      The policy benefits are guaranteed

    Correct Answer
    C. The policy benefits are directly linked to the investment performance of the underlying assets.
    Explanation
    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.

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  • 18. 

    Why is it important that the customer must understand the sales proposal in full?

    • A.

      Because the insurer does not guarantee any return.

    • B.

      Because the impact of changes in investment condition on variable life policy borne solely by the customer.

    • C.

      Because the agent may give the wrong recommendations.

    • D.

      Because the policy holders expect higher returns.

    Correct Answer
    B. Because the impact of changes in investment condition on variable life policy borne solely by the customer.
    Explanation
    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.

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  • 19. 

    Which of the following statements about rebating are TRUE?
    1. Rebating is prohibited under the insurance code.
    2. Rebating deals with offering the prospect a social inducement to purchase a policy.
    3. Rebating will enhance the sales performance and uphold the prestige of an agent.

    • A.

      I and II

    • B.

      I and III

    • C.

      II and III

    Correct Answer
    A. I and II
    Explanation
    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.

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  • 20. 

    Which one of the following statements is FALSE?

    • A.

      Variable Life Insurance Policies offer investors policies with values and indirectly linked to the investment performance of the life company

    • B.

      Life Company will carry out a valuation of its funds yearly and any surplus may be allocated to participating policy holders as cash dividends.

    • C.

      Both Whole Life and Endowment Policies can be used as an investment media with benefits that become payable at a future date

    • D.

      The investment element of variable life policies varies according to underlying assets of the portfolio.  

    Correct Answer
    A. Variable Life Insurance Policies offer investors policies with values and indirectly linked to the investment performance of the life company
    Explanation
    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.

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  • 21. 

    Which of the following statements about option top-up under variable life insurance products is FALSE?

    • A.

      Variable Life Insurance Policies offer investors policies with values and indirectly linked to the investment performance of the life company.

    • B.

      Life Company will carry out a valuation of its funds yearly and any surplus may be allocated to participating policy holders as cash dividends

    • C.

      Both Whole Life and Endowment Policies can be used as an investment media with benefits that become payable at a future date.

    • D.

      The investment element of variable life policies varies according to underlying assets of the portfolio.  

    Correct Answer
    C. Both Whole Life and Endowment Policies can be used as an investment media with benefits that become payable at a future date.
    Explanation
    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.

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  • 22. 

    The characteristics of a variable life insurance policy include________.
    1. Its withdrawal value and protection benefits are determined by the investment performance of the underlying assets.
    2. Its protection costs are generally met by implicit charges.
    3. Its commission and company expenses are met by a variety of explicit charges with normally 6 months’ notice given by the life company prior to any charges.
    4. Its withdrawal value is normally the value of units allocated to the policy owner calculated at the bid price.

    • A.

      I, II and III

    • B.

      II, III and IV

    • C.

      I, II and IV

    • D.

      I, III and IV

    Correct Answer
    D. I, III and IV
    Explanation
    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.

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  • 23. 

    Which of the following statements about single premium variable life policies are TRUE?
    1. There is no fixed term in a single premium variable life policy, and therefore, they are technically whole life insurance.
    2. Top-ups or single premium injections are allowed in these plans.
    3. Policyholders have the flexibility of varying the level cover.

    • A.

      I, II and III

    • B.

      II and III

    • C.

      I and II

    • D.

      I and III

    Correct Answer
    C. I and II
    Explanation
    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.

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  • 24. 

    Investing in bonds offers the following advantages EXCEPT.

    • A.

      It offers protection to the principal and guaranteed steady stream of income

    • B.

      It is a place of temporary refuge when the investor foresees that the market outlook is uncertain.

    • C.

      It allows the investor a chance for capital preservation

    • D.

      It enables the enables the investors and opportunity for capital appreciation.

    Correct Answer
    D. It enables the enables the investors and opportunity for capital appreciation.
    Explanation
    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.

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  • 25. 

    Which of the following statements about variable life policies are TRUE?
    1. The withdrawal value is not guaranteed.
    2. The volatility of the returns depends in the investment strategy of the fund.
    3. The variable life policy holder has direct control over the investment decisions of the variable life funds.

    • A.

      I, II and III

    • B.

      I and II

    • C.

      I and III

    • D.

      II and III

    Correct Answer
    B. I and II
    Explanation
    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.

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  • 26. 

    Single premium variable life insurance policy:

    • A.

      Must be issued with minimum death benefits.

    • B.

      Must be issued with a maximum withdrawal value.

    • C.

      Has no death benefits.

    • D.

      Has no withdrawal value.

    Correct Answer
    A. Must be issued with minimum death benefits.
    Explanation
    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.

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  • 27. 

    Which of the following statements about characteristics of variable life policies are TRUE?
    1. Variable Life Policies generally have a larger exposure to equity investment than with participating and other traditional policies.
    2. The protection costs are generally met by implicit charges, which vary with age and level cover.
    3. Commissions and company expenses are met by a variety of explicit charges, some of which are variable.

    • A.

      I, II and III

    • B.

      I and II

    • C.

      II and III

    • D.

      I and III

    Correct Answer
    D. I and III
    Explanation
    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.

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  • 28. 

    Which of the following statements about benefits in variable life funds is FALSE?

    • A.

      The fund provides a highly diversified portfolio, thus, lowering the risk of investment.

    • B.

      The fund ensures definite high yield for an investor since it is managed by professionals who are well-versed in the management of risks of investment portfolios.

    • C.

      The fund relieves investor from the hassle of administering his/her investment.

    • D.

      The fund enables small investor to participate in a pool of diversified portfolio in which he/she, with low investment capital, is likely to have acceded to.  

    Correct Answer
    B. The fund ensures definite high yield for an investor since it is managed by professionals who are well-versed in the management of risks of investment portfolios.
    Explanation
    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.

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  • 29. 

    The flexibility benefit of investing in variable life funds includes:
    1. Policy owners can easily change the level of sum assured and switch their investment between funds.
    2. Policy owners can easily take premium holidays and add single premium to top-ups.
    3. Variable life insurance products have a simple product design with a clear structure which caters separately for investment and insurance protection.
    4. Policy owners can easily change the level of their premium payment.

    • A.

      All of the above

    • B.

      I, II and III

    • C.

      I, II and IV

    • D.

      I, III and IV

    Correct Answer
    A. All of the above
    Explanation
    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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  • 30. 

    The fundamental differences between traditional participating life insurance policies and variable life insurance policies include:
    1. Variable life insurance policies are less likely to offer more choices in terms of the type of investment funds.
    2. The investment elements of variable life insurance policies are made known to the policy owner at.
    3. Variable Life insurance policies offer the potential for the higher returns.
    4. Traditional participating policies aim to produce a steady return by smoothing out market fluctuation.

    • A.

      I, III and IV

    • B.

      II, III and IV

    • C.

      I, II and III

    • D.

      I, II and IV

    Correct Answer
    B. II, III and IV
    Explanation
    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.

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  • 31. 

    The switching facility under variable life insurance policies is a very useful_________.

    • A.

      For the purpose of profit planning by the life policies

    • B.

      For the purpose of assets planning by the trustee.

    • C.

      For the purpose of sales planning by the fund managers

    • D.

      For the purpose of financial planning by the policy owner.

    Correct Answer
    D. For the purpose of financial planning by the policy owner.
    Explanation
    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.

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  • 32. 

    The following statements about surrender value under traditional participating life insurance products are TRUE?

    • A.

      Cash value is paid when a yearly renewed term insurance policy is surrendered

    • B.

      When a participating insurance policy is surrendered, the surrender value is calculated by multiplying the bid price with number of units.

    • C.

      The amount of surrender value is usually higher than the amount under non-participating policies and it varies with the age of the assured, being lower at older ages.

    • D.

      In the case of participating policies, the net cash surrender value includes the surrender value of the paid-up addition up to the date of surrender.

    Correct Answer
    D. In the case of participating policies, the net cash surrender value includes the surrender value of the paid-up addition up to the date of surrender.
    Explanation
    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.

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  • 33. 

    Which of the following statements about risk of investing in variable life funds is TRUE?

    • A.

      Policy Owners who are risk averse should buy variable life insurance policies with high equity investment.

    • B.

      Investments in variable life finds which are fully invested in units of equity bonds are not suitable for policy owners who can tolerate the risk of short-term fluctuation in their cash value.

    • C.

      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.

    • D.

      Policy owners who are risk averse should not purchase life insurance policies with high protection and guaranteed cash and maturity values.

    Correct Answer
    C. 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.
    Explanation
    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.

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  • 34. 

    1. What would be the withdrawal value after a year?
    OFFER PRICE                                         =          PS.    16.00 BID-OFFER SPREAD                               =                     4.5% NUMBER OF UNITS BOUGHT                =                  25,000 POLICY FEE                                           =                    1,800 ADMIN AND MORTALITY CHARGE        =                    8,750 TOP-UP FEE                                          =                       700 ADMIN FOR TOP-UP                             =                    2,000 Sum assured is 190% of single premium or the value of the units, whichever is higher ASSUMPTIONS:
    1. Charges and fees are deducted after single premium has been invested into the account.
    2. The growth rate of the unit price and the bid-offer spread is maintained at 8% and 4.5% respectively

    • A.

      432.000.00

    • B.

      420,069.02

    • C.

      401, 107.58

    • D.

      412,500.00

    Correct Answer
    C. 401, 107.58
    Explanation
    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.

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  • 35. 

    The production cost under a variable life insurance policy___.
    1. Are met by flat initial charges for regular premium plans.
    2. Are generally covered by cancellation of units in the fund.
    3. Are generally met by explicit charges stipulated openly on the policy terms.
    4. Vary with age of policy owner and level of cover.

    • A.

      I, II and III

    • B.

      I, II and IV

    • C.

      I, II and IV

    • D.

      II, III and IV

    Correct Answer
    D. II, III and IV
    Explanation
    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.

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  • 36. 

    Which one of the following statements about diversification in portfolio management is FALSE

    • A.

      A the portfolio diversified portfolio provides greater security to an investor having to sacrifice the return for

    • B.

      Diversification can completely eliminate the risk of investing in stocks in a portfolio.

    • C.

      Diversification can involve purchasing different types of stock and investing in stock of different countries.

    • D.

      Diversification helps to spread the portfolio risk by investing in different categories of investment in a portfolio.

    Correct Answer
    B. Diversification can completely eliminate the risk of investing in stocks in a portfolio.
  • 37. 

    What are the advantages of investing in preferred shares?
    1. It gives shareholders the right to a fixed dividend.
    2. Has the opportunity over company assets during dissolution?
    3. They enjoy benefit of capital appreciation.

    • A.

      I, II and III

    • B.

      I and II

    • C.

      I and III

    • D.

      II and III

    Correct Answer
    C. I and III
    Explanation
    I. Preferred shares typically provide shareholders with the right to a fixed dividend, offering a predictable income stream.
    III. While common shareholders usually have greater potential for capital appreciation, some preferred shares may also offer the opportunity for capital appreciation, especially if they have convertible features or participate in the company's growth.

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  • 38. 

    With traditional participating life insurance products, the allocations to policy owners in the form of dividends______.
    1. Are not linked to the life company’s investment performance
    2. Have already been smothered by the life company.
    3. Do not have the highs and lows of investment return as in good investment years of Life Company.
    4. Are not fixed at the inception of the policy, but is greatly dependent on the investment performance of the life company.

    • A.

      I, II and III

    • B.

      I, II and IV

    • C.

      I, III and IV

    • D.

      II, III and IV

    Correct Answer
    D. II, III and IV
    Explanation
    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.

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  • 39. 

    The objective of satisfying customer need profitability can be achieved by an agent through,
    1. The giving of freebies to the customers.
    2. Extensive investment training by the company.
    3. The use of sales plan, where sales goals, strategic and objective are coordinated with market analysis, segmentation and targeting.
    4. The giving of monetary assistance and discount to the customer.

    • A.

      I and III

    • B.

      II and III

    • C.

      I, II and IV

    • D.

      II, III and IV

    Correct Answer
    B. II and III
    Explanation
    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.

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  • 40. 

    Which of the following statements is true about CASH?

    • A.

      It has high yield potential.

    • B.

      Amount invested in cash depends on the size of the cash flow requirements.

    • C.

      Investment in cash increase when there is a bull run in the stock market.

    • D.

      Investment in cash decreases when interest rates rise.  

    Correct Answer
    B. Amount invested in cash depends on the size of the cash flow requirements.
    Explanation
    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.

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  • 41. 

    Under a regular premium variable whole life insurance plan________.
    1. Premium top-ups and holidays, subject to the life company’s administrative rules are usually allowed.
    2. Life protection is the main objective of the plan with investment as a nominal purpose.
    3. Withdrawals after payment of a few years’ premium are usually allowed.
    4. A single premium contribution is made to the policy which uses the premium to purchase units in variable life fund and to provide certain level of life cover.

    • A.

      II, III and IV

    • B.

      I, III and IV

    • C.

      I, II and IV

    • D.

      I, II and III

    Correct Answer
    D. I, II and III
    Explanation
    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.

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  • 42. 

    Which of the following statements about investment objectives is FALSE?

    • A.

      People invest money in fixed deposits to produce high-end guaranteed returns.

    • B.

      People invest money to enhance a comfortable standard living.

    • C.

      People invest money to provide funds for higher education for their children.

    • D.

      Investment in commodities has no regular income.

    Correct Answer
    A. People invest money in fixed deposits to produce high-end guaranteed returns.
    Explanation
    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.

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  • 43. 

    Which of the following is/are the main characteristic/s of variable life policies?
    1. The policies can be used for investment, as a source of regular savings and protection.
    2. The withdrawal values and protection benefits are determined by the investment performance of the underlying assets.
    3. The net cash values of the policies are the gross cash values shown in the policy that includes dividends up to the date of surrender, less any indebtedness including interest.

    • A.

      II

    • B.

      I

    • C.

      I, ii and III

    • D.

      I and II

    Correct Answer
    D. I and II
    Explanation
    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.

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  • 44. 

    Risk can be classified into two particulars categories in relation to investment. Thy include_________:
    1. The risk of not losing some or all the person’s initial investment.
    2. The risk of rate of return on the investment not matching up to the individual’s expectation.
    3. The risk of rate of return on the investment matching up to the individual’s expectation.
    4. The risk of losing some or all of the person’s initial investment.

    • A.

      I and III

    • B.

      I and II

    • C.

      III and IV

    • D.

      II and IV

    Correct Answer
    D. II and IV
    Explanation
    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).

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  • 45. 

    The duties of the trustee of unit trust do not include:

    • A.

      Managing the portfolio of investment and administering the buying and selling of shares in the unit of trust itself.

    • B.

      Ensuring that he fund manager adhere to the provision of the trust deeds.

    • C.

      Acting generally to protect the unit-holders.

    • D.

      Holding the pool of money and assets in trust in behalf of the investors.

    Correct Answer
    A. Managing the portfolio of investment and administering the buying and selling of shares in the unit of trust itself.
    Explanation
    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.

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  • 46. 

    Policy fee payable by variable life insurance policy owner Is to cover_____:

    • A.

      The handling charges by professional investment managers.

    • B.

      The price for each unit bought under the variable life insurance policy.

    • C.

      The mortality costs of the variable life insurance policy.

    • D.

      The administrative expenses of setting up the variable life insurance policy.

    Correct Answer
    D. The administrative expenses of setting up the variable life insurance policy.
    Explanation
    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.

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  • 47. 

    The selling price under a variable life insurance policy is:

    • A.

      The price at which units the policy is bought back by the company.

    • B.

      The price at which the units under the policy are offered for sales for the life company.

    • C.

      Also known as the bid price.

    • D.

      A fixed amount throughout.

    Correct Answer
    B. The price at which the units under the policy are offered for sales for the life company.
    Explanation
    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.

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  • 48. 

    In risk-return profile of cash funds, bonds funds, balanced funds, managed funds and equity funds, a risk-return graph will show that_________.
    1. Higher return normally comes with lower risk.
    2. Higher return normally comes with higher risk.
    3. At the top end of the graph are the equity funds.
    4. The relatively risk-less cash funds at the bottom end of the graph.

    • A.

      I, II and III

    • B.

      II, III and IV

    • C.

      I, II and IV

    • D.

      I, III and IV

    Correct Answer
    B. II, III and IV
    Explanation
    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.

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  • 49. 

    Diversification in investment involves______

    • A.

      Putting all the funds under management into one category of investment.

    • B.

      Spreading the risk of investment by not putting the fund in several categories’ investment.

    • C.

      Reducing the risk of investment by putting one fund under management into several categories of investment.

    • D.

      Reducing the risk of investment by putting all one’s egg in one basket.

    Correct Answer
    C. Reducing the risk of investment by putting one fund under management into several categories of investment.
    Explanation
    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.

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  • 50. 

    Variable life funds can be invested in any financial instruments including cash funds, bonds funds, balanced funds, managed funds, equity funds, property funds, specialized funds and diversified funds.

    • A.

      Invest in shares of stock and magnitude of the change in unit prices will only depend on the quantity of the equities hold

    • B.

      Invest in shares of stocks and during market recession, such assets are usually the last to depreciate.

    • C.

      Invest in shares of stocks which are inherently of lower risk in nature and the prices of stocks are stable.

    • D.

      Invest in shares of stock and investors who buy such assets usually aims for capital appreciation.

    Correct Answer
    D. Invest in shares of stock and investors who buy such assets usually aims for capital appreciation.
    Explanation
    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.

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