IC 26 - LIFE INSURANCE

FINANCE EXAM
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

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 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

PRACTICE TEST 1

Question 1 Usually for the budget period, the time chosen is -

1) A period of 5 years

2) The accounting period of the company

3) Minimum 30 days

4) 6 months

5) 3 months

Question 2 What does the individual replacement cost of cost based models for human

resource accounting refers to ?

1) It refers to the cost that would have to be incurred to replace an individual by

substitute who can provide the different set of services as that of the individual

being replaced

2) It refers to the cost that would have to be incurred to replace a group who can

provide the same set of services as that of the individual being replaced

3) It refers to the cost that would have to be incurred to replace a group by substitute

who can provide different set of services as that of the individual being replaced

4) It refers to the cost that would have to be incurred to replace an individual by

substitute who can provide the same set of services as that of the individual being

replaced

5) It refers to the cost that would have to be incurred to replace a group by substitute

who can provide the same set of services as that of the individual being replaced
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Correct Answer 1 The accounting period of the company

Usually the time chosen for the budget period is the accounting period of
Answer the organization which usually is drawn for a year.
Explanation

Correct Answer 2 It refers to the cost that would have to be incurred to replace an individual
by substitute who can provide the same set of services as that of the
individual being replaced
Answer
The individual replacement cost of cost based models for human resource
Explanation
accounting refers to the cost that would have to be incurred to replace an
individual by substitute who can provide the same set of services as that of
the individual being replaced.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 3 As per IRDA, an insurance company shall clearly segregate the functions and
operations of : 1. Front office 2. Mid office 3. Back office

1) 1 and 2

2) 2 and 3

3) 1 and 3

4) 1, 2 and 3

5) There is no need of segregation

Question 4 Which is the most appropriate definition of tax ?

1) A levy charged by the Government on a product, income or activity

2) A levy charged by the Government only on products and activities

3) A levy charged by the Government only on income

4) A levy charged by the Government only on a product and income

5) A levy charged by the Government only on an activity

Correct Answer 3 1, 2 and 3

Answer As per IRDA mandate, the insurer shall clearly segregate the functions and
Explanation operations of front, mid and back office. This is to ensure proper internal
control of investment functions and operations.

Correct Answer 4 A levy charged by the Government on a product, income or activity

Answer There are two types of tax i.e. Direct Tax & Indirect Tax. However the most
Explanation appropriate definition of tax being levy charged by the Government on a
product, income or activity.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 5 What is the statement called when the 'total figure’ in a statement is equal to
100% of each factor of percentage ?

1) Tallied statement

2) Complete sized statement

3) Horizontal statement

4) Common size statement

5) Zero sized statement

Question 6 With respect to accounting process, which of the below options will be
associated with ‘analyzing transactions’ ?

1) Preparing trial balance

2) Collecting data source

3) Preparing balance sheet

4) Preparing primary books of account

5) Posting to ledger accounts

Correct Answer 5 Common size statement

Answer When ‘total figure’ in a statement is equal to 100% of each factor of

Explanation percentage, such statement is called a Common Size Statement. Under this
statement, percentages are used in order to show the connection between
different parts to the total in a single statement.

Correct Posting to ledger accounts

Answer 6

Answer
Explanation Accounting is the process of recording & reporting of financial transactions. Under accounting
process, posting to ledger accounts would be associated with ‘analyzing transactions’.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 7 _______ are objectives of budgetary control. 1. Forecasting the capital

expenditure of the company 2. Planning and control of income and expenditure
of a company 3. Planning and control the expenses related to research &
development

1) Only 1

2) Only 2

3) Both 1 and 2

4) Both 1 and 3

5) All 1, 2 and 3

Question 8 The due date for filing quarterly statements of TDS through Form 24Q for the
quarter ending 30th September is _______ .

1) 31st March

2) 31st December

3) 15th April

4) 15th January

5) 15th October

Correct Answer 7 All 1, 2 and 3

Correct Answer 8 15th October

 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 9 How will this transaction affect the accounting equation - Mr. A borrowed a sum
of Rs 25000 from Mr. B for business purpose ?

1) Increase in asset and decrease in capital

2) Decrease in asset and decrease in liability

3) Decrease in asset and decrease in liability

4) Increase in asset and increase in liability

5) Increase in asset and decrease in liability

Question 10 Which of the following is a Real Account ?

1) State Bank of India
2) LLyod Insurers
3) Capital
4) Cash
5) Drawings

Correct Answer 9 Increase in asset and increase in liability

Answer Increase in Asset and increase in Liability because the borrowed sum
Explanation increases the assets of the business and at the same time it increases the
liability to the extent of borrowings.

Correct Answer 10 Cash

Answer There are three types of accounts i.e. Personal, Real and Nominal accounts.
Explanation Under real account, cash, bank balance and furniture & fixtures are
considered. Hence none of the above except cash is a real account.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 11 Which of the below options show the assets arranged in correct descending
order of liquidity ?

1) Machinery, Goodwill, Cash in hand, Sundry debtors

2) Cash in hand, Sundry debtors, Machinery, Goodwill

3) Cash in hand, Sundry debtors, Goodwill, Machinery

4) Goodwill, Cash in hand, Sundry debtors, Machinery

5) Sundry debtors, Cash in hand, Machinery, Goodwill

Question 12 ______ is NOT a feature of Salary Saving Scheme (SSS) premium.

1. The instances of policy lapses are low as premiums are paid by the employer
2. This scheme covers a large number of individuals as a group 3. In this scheme,
the employee reminds the employer for deducting premium from his salary
every month, after which the employer can charge his salary

1) Only 1

2) Only 2

3) Only 3

4) Both 1 and 2

5) All 1, 2 and 3

Correct Answer 11 Cash in hand, Sundry debtors, Machinery, Goodwill

Answer Explanation Assets can be presented in the balance sheet in the order of
liquidity & in the order of permanence. The descending order of
liquidity would be: Cash in hand, Sundry Debtors, Furniture and
Goodwill. The liquidity refers to the degree of ease with which
they can be converted in to cash.

Correct Answer 12 Only 3

Answer Explanation Under Salary Saving Scheme (SSS), as the premiums are paid by
employer, chances of policy lapses are low & it covers a large
number of individual as a group. It is incorrect that employee has
to remind the employer for deducting premium from his salary
every month, after which the employer can charge his salary. It
covers a large number of individual as a group.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 13 With respect to 'Actuarial Valuation Liability' for life policies - which of the
following statement(s) is/are correct ?

1. The Actuarial valuation is to be done every quarter

2. The estimation of liability against life policies shall be determined by

Appointed Actuary ie. Chief Actuary of the insurer

3. The premium received by an insurer is to be considered as its income

1) Only 1

2) Only 2

3) Only 3

4) Both 1 and 2

5) Both 2 and 3

Question 14 Following are the important figures for Minta Ltd for the year ended 31 Dec
2017: Opening inventory - Rs 3,00,000 Purchases - Rs 10,00,000 Closing
inventory - Rs 1,00,000 The gross margin is 40%. Calculate the sales revenue for
the year.

1) Rs 2400000

2) Rs 1800000

3) Rs 2000000

4) Rs 2800000

5) Rs 3200000
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Correct Answer 13 Only 2

Answer Explanation Part I of the accounting principle for preparation of financial statements
regarding actuarial valuation liability for life policies requires that ‘The
estimation of liability against life policies shall be determined by
Appointed Actuary (Chief Actuary) of the insurer. Actuarial valuation is to
be done every year. The premium received is liabilities against policies.

Correct Answer 14 Rs 2000000

Answer Explanation Cost of goods sold = Opening inventory + Purchases - Closing inventory
= 300000 + 1000000 - 100000 = 1200000
The gross margin is 40% of sales.
So : Sales Less 40% of sales = 1200000 (Cost of goods sold)
Let Sales be X
So (X - 0.4 X) = 1200000
0.6* X = 1200000 (* 1-.04 = 0.6)
X = 1200000 / 0.6 = 20,00,000

(Reverse check : 40% of 20,00,000 = 8,00,000 ie the profit

Sales - Profit = Cost of goods sold
20,00,000 - 8,00,000 = 12,00,000 which tallies)
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 15 As per which accounting principle is the depreciation expense charged each year
to the profit and loss account ?

1) Going concern

2) Matching

3) Relevance

4) Completeness

5) Consistenc

Question 16 What will the nominee/legal heir get in case of death of the policy holder of a
unit linked policy when the cover is in full force ?

1) The nominee / legal heir will get the fund value of the unit held in policy holders
unit account as at the date of issuing the liability

2) The nominee / legal heir will get the fund value of the unit held in policy holders
unit account as at the date of booking the liability

3) The nominee / legal heir will get the sum assured under the policy

4) The nominee / legal heir will get the higher of sum assured or the fund value of
the unit held in policy holders unit account as at the date of booking the liability

5) The nominee / legal heir will get the lower of sum assured or fund value of the
unit held in policy holders unit account as at the date of booking the liability

Correct Answer 15 Matching

Answer Explanation The matching principle requires that the expenses be recognised
in the year in which revenue is recognised. If the revenue from an
asset is going to be earned over a number of years then its cost
should also be allocated over the same number of years.

Correct Answer 16 The nominee / legal heir will get the higher of sum assured or the
fund value of the unit held in policy holders unit account as at the
date of booking the liability

Answer Explanation Under a unit linked policy, in case of death of the policy holder
when the cover is in full force, the nominee/legal heir shall be
eligible to get higher of sum assured or the fund value of the unit
held in policy holder’s unit account as at the date of booking the
liability.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 17 Which of these errors cannot be highlighted while preparing a Trial Balance ?

1) Posting

2) Casting

3) Commission

4) Wrong carry over to trail balance

5) Transposition

Question 18 Which department helps to determine how much labour is needed to produce
one unit of output ?

1) HR department

2) Production department

3) Sales department

4) Time and motion study department

5) Marketing department

Correct Answer 17 Commission

Answer Except ‘Commission’, all the above stated errors can be highlighted by
Explanation preparing a trial balance.
An error of Commission occurs when an incorrect value is recorded during
posting. For example, if purchase of goods for Rs. 10,000 is entered as
Rs.1000 in the journal or in the ledger, such error is called errors of
commission.

Correct Answer 18 Time and motion study department

Answer The time and motion study department helps to determine how much
Explanation labour is needed to produce one unit of output. It’s a part of work expense
and labour budget & contains various other expenses apart from labour
like: Fixed, Variable & Semi-variable expenses.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 19 Everest Finance Ltd. had insured the business of Mr. Peter and got 50% of his
risk insured from ABC Ltd. In this case, ABC Ltd. is _______ .

1) Underwriter

2) Policy holder

3) Reinsurer

4) Direct Insurance Company

5) Insured

Question 20 _______ is an agreement between two or more parties to exchange sets of cash
flows over a period in the future.

1) Arbitrage

2) Hedging

3) SWAPS

4) Future contract

5) Forward contract

Correct Answer 19 Reinsurer

Answer Explanation Everest Finance Ltd. in the example is a direct insurance

company having insured the business of Mr. Peter.
As Everest Finance Ltd. has got 50% of his risk insured from
ABC Ltd., ABC Ltd. would be the reinsurers as reinsurance is
insurance of the insurers or transfer of risk from one
insurance company to another is called reinsurance.

Correct Answer 20 Forward contract

Answer Explanation Agreement between two or more parties to exchange sets of

cash flows over a period in the future is known as forward
contract. The contract specifies the price & the quantity of
an asset to be delivered in future.
(Future contracts are executed on an recognised exchange
and the buyer and sellers are not known to each other)
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 21 With respect to sound budgetory system which of the following is a must
requirement -

1) The objectives should be qualitative in description

2) A budget, once its finalised should not be changed

3) The period of the budget should not be quantifiable

4) The objectives to be achieved must be determined and should be in respect of

growth and profitability

5) Only the executive class should be consulted while making budget

Question 22 The most apt way to define Asset Liability Management for an organization means to
have sufficient ________ against its ______ .

1) Long term assets, Short term liabilities

2) Short term assets, long term liabilities

3) Long term liabilities, long term assets

4) Short term liabilities, Long term assets

5) Long term assets, Long term liabilities

Correct Answer 21 The objectives to be achieved must be determined and

should be in respect of growth and profitability
Answer Explanation
Budgetary control system is a means of monitoring revenue & cost to
exercise control in an entity. It does it by developing budgets &
comparing figures. Certain important requirement includes: Objectives
to be achieved must be determined and should be in respect of growth
and profitability.

Correct Answer 22 Long term assets, Long term liabilities

Answer Explanation
Asset liability management (ALM) for an organization means to have
sufficient Long term assets, Long term liabilities. ALM is one of the
most important techniques of life insurers. Their contracts are long
term in nature i.e. they have long term liabilities. They must have
therefore long term assets to pay out its liabilities.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 23 Determine which of the following are the type of benefits received under a Whole
Life Insurance plan -

1) Under a Whole Life Insurance plan, the insurance company makes specified lump
sum payments at specified time intervals during the plan to the life assured

2) Under a Whole Life Insurance plan, the insurance company pays a lump sum amount
on the death of the life assured or on maturity whichever is later during the policy
period

3) Under a Whole Life Insurance plan, the insurance company pays the life assured the
promised sum assured and the accumulated bonuses on the death of the assured

4) Under a Whole Life Insurance plan, the insurance companies return back the
premiums to the life assured at the end of the tenure of the plan along with the
interest

5) Under a Whole Life Insurance plan, the insurance companies pay the life assured the
fund value on the maturity of the plan and the sum assured

Question 24 Given the case of an insurance company, if the company does not disclose any
matters which are not required to be disclosed by the Insurance Act 1938, still
the financial statements of the company shall be treated as not disclosing a true
and fair view of the state of affairs of the company. Share your opinion –
select the most appropriate option.
1) The statement is completely correct

2) The statement is partially wrong

3) The statement is completely wrong

4) If an insurance company does not disclose any matters which are not required to
be disclosed by the Insurance Act 1938, the company shall be imposed with
penalty

5) As per section 129 of the Companies Act 2013, if an insurance company does not
disclose any matters which are not required to be disclosed by the Insurance Act
1938, the financial statements of the company shall not be treated as not
disclosing a true and fair view of the state of affairs
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Correct Answer 23 Under a Whole Life Insurance plan, the insurance company pays a lump sum
amount on the death of the life assured or on maturity whichever is later
during the policy period

Whole life insurance policy which is guaranteed to remain in force for the
Answer
insured's entire lifetime, provided required premiums are paid, or to the
Explanation
maturity date. The insured party normally pays premiums either until
death, till the age of 80 yrs. or 35 annual premiums.

Correct Answer 24 As per section 129 of the Companies Act 2013, if an insurance
company does not disclose any matters which are not required
to be disclosed by the Insurance Act 1938, the financial
statements of the company shall not be treated as not disclosing
a true and fair view of the state of affairs

In case of an insurance company, if the company does not

Answer Explanation
disclose any matters which are not required to be disclosed by
the Insurance Act, 1938, still the financial statements of the
company shall be treated as not disclosing a true and fair view of
the state of affairs of the company, the financial statements shall
not be treated as not disclosing a true and fair view of the state
of affairs of the company.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 25 From the options below, the most commonly used financial ratio in the life insurance
industry is - -

1) Interest cover

2) Quick ratio

3) Distribution yield

4) Fixed to worth

5) Cost of postage, telegram and M O commission per in-force policy

Question 26 Which is true with respect to Term life insurance policies - 1. Provides death
benefit equal to the face amount of the policy if the insured dies during the
policy period 2. Provides death protection and varies with interest rates 3.
Provides death protection and savings accumulation

1) Only 1

2) Only 2

3) Only 3

4) Both 1 and 2

5) Both 2 and 3

Correct Answer 25 Cost of postage, telegram and M O commission per in-force policy

Answer Explanation - The financial ratio that is used more often in the life insurance industry is cost of
postage, telegram and M O commission per in-force policy.

Correct Answer 26 Only 1

Answer Explanation - Term life insurance polices do not have any saving element nor they vary with interest
rates. They provide a lumpsum amount (policy amount) only in case of death during the policy period.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 27 Which if the given formulae computes Net Value Added (NVA) ? (Where S= Sales
Revenue, B = Bought in cost of materials, Dep = Annual Depreciation charges )

1) NVA = S + B + Dep

2) NVA = S - B + Dep

3) NVA = S - B - Dep

4) NVA = S + B

5) NVA = S + B - Dep

Question 28 Which books are used for reconciliation, classification and posting to control
accounts?

1) Reconciled Cash and Bank Book

2) IBNR book

3) Deposit adjustment book

4) Claims books

5) Daily entry journal

Correct Answer 27 NVA = S - B - Dep

Answer Explanation Net Value Added is defined as Gross Value Added less
Deprecation.

Correct Answer 28 Deposit adjustment book

Answer Explanation Insurers have to maintain two types of books i.e. Statutory Books
& Subsidiary Books. Under subsidiary book, for reconciliation,
classification and posting to control accounts, Deposit Adjustment
book is used by the insurers.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 29 In ULIPs, where does a growth fund invests majority of its fund in ?

1) Gilt Securities

2) Derivatives

3) Equities

4) Tax saving funds

5) Mutual Funds

Question 30 With respect to annuity plans how much is the maximum lump sum amount that
can be withdrawn before the start of regular annuity payments ?

1) 100% of the accumulated fund

2) 1/2 of the accumulated fund
3) 1/4th of the accumulated fund
4) 1/3rd of the accumulated fund
5) 2/3rd of the accumulated fund

Correct Answer 29 Equities

Correct Answer 30 1/3rd of the accumulated fund

Answer Explanation It is under unit linked pension plan that at the time of maturity, NAV of the
outstanding units are converted in to crops for the purchase of annuity for
payment can be made out of corps. However, 1/3rd of the accumulated fund
can be withdrawn before the start of regular annuity payments.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 31 The amount which is payable at fixed periodic intervals is called ______ .

1) Premature redemptions

2) Survival benefits

3) Annuity payments

4) Maturity claims

5) Surrender value payments

Question 32 If a person buys a Single Premium whole life policy, it means he/she ________ .

1) makes a premium payment for a limited number of years and then receives a
pension in post that for whole life

2) makes the same premium payment each year

3) pays the entire premium in lump sum when the policy is issued and is covered for
his whole life

4) makes a premium payment for a limited number of years and is then covered for
his whole life

5) makes a premium payment each year for whole life and is then covered for his
whole life

Correct Answer 31 Survival benefits

Answer Explanation Claims are policy benefits which are payable as per terms of the policy contract. There
are various mode of payment under life insurance policies & the survival benefit is
payable at fixed periodic intervals under Anticipated Endowment Assurance & Money
Back Policies.

Correct Answer 32 pays the entire premium in lump sum when the policy is issued and is covered for his whole life

Answer Explanation - Whole life insurance plan with limited premium, include single premium insurance.

Under this option, the person pays the entire premium in lump sum when the policy is issued and is covered for

his whole life.

 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 33 The Government charges a levy on a product, income or activity and this is known as
________ .

1) GST

2) VAT

3) Cess

4) Tax

5) Commission

Question 34 State your opinion : The AS15 Employee Benefits does not apply to those retirement
benefits for which the employer’s obligations cannot be reasonably estimated.

1) Yes, agree

2) No, Disagree

3) It depends on the company's MOU and AOA

4) It depends on the type of retirement benefit obligation

5) It depends on the materiality of the obligation

Correct Answer 33 Tax

Answer Explanation Tax has been defined as a levy charged by the Government on a
product, income or activity.

Correct Answer 34 It depends on the type of retirement benefit obligation

Answer Explanation AS 15 Employee Benefits does not apply to those retirement

benefits for which the employer’s obligations cannot be
reasonably estimated would depend upon the type of
retirement benefit obligation.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 35 In terms of valuation of investments of a life insurance company, _______ would be

measured at fair value ?

1) Derivatives

2) Redeemable preference shares

3) Listed equity shares

4) Only 3

5) Both 1 and 3

Question 36 At _______ stage in money laundering the money is received from illegal sources,
usually in cash and is introduced into the financial system.

1) Placement

2) Conversion

3) Layering

4) Both Layering and Conversion

5) Integration
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Correct Answer 35 Both 1 and 3

As per Part I of IRDAI (preparation of

Answer Explanation financial statements), valuation of
investments of a life insurance company
in respect to Listed equity shares and
Derivatives, would be measured at fair
value.

Correct Answer 36 Placement

Answer Explanation Money laundering process can be

broadly divided into three stages &
under the placement stage, the money
received from illegal sources, usually in
cash is introduced into the financial
system through purchase of art,
jewellery or a series of monitoring
instruments like cheques, DD’s etc.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 37 On what is the Production Budget dependent on –

1. Cash budget 2. Purchase budget 3. Sale budget

1) Only 1

2) Only 2

3) Only 3

4) Both 1 and 2

5) Both 2 and 3

Question 38 What of activity is - Cash payments made to and behalf of employees ?

1) Its a social activity

2) Its a financing activity

3) Its an investing activity

4) Its an operating activity

5) Its an ordinary activity

Correct Answer 37 Both 2 and 3

Answer Explanation The Production budget is prepared only after the sales budget. It
specifies the quantity needed for the production. The exercise is
done keeping the required units during the budget period. The
most important aspect of this budget is the inventories. There
should not be any excess or shortfall in the inventories.

Correct Answer 38 Its a financing activity

Answer Explanation Cash payment to the employees is a financing activity which is

usually a short term financing with a return option of with or
without interest.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 39 Mr. Singh aged 40, wishes to have an insurance that acts as a savings scheme as
well as gives financial protection to his family against his premature death.
Which plan will you recommend ?

1) Jeevan Anand

2) Endowment policy

3) Whole life policy

4) Term insurance policy

5) Money back policy

Question 40 Which is the best way for a company to meet the foreign exchange requirement for
capital expenditure and revenue expenditure ?

1) Issue of Non Convertible Debentures

2) Private placement

3) IPO

4) G Sec

5) External commercial borrowing

Correct Answer 39 Endowment policy

Answer Explanation Endowment policy gives an insurance cover that serves as a

savings scheme as well as gives financial protection. This would
be the most ideal insurance that serves as a savings scheme as
well as gives financial protection to his family against his
premature death.
This plan is ideal for a person with family.

Correct Answer 40 External commercial borrowing

Answer Explanation To run a business, every enterprise requires money. To augment

Foreign Exchange Reserve and to meet foreign exchange
requirement for capital expenditure and revenue expenditure,
External commercial borrowing is permitted. These are generally
dated for 3 to 5 years. Such deals are called swap deals.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 41 Which is the financial ratio that is used more often in the life insurance
industry?

1) Fixed to worth

2) Quick ratio

3) Percentage of renewal commission (individual) to Renewal Premium (individual)

4) Distribution yield

5) Interest cover

Question 42 Which model of human resource accounting capitalizes only training and
development costs which have been incurred and ignores the future expected cost
to be incurred for their maintenance .

1) Flamholtz Model

2) Lev and Schwartz Model

3) Hekimian and Jones model

4) Replacement Cost Model

5) Capitalization and historical cost Model

Correct Answer 41 Percentage of renewal commission (individual) to Renewal Premium (individual)

Answer Explanation Ratios plays an important role in life insurance to help assessing performance, whether
wrong accounting is done & knowing the areas to probe further. Percentage of renewal
commission (individual) to Renewal Premium (individual) should be around 5% & higher
percentage indicates excess provision made in the current year than the previous year.

Correct Answer 42 Capitalization and historical cost Model

Answer Explanation Capitalization and historical cost model of human resource accounting capitalizes only
training and development costs incurred and ignores the future expected cost to be
incurred for their maintenance. Generally this is not a favorable model with the industry
since it distorts the value of highly skilled human resources.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 43 Which Option would you generally use if you want to buy an asset ?

1) Arbitrage

2) Short

3) Call

4) Put

5) Hedge

Question 44 The two prime functions of Banks include _______ .

1) Opening branches , giving Loans

2) Investment, speculation

3) Deposit collection, investments

4) Giving loans, investment

5) Collecting deposit, giving loans

Correct Answer 43 Call

Answer Explanation A call option is an agreement that gives an investor the right, but not the obligation,
to buy a stock, bond, commodity or other instrument at a specified price within a
specified time period.

Correct Answer 44 Collecting deposit, giving loans

Answer Explanation Banks primarily collect deposits through various accounts and deposits & give loans
to individuals & corporates for varied purposes. In addition, banks also sell third
party products like insurance & mutual funds.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 45 The key feature(s) of moneyback policy include - 1. Only death benefits, no cash
benefits 2. There is no loan which can be granted in this policy 3. Loan can be taken
against this policy

1) Only 1

2) Only 2

3) Only 3

4) Both 1 and 2

5) Both 2 and 3

Question 46 What is the document called which describes the terms of the contract of the
insurance ?

1) Memorandum of Understanding

2) Insurance

3) Policy

4) Insurable interest

5) Premium

Correct Answer 45 Only 2

Answer Explanation The features of the money back policies are that no loan is
granted under the plan as the sum insured is paid in suitable
installments. The lump sum benefits are paid at periodic
installments.

Correct Answer 46 Policy

Answer Explanation The document which lays down the terms of the contract of the
insurance is called the policy. It is issued on the basis of proposal
form, premium paid by the proposer which is accepted by the
insurer & has been accepted by the proposer.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 47 The primary aim of Accounting is to - 1. Prepare the P/L account and the Balance
Sheet 2. Prepare Ledger accounts for all transactions 3. Provide financial
information to users of such information

1) Only 1

2) Only 2

3) Only 3

4) Both 1 and 2

5) Both 1 and 3

Question 48 Which of these options is a direct expense of Unit Linked plans ?

1) Expenses on training of staff and agents

2) Policy expenses

3) Stamps used on Receipts

4) Fees paid to auditors

5) Repairs and maintenance

Correct Answer 47 Only 3

Answer Explanation The main aim of accounting is to provide financial

information to users of such information. Other options
i.e. To maintain ledger accounts for every transaction
and to prepare Balance Sheet etc. are the processes of
accounting.

Correct Answer 48 Policy expenses

Answer Explanation Expenses of management under ULIP are divided under

two heads i.e. Direct expenses & Indirect expenses.
There are various direct expenses which are paid
incurred on unit linked insurance. Policy expenses are
direct expenses which includes policy stamps on policy
bond.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Question 49 The following budget has been estimated by Company ABC Ltd for an activity
level of 20,000 units - Material Rs 2000 Direct Labour Rs 8500 Fixed expenses
Rs 11000 Given the above facts what would be the total cost for a level of
activity of 30000 units ?

1) Rs. 32250

2) Rs. 26750

3) Rs. 23440

4) Rs. 41980

5) Rs. 37410

Question 50 Among those listed the below, which is a direct expense of unit linked plan ?

1) Management fees

2) Incentive payment to other marketing officials

3) Training expenses

4) Receipt stamps

5) Repairs and maintenance

 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Correct Answer 49 Rs. 26750

Answer Explanation Variable cost = Material + Labour = 2000 + 8500 = 10500

hence 1 unit variable cost is 10500 / 20000 = .525
Variable Cost of 30000 units would be 30000 X .525 = 15750
Adding fixed expenses 11000 would be the total cost. 15750 +
11000 = 26750 Answer Rs. 26750 would be the total cost for a
level of activity of 30000 units.

Correct Answer 50 Incentive payment to other marketing officials

Answer Explanation Expenses of management under ULIP are divided under two
heads i.e. Direct expenses & Indirect expenses. There are
various direct expenses which are paid incurred on unit linked
insurance. One of the direct expenses includes incentive
payment to other marketing officials who help in
procurement of business.
 IC 26- LIFE INSURANCE FINANCE
PRACTICE TEST - 1

Practice Question Banks also available for :

INSURANCE EXAMS

IC 01 – Principles of Insurance
IC 02 – Practice of Life Insurance
IC 11 – Practice of General Insurance
IC 14 – Regulation of Insurance Business
IC 26 – Life Insurance Finance
IC 27 – Health Insurance
IC 45 – General Insurance Underwriting
IC 46 – General Insurance Accounts

NISM

NISM Series I: Currency Derivatives Certification Exam

NISM Series V A: Mutual Fund Distributors Certification Exam
NISM Series VI: Depository Operations Certification Exam
NISM Series VII: Securities Operations and Risk Management
NISM Series VII: Equity Derivatives Certification Exam
NISM Series III A: Securities Intermediaries Compliance Certification Exam
NISM Series X A : Investment Adviser (Level 1) Certification Exam
NISM Series X B: Investment Adviser (Level 2) Certification Exam
NISM Series X V: Research Analyst Certification Exam
NISM II A – Registrar to an Issue & Share Transfer Agent
NISM IV – Interest Rate Derivatives Certification Exam

NCFM

NCFM Financial Markets: A Beginners Module

NCFM Capital Market (Dealers) Module
NSE FIMMDA : Debt Market (Basic) Module
NCFM Derivative Market (Dealers) Module

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