BST 1 - Variable Life Insurance v1.0

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FDAS-TRG-MNL-BST2SP-2017-12
TABLE OF CONTENTS
Module 1: Basics of Investment 3
Module 2: Key Considerations in Investment 13
Module 3: Variable Life Insurance vs Traditional Life 15
Module 4: How Variable Life Insurance Works 19
Module 5: Benefits of Investing in Variable Life Insurance 31
Module 6: Types of Variable Life Insurance Policies 32
Module 7: Types of Variable Funds 34
Module 8: General Provisions 37
Module 9: Code of Ethics 40
FDAS-TRG-BST2SP-2017-12 2
PROGRAM OBJECTIVES
By the end of this course, participants will be able to:
 Define fundamental concepts in Variable Life insurance

 Discuss the interrelatedness of different concepts
 Pass the Variable Life insurance licensure exam
MODULE 1: BASICS OF INVESTMENT
INVESTMENT
 The process of allocating one’s money in the expectation of some benefit,

profit, or additional income in the future
 An asset acquired to realize income and earn profit
 They are expected to increase one’s equity or reduce future financial worries
 Protect one’s financial resources from inflation
HOW INVESTMENTS EARN
TYPES OF INVESTMENTS
Deposit/ Cash Securities Properties/Real Estate
Types of Deposit Accounts I. Classification I. Types of Real Estate

1. Savings A. Based on Maturity Properties
2. Current/Checking 1. Money Market 1. Domestic/residential
3. Time Deposit 2. Capital Market 2. Commercial/industrial
4. Offshore Account B. Based on Seller 3. Agricultural
5. Investment Managed 1. Primary II. Forms of Real Estate
Account 2. Secondary Investments
6. Foreign Currency II. Types of Securities 1. Direct Investment
Deposit Unit 1. Credit/Fixed Income 2. Real Estate
2. Stocks/Equities Investment Trust
3. UITF 3. Special Vehicle Trust
4. Mutual Funds
5. Derivatives
DEPOSIT/ CASH
 A store of cash
 Transfer of funds to another party
 Money placed in banks for safekeeping
 The safest type of investment
TYPES OF DEPOSIT ACCOUNTS
1. Savings – an interest-bearing account with certain limitations
2. Current – a "general-use“ account; basic checking account; unlimited

transactions allowed - checks, ATM/Debit cards, OTC
3. Time Deposit – minimum deposit with holding period
4. Offshore Account – foreign currency account outside the country
5. Investment Managed Account – high investment requirements; handled by

fund managers
6. Foreign Currency Deposit Unit – local banks offering foreign currency deposits
SECURITIES
 Financial instrument that holds monetary value

 Represents ownership, indebtedness, or rights to an ownership
 Common types are debt and equity security
I. CLASSIFICATION OF MARKET SECURITIES
A. Based on Maturity
1. Money Market
It is used for borrowing and lending in the short term with maturities of one (1)
year or less. This fixed income security is used as a parking facility because it is
very liquid and considered low risk. However, since it is extremely conservative, it
offers significantly lower returns than most securities.
It is commonly used by government and corporations.
2. Capital Market
It is used by the government and corporations for borrowing and lending for
medium to long term purposes with maturities of 3-5 years or longer.
B. Based on Seller
1. Primary
 Primary issuing entity
 Initial Public Offering (IPO)
 Large institutional investors take part in IPO
2. Secondary
 Re-issuing entity
 Where securities are traded after all stocks and bonds are sold in the
primary market
 Small investors have a greater chance of purchasing
II. TYPES OF SECURITIES
Credit/Fixed
Stocks/Equities UITF Mutual funds Derivatives
Income
1. CREDIT/ FIXED INCOME
It offers a fixed periodic return and it has a security or certificate showing that the
investor lent money to the issuer in return for fixed interest income and repayment
of principal at maturity. It may be used for short or long term and it is considered a
safe type of investment. It is the most suitable investment vehicle for an investor who
is interested in protecting his principal and receiving a steady stream of income.
Types of Credit/ Fixed Income

Commercial Papers Bonds Government Bonds
Commercial Papers
A short term debt security issued by a corporation or investment houses to obtain funds
to meet short-term debt obligations in 1 to 6 months and is backed only by an issuing
bank/company promise to pay the amount on the maturity date.
Promissory notes issued by big firms (blue chip companies) of unquestionable credit
standing and reputation
Bonds
These are debt instruments in which an investor loans money to an entity (either
government or corporation) which borrows the funds for a defined period of time at a
certain interest rate (coupon rate).
Bonds are used to raise money and finance various projects and activities, maintain on-
going operations, or refinance other debts. Borrowers get funds while investors get
interest earnings.
It is a place of temporary refuge when the investor foresees that the market outlook is
uncertain. It offers protection to the principal and steady stream of income. It allows
the investors a chance for capital preservation.
Classification of Bonds
Issuing Party As to Security As to Maturity of Principal
• Government bonds Mortgage Bonds Straight Bonds
• Corporate/ Commercial It is secured by real Entire principal + % paid in
bonds properties lump sum at maturity
Equipment Trust Bond Serial Bonds
It is secured by equipment Principal + % paid in
of the issuer e.g. PCs, installments
machineries Convertible Bonds
Collateral Trust Bond It has option to convert the
It is secured by securities of bonds (debts) into stocks
the issuer (ownership shares), have
Debenture Bond lower risk and so lower
It is backed up by the credit coupon rates than non-
reputation of the issuer convertible bonds
rather than specific asset Callable/redeemable
bonds - issuer may call off
the bond and pay off
principal + % before
maturity, Increases the risk
to the investor because
he/she will be forced to sell
the bond at an inopportune
time
Government Bonds
Government bonds are financial instruments used by the government to borrow money
from the public. It is for the purpose of funding government projects and support for
government spending. It is considered riskless investment because interest payments
and repayment of principal are guaranteed by the government.
Forms of Government Bonds

Treasury bills (T-bills) Treasure bonds
It is a short-term government securities It is considered as medium to long term
offered in three terms (91-, 182-, 364 –day government securities
bills) issued by the government to borrow
money from the investing public Mature beyond a year
Mature in less than a year Relatively risk-free investment
Riskless as it is lending money to the

sovereign government
2. STOCKS/ EQUITIES
It is the acquisition of shares of stocks of other corporations to realize profit sale and
periodic income (dividends). Stocks/ Equities are highly volatile and fluctuating
investment. A shareholder investing in stocks/equities usually aims for capital
appreciation.
Types of Stocks
Common Stocks (Ordinary Shares) Preferred Stock (Preferred Shares)
Entitles the owner to a share of the Stock whose holders are guaranteed
corporation profits and a share of the priority (1st priority) in the payment of
voting power in the shareholder election dividends but whose holders have no
The shareholders voting rights.
The owner is entitled with the share of It gives shareholders the right to a fixed
profits in the form of dividends dividend; priority on company assets
appreciation during dissolution. They will enjoy the
benefit of capital appreciation
3. UNIT INVESTMENT TRUST FUND (UITF)
It is a form of collective investment to meet a specific financial objective, giving a

portfolio funds at minimal cost. It is kept in trust by a trustee, and managed by a
professional fund manager. It is established by a trust deed which enables a trustee
to hold the pool of money and assets on behalf of the investor.
The returns are not guaranteed nor capital preservation assured.
Types of UITF
Fixed Income Equity Fund Balanced Fund
To maximize returns by
The allocation of
Offers regular income at investing in equities or
investment is a mixture of
prevailing rates (T-bills, stock issues for potential
fixed income instruments
CPs, bonds) high returns as well as
and equity issues
dividend earnings
DUTIES OF A TRUSTEE
 Holds the pool of money and assets in trust on behalf of the investors.
 Ensures that the fund managers adhere to the provisions of the trust deed.
 Protects the interests of unit holders
4. MUTUAL FUNDS
A stock corporation that pools money from many investors for the purpose of
investing in securities (i.e. bonds, stocks) and other similar assets with the objectives
and policies; with a pool of assets that regularly sells and redeems its shares. The
returns are not guaranteed nor capital preservation assured.
COMPARISON POOLED FUNDS
Unit Investment
Variable Life
Mutual Fund Trust Fund
Insurance
(formerly CTF)
Issuing entity Investment Trust department Insurance company
company (Bank);
Trust corporation
Instrument issued Common shares Units of Units of
participation participation
Regulatory body Securities and Bangko Sentral Insurance
Exchange ng Pilipinas Commission
Commission
Approx. Initial < P5,000 P100,000 < P5,000
Placement
5. DERIVATIVES
It is financial instruments whose values are linked to the price of underlying

instruments in the cash market. The buyer agrees to purchase the asset on a
specific date at a specific price.
The value of money is dependent on where it is tied up, ex. Wheat, gold
Types of Derivatives
Futures Options
Obligation to buy or sell specific Right to buy or sell a specific item for a
commodity on a specific day for a present present price during a specified period of
price time
PROPERTIES/ REAL ESTATE
I. TYPES OF REAL ESTATE PROPERTIES
Agricultural Domestic Commercial
II. FORMS OF REAL ESTATE INVESTMENTS
1. Direct Investment – Acquire ownership interest in a specific property

2. Indirect Investment – Subscription to or purchase shares of stock, i.e. REIT stocks
Pricing Factors in Real Estate
1. Quality of Land
2. Location of Land
3. Value of infrastructure on said land
Real Estate Investment

Advantages Disadvantages
• Tangible • Not liquid

• Can be used as collateral • Subject to estate tax
• May be a source of income • Adversely affected in specific crises
MODULE 1: BASICS OF INVESTMENT POP QUIZ!
1. Investment refers to an asset that generates surplus income
a) True
b) False
2. This indicates the continuous increase in the price of goods and services.
Consequently, it decreases the purchasing power of a currency.
a) Asset
b) Investment
c) Inflation
d) Equity
3. This refers to the upsurge in the value of assets; wherein the initial sum invested
increases in price.
a) Capital gain
b) Dividends
c) Interest
d) Capital appreciation
4. This is a portion of a company’s net earning distributed to its shareholders.
a) Interest
b) Dividends
c) Capital appreciation
d) Capital gain
5. Profit made by selling an asset at a higher price than the initial invested amount is
called.
a) Capital gain
b) Capital appreciation
c) Interest
d) Dividends
6. It is a financial instrument such as deposit accounts that can easily be collected or
converted.
a) Security
b) Bonds
c) Cash
d) Equity security
7. This type of financial instrument enables the investor to hold ownership rights to a
publicly traded corporation.
a) Equity security
b) Bonds
c) Derivatives
d) Cash
8. A financial security that entitles the investor to receive a fixed amount of payment
over a fixed schedule for having loaned a sum of money to a borrower is called:
a) Bonds
b) Derivatives
c) Equity security
d) Cash
9. A composition of the Capital Market wherein securities are being re-issued from the
IPO (Initial Public Offering).
a) Primary market
b) Money market
c) Capital market
d) Secondary market
10. This type of stocks takes precedence over the other type of shareholder in terms of
receiving dividends.
a) Common stock
b) Ordinary stock
c) Preferred stock
d) None of the above
MODULE 2: KEY CONSIDERATIONS IN INVESTMENT
Accessibility of funds
How easily is the investment turned to cash? Is there a penalty for early withdrawal?
Will the initial cost be recovered?
Time frame:
- Short term, < 1 year
- Medium term, 1-3 years
- Long term, 4 years and beyond
Level of risk tolerance
Risk tolerance is the degree of variability in investment returns that an investor is willing
to accept. The amount of risk a person can take depends on his age, investment
objectives, financial conditions and personality.
Low risk , low return. High risk, high return
Three levels of Risk Tolerance:

- Conservative
- Moderate
- Aggressive
Funds available
The more funds an investor has, the more choices he can choose from (source of funds,
specific amount of fund available)
Taxation treatment
There are taxes that apply to investments and earnings
Investment objective
Purpose for investing (enhance standard of living, provide funds); Income, liquidity,
safety net
Performance of the investment

Key economic factors affect investments
- Current events
- Management
- Government policy
- Taxes
Investment horizon
Amount of time an investor intends to hold on to an investment; investment objective,
age, finances
Diversification
“Do not put all your eggs in one basket.”
One way to lower risks in investment is to diversify. It involves spreading of risk by

investing in different asset classes & market environments. It is a proven strategy to
reduce the risks of investment without sacrificing the returns. A diversified
investment provides greater security to an investor.
MODULE 2: KEY CONSIDERATIONS IN INVESTMENT POP QUIZ!
1. Which one of the following statements about diversification in portfolio management

is FALSE?
a) Diversification can completely eliminate the risk of investing in stock portfolio

b) Diversification helps spread the portfolio risk by investing in different categories of
investment in a portfolio.
c) Diversification involves purchasing different types of stocks and investing in stocks
of different countries
d) A diversified portfolio provides greater security to an investor without having to
sacrifice the return for the portfolio.
2. People generally invest their money to provide:
I. An improvement in their financial position

II. A less comfortable standard of living
III. Income for retirement
IV. Funds for paying necessary expenses and taxes when the person dies
a) I, II & III
b) I, III & IV
c) I, II, & IV
d) II, III, & IV
3. Diversification in investment involves:
a) Putting all funds under management into one category of investment

b) Spreading the risks of investment by not putting the fund into several categories of
investment
c) Reducing the risk by putting the fund under management into several categories of
investments
d) Reducing the risk by “putting all eggs in one basket”
4. This refers to the amount of time an investor intends to hold on to an investment.
a) Investment objective
b) Investment horizon
c) Funds available
d) Diversification
5. The risk profile of a person depends on:
I. Age
II. Investment objectives
III. Financial objectives
IV. Personality
a) I & II only
b) II, III & IV
c) I, II & III
d) All of the above
MODULE 3: VARIABLE LIFE INSURANCE VS. TRADITIONAL LIFE
VARIABLE LIFE INSURANCE
It is a permanent life insurance policy with investment component. A portion of the

premium is used to purchase units in an investment fund. The units are backed up by
specific assets (e.g. shares, bonds, property, unit trust). The benefits are directly linked to
the performance of the units.
As the net asset value of the fund rises, the unit price increases, and as the asset value
of the fund falls, the unit price decreases.
The only guaranteed in a variable life insurance is the protection (sum assured).
Investment returns are not guaranteed.
ACCOUNT VALUE
 Total value of the variable life policy, at the time of valuation

 Amount that the investment portion of the policy is worth
 Account value varies depending on the performance of the fund chosen by the
policyholder
VARIABLE LIFE FUND
 Fund to which a variable life insurance policy is linked

 Unit-linked fund, unitized fund
UNIT PRICING
The value of the underlying assets at the separate account(s) divided by the number of
units issued
FORWARD PRICING
Pricing structure wherein the buying and selling prices of units are determined at the
next valuation date
VARIABLE LIFE INSURANCE: TWO MAJOR CHARACTERISTICS
1. The policies can be used for investments, as a source of regular savings and
protection.
2. The withdrawal and protection benefit are determined by the investment

performance of the underlying assets
COMPARISON
TRADITIONAL LIFE VARIABLE LIFE
Death Benefit Minimum guaranteed
Fixed sum assured plus
benefit and/or the account
dividends (participating)
value
Option to Top-up Must apply for another Anytime pay additional
policy premiums to increase life
coverage and investment
Cash Value • Guaranteed • Account value depends on
• Pre-computed investment performance
• Starts on the 3rd year • May start on day 1
Target Market Conservative market Different risk profiles
Investment Return and Risk
• Company decides the
• Policyholder has control
investment, usually very
over his investment
conservative
• Policyholder is regularly
• Policyholder is not
provided a statement of
informed of the
account
investment performance
• No smoothing effect
• Has smoothing effect
Premium Charges are fully disclosed/
Charges are not disclosed
transparent
Premium Holiday Available anytime, as long
Grace period of 31 days
as the Account Value
supports it
Death Benefit
• Minimum Death Benefit
The amount of the guaranteed death benefit, other than incidental insurance benefits,
payable under Variable life/ILP contract regardless of the investment performance of
the separate accounts
• Net Amount at Risk
Any excess of minimum death benefit over the value of the policyholder’s separate
fund; addressed as the risk of the company
Death benefit options:
• Increasing Death Benefit – equates to the sum assured plus the account/fund
value; offers more protection
• Level Death Benefit – equates to the sum assured OR account/fund value,

whichever is higher; offers investment opportunities
Top-up – additional premium injections which can be used to buy additional units;
policy owners are normally allowed to top-up their policies at any time, subject to a
minimum amount.
Premium Holiday – it refers to the cessation of premium payments on a variable life

insurance contract, with the intent to continue it again later on
MODULE 3: VARIABLE LIFE INSURANCE VS. TRADITIONAL LIFE POP QUIZ!
1. In a variable life insurance, the policy holder’s entire premium goes to the investment
component.
a) True
b) False
2. A variable life insurance is a permanent plan that has an investment component

known as
a) Cash value
b) Dividends
c) Interest
d) Account value
3. A mechanism wherein units are priced on a forward basis is called forward pricing.
a) True
b) False
4. The account value/fund value is fixed regardless of the performance of the

investment fund chosen by the client.
a) True
b) False
5. Increasing death benefit offers more protection because the death benefit paid under
this option is composed of:
a) Face amount
b) Account/Fund Value
c) Both A and B
d) Neither A nor B
6. In variable life insurance, it is the insurer who decides on the investment fund and the
return can be guaranteed by the insurer.
a) True
b) False
7. This is a feature of a variable life insurance wherein the policy holder may opt to stop
premium payments provided that the fund value is enough to pay for the charges.
a) Withdrawal
b) Minimum death benefit
c) Premium paying period
d) Premium holiday
8. Which of the following statements describe(s) the differences between variable life
insurance products and traditional life insurance products?
I. Traditional life policies aim to produce steady return by smoothing out market
fluctuations, while variable life insurance policies offer the potential for higher returns
but at the expense of market volatility and higher risk.
II. Variable life insurance products can take the form of Whole Life or Endowment
policies but traditional life insurance policies do not.
III. The investment element of variable life insurance policies is made known on the
outset and is invested in a separately identifiable fund, which is made up of units of
investment.
a) I only
b) I & II only
c) II & III only
d) I & III only
MODULE 4: HOW VARIABLE LIFE INSURANCE WORKS
PREMIUMS: VARIABLE LIFE INSURANCE
Total of premiums paid for life insurance and premiums placed in an investment fund.
THREE TYPES OF PREMIUM
1. Regular Premium Variable Life/ILP – Premiums are paid regularly (e.g.

quarterly, semi-annually, and annually). The policy owner may vary the level of
sum assured/coverage of his policy without changing the level of his regular
premium payments, make single premium top-ups or taking premium holidays.
2. Single Premium Variable Life/ILP – one-time payment; top-ups or single
premium injections are allowed; policy owner have the flexibility of varying the
life coverage.
3. Top-Up Premium – additional premium injections
ALLOCATION OF PREMIUM
The periodic distribution of premiums into units and charges
 Unallocated Premiums – charges deducted from the premium which is paid to

the company (Method A: Deduct charges first, buy units after)
 Allocated Premiums – premiums used to buy units from the variable fund
(Method B: Buy units first, deduct charges after)
WITHDRAWAL VALUE
The total amount available to the policyholder in cash upon redemption of all units
PARTIAL WITHDRAWAL
Refers to the surrender of some units owned by the policyholder
PRICING METHODS
Single Pricing Method Dual Pricing Method
SINGLE PRICING METHOD
 Only one price is quoted whether the policyholder is buying or selling

 After deducting charges, the difference is used to buy units
Method A: Deduct charges first, buy units after

Step 1 Compute for the initial charge
Step 2 Deduct charges
Step 3 Buy units
Step 4 Compute for the mortality charge and convert to units
Step 5 Deduct from units bought the number of units for the mortality charge
Given
VL premium $10,000
Unit price $1
Initial charge 5% of single premium
Mortality charge 1.6% of single premium
Seat Work
Single premium $5,000
Unit price $2
Compute for the total units after charges using single pricing method.
ANNUAL YIELD
Yield = (Full Withdrawal Value/VL Premium)1/n – 1

Where: n = no. of years
Full Withdrawal Value = No. of units x Unit price
Given
Unit price after 15 years $3.75
No. of units $10,000
VL Single Premium $10,000
Computation
Full Withdrawal Value = 10,000 x $3.75

Full Withdrawal Value = $37,500
Annual Yield on Investment = (37,500/10,000)1/15 - 1
Annual Yield on Investment = .09211 x 100 = 9.211%
Seat Work
Single premium $9,000
Unit price after 15 years $2.62
No. of Units 8,356
Compute for the annual yield on investment.
DUAL PRICING METHOD
 The price used to buy units (offer price) is higher than the price used to sell units
(bid price)
 The difference between the offer price and the bid price is called the bid-offer
spread
DUAL PRICING
Offer Price Bid Price
• Selling price or issue price • Buying or redemption price
• The price which the insurer uses to • The price which the insurer will give
allocate units to a variable life for the units if the policyholder
policy when premiums are paid wishes to cash in or claim under the
policy
Offer price = Bid price x (1 + Spread %) Bid price = Offer price/ (1 + Spread%)
Offer Price vs. Bid Price
BID OFFER SPREAD
The difference between the bid and the offer price
Compute for bid price. Use the given information below.
Offer price $1
Bid-offer spread 5%
Offer price = Bid price x (1 + Spread %)
Bid price = Offer price/ (1 + Spread%)
DUAL PRICING METHOD
Method A: Deduct charges first, buy units after

Step 1 Compute for the initial charge
Step 2 Deduct charges
Step 3 Buy units
Step 4 Compute for the mortality charge and convert to units
Step 5 Deduct from units bought the number of units for the mortality charge
Given
VL premium $10,000
Offer price $1
Method B: Buy units first, deduct charges after
Step 1 Buy units
Deduct charges
Step 2
Compute for the initial charge, mortality charge
Step 3 Add initial and mortality charges
Step 4 Deduct from units bought
Seat Work
VL premium $5,000
Offer price $2
Mortality charge 1.8% of VL premium
Initial charge 5% of VL premium
Bid Offer Spread 5%
Compute for total no. of units after charges using Method B.
ACCUMULATION OF FUND
What is X amount after n years if it increases by % annually?
Formula: X (1 + 1) n
Example: What is $20 after 2 years, if it increases by 5% annually?

= 20 (1 + 0.05) 2
= $22.05
ANNUAL YIELD OF INVESTMENT
Yield = (Full Withdrawal Value/Single Premium)1/n – 1

Where: n = no. of years
Full Withdrawal Value = No. of units x bid price
Given:
ILP premium $10,000
Offer price at 1st year $ 1
No. of units 10,000
Offer price at 15th year $ 4.27
Bid-offer spread 5%
Seat Work
VL premium $5,000
Offer price at 1st year $2
Offer price at 10th year $3.99
No. of units 2,500
Bid offer spread 5%
Compute for the annual yield at 10th year.
WHEN ARE UNITS CONVERTED?
Full Withdrawal
Partial Withdrawal
Units belong to
policyholder
As Death Benefit
DEATH BENEFIT
Units belong to
policyholder
AS DEATH BENEFIT
Single Pricing
Increasing death benefit

Death benefit = (No. of units x Unit price) + Sum Insured
Level death benefit
Death benefit = (No. of units x Unit price) or Sum Insured
Dual Pricing
Increasing death benefit
Death benefit = (No. of units x Bid price) + Sum Insured
Level death benefit
Death benefit = (No. of units x Bid price) or Sum Insured
MODULE 4: HOW VARIABLE LIFE INSURANCE WORKS POP QUIZ!
1. In the context of Life Insurance, Protection refers to securing the future of

one’s family in case something unexpected happens to the breadwinner.
a) True
b) False
2. Variable life insurance addresses different financial needs. This includes:

a) Protection
b) Investment
c) Savings
d) All of the above
3. Mr. Samson placed a single premium of Php 100,000 for a unit-linked
policy. The company offers per unit at Php 2.00. The corresponding charges
are as follows: 5% of single premium for initial charge and 1.6% of single
premium as mortality charge.
Compute for the number of units less all charges using the single pricing
method.
a) 47,600
b) 40,760
c) 46,070
d) 46,700
4. Mr. Dela Cruz decides to purchase a Variable Life Insurance that requires
him to pay until he is 100 years of age. This type of premium in Variable Life
Insurance is called:
a) Regular premium
b) Regular top-up
c) Single premium
d) Top-up premium
5. Mr. Simon bought a Variable Life Insurance with an annual premium of

Php 50,000. Out of the annual premium paid, Php 32,500 was used to
purchase units from his chosen investment fund. The amount that was used to
buy units is called.
a) Allocated premium
b) Unallocated premium
c) Premium
d) Top-up premium
6. Which of the following statements about the feature of Regular Premium

Variable Life Policy are TRUE?
I. Top-ups are usually allowed.
II. The level of cover can be varied.
III. Premium holidays are usually allowed
a) I & II only
b) I & III only
c) II & III only
d) I, II & III
7. Compute for the annual yield whereas:
Unit price after 20 years: Php 4.75
No. of units: 50,000
VL Single Premium: Php 100,000
Yield = (Full Withdrawal Value/ILP Premium)1/n – 1
a) 4.41
b) 1.44
c) 44.1
d) 11.4
8. Compute for the total number of units after charges using Method B: (Buy
units first, deduct charges after).
Given:
VL Premium: $5,000
Offer price: $2
Initial charge: 5% of VL Premium
Mortality charge: 1.8% of VL Premium
Bid-Offer Spread 5%
a) 2,321.4943 units
b) 3,212.4943 units
c) 2,494.1232 units
d) 4,943.2321 units
9. In the process of buying units, Mr. Simon based the number of units that he
can buy using the company’s offer price. If and when he withdraws, the
amount will be based on the bid price. This pricing method is called:
a) Single pricing
b) Dual pricing
c) Forward pricing
d) None of the above
10. How do we compute for the Increasing Death Benefit using Single Pricing
method?
a) Death benefit = (No. of Units x Unit Price) + Sum Insured

b) Death benefit = (No. of Units x Unit Price) OR Sum Insured
c) Death benefit = (No. of Units x Offer Price) + Sum Insured
d) Death benefit = (No. of Units x Bid Price) + Sum Insured
MODULE 5: BENEFITS OF INVESTING IN VARIABLE LIFE INSURANCE
Pooling & Diversification

• Funds consist of a wide range of equity stocks, fixed income securities
Flexibility
• Change the level of sum insured, switch their investments between funds, go on
premium holiday, add single premium top-ups, change the level of premium
payment
Expertise
• Investment funds are managed by professional fund managers
Access
• Policyholder gains access to different variable life funds
Administration
• Monitor investment component through statements provided on a regular basis;
unit price published in major business news papers
Cost reduction
• Substantial savings are made in fees, commissions and other transactional cost
Research
• In-depth research from financial analysts and investment specialists around the
world
MODULE 5: BENEFITS OF INVESTING IN VARIABLE LIFE INSURANCE POP QUIZ!
1. Which benefit of investing in Variable Life Insurance provides the investor an

opportunity to invest in different investment funds that are invested in various
companies from different industries for a minimal amount of money?
a) Flexibility
b) Expertise
c) Pooling and Diversification
d) Cost Reduction
2. The benefit of investing in Variable Life Insurance relieves the investor from handling
the investment directly. A team of experts handle the investment fund to minimize the
investment risk.
a) Flexibility
b) Pooling and Diversification
c) Expertise
d) Cost Reduction
3. Mr. Mendoza decides to put his money in a Variable Life Insurance. In doing such, it
enables him to make substantial savings in fees, commissions, and other transactional
cost. This benefit is called.
a) Flexibility
b) Cost Reduction
c) Pooling and Diversification
d) Expertise
4. Which of the following are some of the flexibility features of Variable life insurance
policies?
I. Partial Withdrawal
II. Variation in sum assured
III. Guaranteed withdrawal values
a) II only
b) III only
c) I & II only
d) I, II & III
MODULE 6: TYPES OF VARIABLE LIFE INSURANCE POLICIES
SINGLE PREMIUM VARIABLE WHOLE LIFE PLAN
 Whole life insurance; one-time payment

 Minimum death benefit: 125% of single premium
 Premiums are used to buy units in variable or unitized fund
 Top-ups or single premium injections are allowed
 Policyholders have the flexibility of varying the life coverage
 Purpose: For long-term savings and investment
REGULAR PREMIUM VARIABLE WHOLE LIFE PLAN
 Whole life insurance; premiums paid at regular intervals

 Minimum death benefit: 500% of premium
 Premium top-ups and holidays, subject to the life company’s administrative
rules, are usually allowed
 The level of cover can be varied
 Withdrawals after the payment of a few years premium are usually allowed
 Purpose: For protection and investment; protection as main objective
VARIABLE INDIVIDUAL PENSION PLAN
 High allocation of premiums to investment

 No life cover in the basic plan – only a return of investment funds on death
 All or part of the funds may be converted into traditional participating life
insurance policy
 Purpose: For investment or savings
VARIABLE PERMANENT HEALTH INSURANCE
 Provides health coverage such as disability income

 May advance the whole of the sum insured in the event of covered critical
condition, i.e. heart attack, stroke, end stage renal failure etc.
 May contain cash value (unlike traditional health products that does not have
cash value)
 Purpose: For health coverage
MODULE 6: TYPES OF VARIABLE LIFE INSURANCE POLICIES POP QUIZ!
1. Which of the following statements about single premium variable life policies are
TRUE?
I. There is no fixed term in a single premium variable life policy and therefore, it is
technically whole life insurance.
II. Top-ups or single premium injections are allowed.
III. Policyholders have the flexibility of varying the life coverage.
a) I & II
b) I & III
c) II & III
d) I, II, & III
2. It is a type of Variable Life Insurance that requires only one lump sum in premium
payment and offers insurance coverage and investment opportunities.
a) Single Premium Variable Whole Life

b) Regular Premium Variable Whole Life
c) Variable Annuities
d) Variable Permanent Health Insurance Plan
3. This type of Variable Life Insurance provides protection and potential earnings
provided that premiums are continuously paid.
a) Single Premium Variable Whole Life

b) Regular Premium Variable Whole Life
c) Variable Annuities
d) Variable Permanent Health Insurance Plan
4. This type of Variable Life Insurance provides a regular stream of income upon
retirement. It usually last through the lifetime of a person or for certain number of years
as stipulated in the policy.
a) Variable Permanent Health Insurance Plan

b) Variable Annuities
c) Single Premium Variable Whole Life
d) Regular Premium Variable Whole Life
5. Variable Permanent Health Insurance Plan provides coverage for:
a) Critical illnesses
b) Disability income
c) Either A or B
d) Neither A nor B
MODULE 7: TYPES OF VARIABLE FUNDS
CASH FUND
 Cash and other forms of bank deposits

 Low risk and relatively safe
EQUITY FUND
 Equity assets such as stocks, shares, etc.

 Higher risk and volatile
 During market crash – the first to immediately depreciate in high amounts
 Investors who buy equity aim for capital appreciation
BOND FUND
 Government and corporate bonds

 Also known as “income” or “fixed income funds”
PROPERTY FUND
 Safer than equity funds

 Lower liquidity
 Illiquid assets; not possible to quickly sell a property when policyholder
redeems the units
SPECIALIZED FUND
 Segmented based on geographical regions or particular industries

- Restricted to particular region – ASEAN Fund, the Emerging Markets
Funds and the International Bond Fund
- Restricted to particular country – China Fund and the US Fund
- Industry specialized funds – specialized sectors such as commodities,
mining, plantation, public utilities
 Offer exposure to different markets in different regions of the world and
different currencies
MANAGED FUND
 Equities, bonds, properties, cash etc.

 Higher proportion of equity and lower proportion of fixed income
instruments
 Fund allocation depends on the Fund Manager’s view of future prospects
BALANCED FUND
 Invest in a fixed proportion of specified assets

Example: 70% equities, 30% bonds
 The fund comprises a proportion of equity and a proportion of fixed income
instruments
RISK VS. RETURN
Risk is the chance that the actual returns from an investment may differ from what is
expected.
Risk-return trade-off is the relationship between risk and return in which investments
with more risk should provide higher returns and vice versa.
The risk-return profile of cash funds, bond funds, balanced funds, managed funds and
equity funds, a risk-return graph will show that the higher return normally comes with
higher risk and at the top end of the graph are the equity funds. The relatively risk-
less cash funds sit at the bottom end of the graph.
MODULE 7: TYPES OF VARIABLE FUNDS POP QUIZ!
1. This type of fund typically invested in government and corporate bonds and is
suitable for individuals looking for stability and a potential modest return from one’s
investment.
a) Cash fund
b) Balanced fund
c) Bond fund
d) Equity fund
2. Considered as a hybrid investment because it is composed of a stock and bond

component. Typically 60% stocks and 40% bonds. Suitable for individuals looking for
safety and potential income.
a) Cash fund
b) Balanced fund
c) Bond fund
d) Equity fund
3. A high risk investment fund option that is highly volatile. This type of fund primarily
invests in stocks and is suited for individuals with an aggressive risk appetite.
a) Cash fund
b) Balanced fund
c) Bond fund
d) Equity fund
4. Which one of the following investment options entitles the holder ownership and has
a share of profits in the form of capital appreciation?
a) Cash
b) Bonds
c) Futures
d) Stocks
5. In risk return profile of cash funds, bond funds, balanced funds, managed funds, and
equity funds, a risk return graph will show that:
I. Higher return normally comes with lower risk

II. Higher return normally comes with higher risk
III. At the top end of the graph are equity funds
IV. The relatively risk-less cash funds sit at the bottom end of the graph
a) I, II, & III

b) II, III, & IV
c) c. I, II, & IV
d) d. I, III, & IV
MODULE 8: GENERAL PROVISIONS
 Entire Contract  Lapsation

 Cooling off Period  Reinstatement
 Incontestability  Switching
 Suicide Exclusion  Assignment
 Misstatement of Age or Sex  Death Benefit
ENTIRE CONTRACT
This is an investment-linked policy; the benefits payable under the basic plan of this
policy are linked to investment funds, units of which are allocated to this policy, and
their performance
COOLING OFF PERIOD
Policyholder may return the variable life insurance contract within 15 days of receipt of
the policy and receive a refund equal to the market value of the units including initial
charges.
INCONTESTABILITY
Two (2) years from the policy date or any date of reinstatement, whichever is later
except for non-payment of premium and except for violation of the conditions of the
policy relating to military or naval service in time of war.
SUICIDE EXCLUSION
If the insured commits suicide within 2 years from the effective date or date of last
reinstatement, whichever is later, the death proceeds are total of the premium charges,
insurance charges and account value
MISSTATEMENT OF AGE/SEX
If the age or sex of the insured has been misstated, the amount of insurance will be
adjusted to the amount which the premium would have purchased at the correct age or
sex, applicable risk class, applicable charges and applicable premium rates
LAPSATION
If the policyholder fails to pay premiums on time and there are withdrawal values in the
policyholder’s account, the policy either continues at the same sum assured for the
same basic benefits or at a reduced sum assured for death and incidental benefits
It the policyholder fails to pay premium on time and there are no withdrawal values in
the policyholder’s account, the policy terminates immediately on the day the premium is
due
REINSTATEMENT
If the policyholder wishes to continue to pay a premium at any time three (3) years
from the date of premium default, he may do so upon the written application and
submission of evidence of insurability, including good health, satisfactory to the insurer
Unless the withdrawal value has been paid or the period of extended insurance has
expired, and upon payment of all amounts necessary to revive the policy
SWITCHING
While the policy is in force, the policyholder may, subject to the approval of the insurer,
transfer or “switch” any of his or her units in a particular separate variable account to
another separate variable account or some other separate variable accounts which
may have been established by the insurer
“Switch” will be affected by the cancellation of the units to be “switched” and the
creation of new units in the separate variable account being “switched” to; unit price
will be calculated accordingly
The switching facility is very useful for the purpose of financial planning (retirement
and education fees) by the policy owners. Switching allows a policyholder the liberty to
move part or all money from one fund to another
ASSIGNMENT
The policy can be used as a security or collateral for any financial dealings. The party to
whom the policy is assigned as a security or collateral must notify the insurer in writing
of its interest
The insurer shall not be responsible for the verification of the authenticity or validity of
any such assignment
DEATH BENEFIT
The death benefit, however, will not be less than:
Regular Premium Variable Life/ILP
a. 500% of the annual regular premium; plus

b. 125% of all regular top-up and lump sum top-up premium paid; less
c. 125% of all partial withdrawals made
The death benefit under regular premium variable life insurance policies is either the
sum insured chosen by the life insured plus the value of units in the fund at the bid
price or the sum insured chosen by the life insured or the value of units in the fund at
the bid price, whichever is higher.
Single Premium Variable Life/ILP
a. 125% of the single premium; plus

b. 125% of all regular top-up and lump sum top-up premium paid; less
c. 125% of all partial withdrawals made
MODULE 8: GENERAL PROVISIONS POP QUIZ!
1. This is a provision in a life insurance stating that the entire agreement between the
insured and the insurer is contained in the contract. (i.e. application form, declarations,
endorsements, exclusions, etc.)
a) Entire Contract Clause

b) Assignment
c) Reinstatement
d) Lapsation
2. This is a facility wherein, if the policy is in force, subject to the approval of the insurer,
the policy holder may opt to transfer any of his/her units in a variable account to
another separate variable account.
a) Assignment
b) Reinstatement
c) Cooling-off period
d) Fund switching
3. This is a provision stating that the policy holder may return the policy within fifteen
(15) days after the receipt of Policy document, together with a written notice, signed by
the policyholder, requesting cancellation.
a) Reinstatement
b) Incontestability clause
c) Cooling-off period
d) Assignment
MODULE 9: CODE OF ETHICS
UNETHICAL PRACTICES
There are some unethical practices which may be grounds for the revocation of the
agent’s license. Some of these are:
1. Rebating– give part of his commission to induce a sale
2. Twisting – it refers to an agent including a policyholder to discontinue the policy

with another company without disclosing the disadvantage of doing so;
includes misleading or incomplete comparison of policies; a form of
misrepresentation
3. Knocking – make derogatory remarks against competitors
4. Overloading – sell insurance than what is warranted by the client’s resource
5. Alteration – change info in application form for the purpose of approval
6. Misrepresentation – give misleading statements about product, company, and

agents
7. Concealment – withhold info for application to be approved
MODULE 9: CODE OF ETHICS POP QUIZ!
1. This is the act of giving part of the insurance agent’s commission to induce a sale.
a) Knocking
b) Rebating
c) Misrepresentation
d) Alteration
2. Under the insurance code of ethics, this refers to changing information in the
application form for the purpose of approval.
a) Alteration
b) Knocking
c) Rebating
d) Concealment
3. Persuading the client to lapse/terminate a policy to get a new one is called
a) Twisting
b) Misrepresentation
c) Knocking
d) Overloading
Variable Life Insurance Course – Pop Quiz (Answer Key)
Module 1 Module 2 Module 3 Module 4 Module 5 Module 6 Module 7 Module 8 Module 9

1. A 1. A 1. B 1. A 1. C 1. C 1. C 1. A 1. B
2. C 2. B 2. D 2. D 2. C 2. A 2. B 2. D 2. A
3. D 3. C 3. A 3. D 3. B 3. B 3. D 3. C 3. A
4. B 4. B 4. B 4. A 4. C 4. B 4. D
5. A 5. D 5. C 5. A 5. C 5. B
6. C 6. B 6. D
7. A 7. D 7. A
8. A 8. B 8. A
9. D 9. B
10. C 10. A

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The e-Learning Portal ALPHA, available online at https://alpha.allianzpnblife.

Module 1: Basics of Investment 3

Module 2: Key Considerations in Investment 13

Module 3: Variable Life Insurance vs Traditional Life 15

Module 4: How Variable Life Insurance Works 19

Module 5: Benefits of Investing in Variable Life Insurance 31

Module 6: Types of Variable Life Insurance Policies 32

Module 7: Types of Variable Funds 34

Module 8: General Provisions 37

Module 9: Code of Ethics 40

By the end of this course, participants will be able to:

 Define fundamental concepts in Variable Life insurance

MODULE 1: BASICS OF INVESTMENT

 The process of allocating one’s money in the expectation of some benefit,

HOW INVESTMENTS EARN

Deposit/ Cash Securities Properties/Real Estate

Types of Deposit Accounts I. Classification I. Types of Real Estate

TYPES OF DEPOSIT ACCOUNTS

1. Savings – an interest-bearing account with certain limitations

2. Current – a "general-use“ account; basic checking account; unlimited

3. Time Deposit – minimum deposit with holding period

4. Offshore Account – foreign currency account outside the country

5. Investment Managed Account – high investment requirements; handled by

 Financial instrument that holds monetary value

I. CLASSIFICATION OF MARKET SECURITIES

It is commonly used by government and corporations.

1. CREDIT/ FIXED INCOME

Types of Credit/ Fixed Income

Forms of Government Bonds

Mature in less than a year Relatively risk-free investment

Riskless as it is lending money to the

3. UNIT INVESTMENT TRUST FUND (UITF)

It is a form of collective investment to meet a specific financial objective, giving a

The returns are not guaranteed nor capital preservation assured.

COMPARISON POOLED FUNDS

It is financial instruments whose values are linked to the price of underlying

PROPERTIES/ REAL ESTATE

I. TYPES OF REAL ESTATE PROPERTIES

Agricultural Domestic Commercial

II. FORMS OF REAL ESTATE INVESTMENTS

1. Direct Investment – Acquire ownership interest in a specific property

Pricing Factors in Real Estate

Real Estate Investment

• Tangible • Not liquid

1. Investment refers to an asset that generates surplus income

4. This is a portion of a company’s net earning distributed to its shareholders.

Low risk , low return. High risk, high return

Three levels of Risk Tolerance:

Performance of the investment

One way to lower risks in investment is to diversify. It involves spreading of risk by

MODULE 2: KEY CONSIDERATIONS IN INVESTMENT POP QUIZ!

1. Which one of the following statements about diversification in portfolio management

a) Diversification can completely eliminate the risk of investing in stock portfolio

2. People generally invest their money to provide:

I. An improvement in their financial position

a) Putting all funds under management into one category of investment

4. This refers to the amount of time an investor intends to hold on to an investment.

5. The risk profile of a person depends on:

MODULE 3: VARIABLE LIFE INSURANCE VS. TRADITIONAL LIFE

VARIABLE LIFE INSURANCE

It is a permanent life insurance policy with investment component. A portion of the

 Total value of the variable life policy, at the time of valuation

VARIABLE LIFE FUND