VUL MOCK EXAM 2

1. Variable life insurance policy owners may make withdrawals 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

Answer a. Withdrawals can be done by cancelling units directly or giving a specific monetary amount from the
account value to determine how many units to be cancelled. Withdrawals are not taken from the life cover
sum assured (Chapter 4.4.1.2, p. 16 ULP Manual).

2. Which one of the following statement about the flexibility features of variable life policies is FALSE?

a. Policyholders may request for a partial withdrawal of the policy and the withdrawal amount will be
met by cashing the units at bid price
b. Policyholders can take loans against their variable life policies up to the entire withdrawal value of
their policies
c. Policyholders have the flexibility of switching from one fund to another provided it satisfies the
company’s switching criteria
d. Policyholders have the flexibility of increasing or decreasing their premiums for regular premiums
variables life policies

Answer b. The Loan Provision generally applies for traditional life insurance policies; although some ULP’s
grant loans up to a certain percentage of the account value to policy holders; and not up to the entire
withdrawal value ( Chapter 6.7, p. 27 ULP Manual).

3. The investment returns under variable life insurance policy __________________

I. Are not guaranteed

II. Are assured
III. Are linked to the performance of the investment fund management by the life company
IV. Fluctuate according to the rise and fall of the market prices

a. I, II and III c. I, III and IV

b. I, II and IV d. II, III and IV

Answer c. Investment returns in ULP’s are not guaranteed and fixed; and depends on the performance of
underlying ULP funds.

4. Which of the following statements are TRUE?

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

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a. I, and II c. I and III

b. I, II and III d. II and III

Answer d. Once a policy holder surrenders his/her traditional life insurance policy; the surrender value will be
equivalent to the accumulated cash value and dividends less any outstanding loan plus interest. Section 237 of
the Insurance Code requires Insurers to establish one or more separate variable accounts so they could issue,
deliver, sell or use variable life insurance contracts (Pls. refer to Section 7 , p. 37 of ULP Manual for further
details).

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 misrepresentation
c. Misrepresentation is a specific form of twisting
d. Switching is a facility allowing policyholders to switch to another variable life funds offered by
company

Answer c. Misrepresentation is giving false or misleading statements about products, company, services and
advisor credentials.

6. Which of the following statements about variable life policies are TRUE?

I. Offer price is used to determined the numbers of units to be cancelled to the account
II. The margin between the bid and offer price is used to cover the management cost of the policy
III. The policy value is calculated based on the bid price of units allocated into the policy

a. I, II and III c. I and III

b. I and II d. II and III

Answer d. The bid price is the price at which the units under a ULP are cashed when the policy matures, or
when the policy is surrendered, or at which units are cashed to pay for charges under the policy (p. 28 ULP
Manual). The margin between the bid and offer price is also known as the Bid Offer Spread.

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. Equities c. Variable life policies

b. Warrants d. Fixed income securities

Answer d. Fixed Income Instruments (government & corporate bonds, preferred shares, & money market
instruments) offer fixed periodic rate of returns base on the interest rate of the instrument, which could be a
source of a steady stream of income. FII’s are virtually safe investment assets, but offer little or no
appreciation in value (Chapter 2.2, p. 4 of ULP Manual).

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A Warrant is a derivative security that gives the holder the right to purchase securities (usually equities) from
the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a
sweetener to entice investors (Investopedia)

8. What are the disadvantages of investing in common shares?

I. Dividends are paid not more than fixed rates

II. Investors are exposed to market and specific risks
III. Shares can become worthless if company becomes insolvent

a. I, II c. II, III
b. I, III d. I, II and III

Answer c. Common shares can be a volatile investment. The price of a share depends on the market’s
perception on the worth of the company. If a company falls, the price of a share could drop to zero.

9. Which of the following statement about the differences between variable life policies and endowment
policies are FALSE?

I. The policy values of variable life and endowment policies directly reflect the performance of the fund
of the life company
II. The premiums and benefits of the endowment policies are described at inception of the policy
whereas variable life policies are flexible as they are account driven
III. The benefits and risks variable life and endowment policies directly accrue to the policyholders

a. I and II c. I and III

b. I, II and III d. II and III

Answer d. The policy values of endowment policies and ULP’s reflect the performance of their investment
funds respectively; but does not necessarily reflect the performance of the company. The benefits and risks of
ULP’s are accrued directly to the policyholders; however, for endowment policies, only a percentage of the
investment earnings are given to the policyholders, but the risks of investing are shouldered by the company
(Chapter 1, p. 1 of ULP Manual)

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

a. Twisting is a special form of misrepresentation

b. It refers to an agent inducing a policyholder 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

Answer d. Letter “d” is the definition of rebating. Twisting occurs when the agent influences or convinces the
policyholder to lapse a policy in favor of a new one which he/she is selling

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11. Mr. Juan dela Cruz is currently earning Ps, 30,000/month. He is 35 years old and has a reasonable amount
of savings. He has a moderate level for risks tolerance. What kind of policy would you recommend for him
to buy?
a. Participating endowment c. Participating whole life
b. Variable life policies d. Annuities

Answer b. ULP’s are ideally suitable for clients that have already have enough savings and life insurance
enforced; and still have disposable income to invest. Although there are conservative/safe ULP funds; what’s
important is clients should understand the “risk-return” trade-off of their chosen fund.

12. What are the benefits available when investing in variable life funds?

I. The variable life funds offer policyholders an access to a pooled or diversified portfolios
II. The variable life policyholder can vary his premium payments, take premium holidays, add single
premium top-ups and change the level of sum assured easily.
III. The variable life policyholder can have access to a pool of qualified and trained professional fund
managers.

a. I and II c. I,II and III

b. I and III d. II and III

Answer c. For a more comprehensive discussion of ULP benefits, please refer to Chapter 5, p. 23 of ULP
Manual

13. Rank the following in term of their liquidity, from the least liquid to the most liquid:

I. Short Term Securities III. Cash

II. Property IV. Equities

a. IV, II, III, I c. II, I, IV, III

b. III, I, IV, II d. II, IV, I, III

Answer c. Liquidity is how easily an investment asset can be converted to its actual value in the form of cash.
In this case property is the least liquid since it is difficult to sell property for its actual book value. Short
term securities have a specific date when they can be redeemed, while equities can generally bought and
sold anytime. Cash in hand is the most liquid since it is already cash.

14. A UNIT TRUST is __________________________:

a. Established by a trust deed which enables a trustees 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 off its assets if large number of investors sell their
shares
c. One whereby investor buys units in the trust itself and not shares in the company
d. An organization registered under the SECURITY AND EXCHANGE COMMISSION (SEC) which usually
invests in a wide range of equities and other investment.

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Answer a. A unit trust or trust fund is usually an open-ended fund (you can buy and sell units anytime) and is
registered under the Central Bank (Chapter 2.4, p. 7 of ULP Manual).

15. Under variable life insurance policies ____________________

I. There is no guaranteed minimum sum assured for the purpose of declaring dividends
II. There is not guaranteed minimum sum assured as a level of life insurance protection
III. Each of the policy owner’s premium will be used to purchase units the number of which is
dependent on the selling price of each unit.
IV. 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 c. III and IV

b. II and IV d. II and III

Answer c. ULP’s have a guaranteed sum assured for life insurance coverage. The selling price of each unit will
determine how many units can be purchased by the premium. Units purchased can be invested in different
ULP funds available under a specific ULP plan (Chapter 4, p. 12 of ULP Manual).

16. The benefits of investing in variable life funds include _____________________

I. Policy owners have access to pooled or diversified portfolios of investment

II. 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.
III. Policy owners can gain access to variable life funds managed by professional investment managers
with proven track records.
IV. Policy owners can buy a variable life insurance policy only with a high initial investment.

a. I, II and IV c. I, II and III

b. I, III and IV d. II, III and IV

Answer c. On his own, the policyholder, with small sum of money, is unable to construct such a diversified
portfolio (Chapter 5, p. 23 of ULP Manual), thus, getting ULP does not require a high initial investment. A
policyholder can get ULP for just a minimum of Php 16,000 a year.

17. Which of the following 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
Answer c. The investment returns under variable life insurance policies are not guaranteed and they are linked
to the performance of an investment fund managed by the company (Chapter 1, p. 1 of the ULP Manual).

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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 policyholders expects higher returns

Answer b. All the risks of a ULP is shouldered by the policyholder; therefore they should study the projections
of their investments illustrated in the proposal and consider whether they will purchase a ULP.

19. Which of the following statement about rebating are TRUE?

I. Rebating is prohibited under the Insurance Code

II. Rebating deals with offering the prospect a special inducement to purchase a policy
III. Rebating will enhance the sales performance and uphold the prestige of an agent

a. I and II c. II and III

b. I and III

Answer a. Rebating occurs when the agent shares a portion of his/her commission, whether given in cash or
kind, in his/her interest to win the sale.

20. Which one of the following statement 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 policyholders 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 portfolio

Answer a. The value of a ULP is dependent on the performance of the Life Company’s investment funds which
will directly impact the policyholders.

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

a. Policy owners may buy additional units of the variable life fund and these units will be allocated to new
variable life insurance policies
b. Further premiums at time of top-up will be used in full, after deducting charges for top-ups, to
purchase additional units of the variable life funds
c. To top-up a policy, the policy owner pays further single premium at the time of top-up
d. Policy owners are normally allowed to top-up their policies at anytime, subject to a minimum amount

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Answer a. To top-up a policy, the policyholder pays additional single premiums at the time of top-up and these
premiums will be used in full (after deducting charges for top-ups) to purchase additional units of the
variable life fund which will be added to the existing units in the policyholder’s account (Chapter 4, p. 13,
of the ULP Manual).

22. The characteristics of a variable life insurance policy include _____________________

I. Its withdrawal value and protection benefits are determined by the investment performance of the
underlying assets
II. Its protection cost are generally met by implicit charges
III. Its commission and company expenses are met by a variety of implicit charges with normally 6
months notice given by the life companies prior to any change
IV. Its withdrawal value is normally the value of units allocated to the policy owner calculated at the bid
price

a. I, II and III c. I, II and IV

b. II, III and IV d. I, III and IV

Answer c. The Advisor’s Commission are implicit however the expenses are explicit due to the fact that the
client is not just a policyholder but also an investor.

23. 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, they are technically
whole life insurance
II. Top-ups single premium injections are allowed in these plans
III. Policyholders have the flexibility of varying the level cover

a. I, II and III c. I and II

b. II and III d. I and III

Answer b. Single Premium Variable Life Policies have fixed term and it does not have to be whole life
insurance.

24. Investing in bonds offer the following advantages EXCEPT

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

b. It is place of temporary refuge when the investor foresees that the market outlook is uncertain
c. It allows the investor a chance for capital preservations
d. It enables the investors an opportunity for capital appreciation

Answer d. Investing in Bonds does not give capital appreciation. Clients who choose this opti on basically
wants regular stream of income.

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25. Which of the following statements about variable life policies are TRUE?

I. The withdrawal value is not guaranteed

II. The volatility of the returns depends on the investment strategy of the fund
III. The variable life policyholder has direct control over the investment decisions of the variable life
fund

a. I, II and III c. I and III

b. I and II d. II and III

Answer b. The policyholder can choose which fund can best suit their financial needs. Variable Funds are
managed by professional fund managers who have the investment expertise to invest the fund to achieve
high return over the long term in accordance with the investment objectives. An ordinary policyholder
does not normally have good knowledge of financial market to invest his money wisely (Chapter 5, p. 23,
of the ULP Manual). Portfolio management is the job of the fund managers, not the policyholders.

26. Single premium variable life insurance policy:

a. Must be issued with a minimum death benefit

b. Must be issued with a maximum withdrawal value
c. Has no death benefit
d. Has no withdrawal value

Answer a. To secure the face amount to be given to the beneficiaries, the Insurance commission mandates
that there should be a Minimum Guaranteed Death Benefit to make sure that if the market crashes due to
extreme inflation and circumstances, the beneficiaries will receive the Minimum guaranteed death benefit.

27. Which of the following statements about characteristics of variable life policies are TRUE?

I. Variable life policies generally have a larger exposure to equity investment than with participating and
other traditional policies
II. The protection costs are generally met by implicit charges, which vary with age and level of cover
III. Commissions and company expenses are met by a variety of explicit charges, some of which are
variable
a. I, II and III c. II and III
b. I and II d. I and III

Answer b. For the protection of the Financial Advisor, their commission is not revealed to the client to prevent
rebating.

28. Which of the following statements about benefits in variable life fund is FALSE?

a. The fund provides a highly diversified portfolio, thus, lowering the risk of investment
b. The fund ensures definite high yield an investor since it is managed by professional 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

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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

Answer b. The investment returns under variable life insurance policies are not guaranteed and they are linked
to the performance of an investment fund managed by the company (Chapter 1, p. 1 of the ULP Manual).

29. The flexibility benefits of investing in variable life funds include ________________:

I. Policy owner can easily change the level of sum assured and switch their investment between funds
II. Policy owners can easily take premium holidays and add single premium to top-ups
III. Variable life insurance products have a simple product design with a clear structure which cater
separately for investment and insurance protection
IV. Policy owners can easily change the level of their premium payment

a. All of the above c. I, II and IV

b. I, II and III d. I, III and IV

Answer c. Although all the statements are applicable to variable life funds, Statement III does not describe any
of the flexibility benefits.

30. The fundamental differences between traditional participating life insurance policies and variable life
insurance policies include __________________

I. Variable life insurance policies are less likely to offer more choices in terms of the type of investment
funds
II. The investment elements of variable life insurance policies is made known to the policy owner at the
outset and is invested in a separately identifiable fund which is made up units of investment
III. Variable life insurance policies offer the potential for higher returns
IV. Traditional participating policies aim to produce a steady return by smoothing out market fluctuation

a. I, III and IV c. I, II and III

b. II, III and IV d. I, II and IV

Answer b. Statement I is incorrect because Variable Life offers (and is not “less likely”) diversification thus
giving more opportunities for the client to choose the best investment vehicle that can best suit their
Objective (regular stream of income or for capital appreciation).

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 owners

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Answer d. Financial planning of policy owners is one of the primary reasons why advisors seek out the
goals of their clients for which is the basis for what our plans/programs can offer to ensure that we can
cater to their future savings or investment needs.

32. The following statement about surrender value under traditional participating life insurance products is
TRUE?

a. Cash value is paid when a yearly renewable 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

Answer c. The amount of the mortality charge is based on the insured’s risk classification, and the charge
typically increases each year as the insured ages. (Chapter 6, p. 105, Principles of Insurance: Life, Health,
and Annuities (LOMA 280)).

33. Which of the following statement 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. Investment in variable life funds which are fully invested in units of equity bonds are not suitable for
policy owners who can tolerate the risks 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 owner who are risk averse should not purchase life insurance policies with high protection and
guaranteed cash and maturity values.

Answer c. Risk averse SHOULD buy guaranteed returns since they are not willing lose some of their
savings/investments. Policy owners can choose to invest in equities which can give them higher potential
returns but also exposes them to market volatility.

34. 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.

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ASSUMPTIONS:
1. Charges and Fees are deducted after the 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. Ps. 432,000.00 c. Ps. 401,107.58

b. Ps. 420,069.02 d. Ps. 412,500.00

Answer c.
What is the Withdrawal Value after a year?
Step 1: Calculate first the number of units allocated without charges 25,000 Units
Step 2: Add the charges Policy Fee = 1,800 Admin & Mortality Charge = 8,750 Total Charges: Php = Php
10,550
Step 3: Compute for the bid price BO1S Offer Price (1- Spread%) = Bid Price 16 (1-4.5%) = Php 15.28
Step 4: Convert total charges into units Total Charges / Bid Price = Units of Charges 10,550 / Php 15.28 =
690.445
Step 5: Deduct units to be cancelled from units allocated w/o charges Units w/o Charges - Units of Charges =
Units Net of Charges 25,000 Units - 690.445 Units = 24,309.555 Units
Step 6: Compute for the Bid Price after 1 year by using Accumulation of Fund X (1 + i)n = Bid Price (1 year) 15.28
(1 + 8%)1 = 16.50 (1 year)
Step 7: Compute for FWV by Multiplying number of Units In the Account by the Bid Price after 1 year
24,309.555 Units x Php 16.50 = 401,107.66

35. The protection costs under a variable life insurance policy ______________________:

I. Are met by a flat initial charges for regular premiums plans

II. Are generally covered by cancellation of units in the fund
III. Are generally met by explicit charges stipulated openly in the policy terms
IV. Vary with age of policy owner and level of cover
a. I, II and III c. I, III and IV
b. I, II and IV d. II, III and IV

Answer b. Due to individual differences (age, occupation, and conditions), the cost of mortality or protection
cost is not made known in detail to the policy owner to protect the company’s standards in Underwriting from
competitors.

36. Which one of the following statement about diversification in portfolio management is FALSE?

a. A diversified portfolio provides greater security to an investor having to sacrifice the return for the
portfolio
b. Diversified can completely eliminate the risk of investing in stocks in a portfolio
c. Diversified can involve purchasing different types of stocks and investing in stocks of different
countries
d. Diversified helps to spread the portfolio risk by investing in different categories of investment in a
portfolio

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Answer b. Diversification cannot complete eliminate risks in investments but instead it minimizes it by
spreading the risks through different investment assets. A well-diversified variable life fund has netter risk
characteristics than a less diversified one (Chapter 5, p. 23, of the ULP Manual).

37. What are the advantages of investing in preferred shares?

I. It gives shareholders the right to a fixed dividend

II. Has the priority over company assets during dissolution
III. They enjoy benefit of capital appreciation

a. I, II and III c. I and III

b. I and II d. II and III

Answer a. These are shares which give the holder a right to fixed dividend provided enough profit has been
made. This right takes precedence over the right of the ordinary shareholders to dividends. Preferred
shares differ from stocks in that although the income is fixed, it is not interest and may not be paid if
profits are not made (Chapter 2, p. 7 of the ULP Manual).

38. With traditional participating life insurance products, the allocations to policy owners in the form of
dividends ____________________:

I. Are not directly linked to the life company’s investment performance

II. Have already been smoothened by the life company
III. Do not have the highs and lows of investment returns as in good investment years of life company
IV. Are not fixed at the inception of the policy, but are greatly dependent on the investment
performance of the life company

a. I, II and III c. I, III and IV

b. I, II and IV d. II, III and IV

Answer d. Dividends are dependent on company performance as it is based on 3 main factors: Company
mortality experience, expenses, and earnings.

39. The objective of satisfying customers need profitably can be achieved by an agent through

I. The giving of freebies to the customers

II. Extensive investment training by the company
III. The use of sales plan, where sales goals, strategic and objectives are coordinated with market
analysis, segmentation and targeting
IV. The giving of monetary assistance and discount to the customers

a. I and III c. I, II and IV

b. II and III d. II, III and IV
Answer b. Freebies and monetary assistance are forms of “Rebating” which is one of the things that we have
to avoid as Financial advisors. As stated on the Insurance code of the Philippines:

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Sec. 361. No insurance company doing business in the Philippines or any agent thereof, no insurance broker,
and no employee or other representative of any such insurance company, agent, or broker, shall make,
procure or negotiate any contract of insurance or agreement as to policy contract, other than is plainly
expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall
directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer
to pay or allow to the insured or to any employee of such insured, either as an inducement to the making
of such insurance or after such insurance has been effected, any rebate from the premium which is
specified in the policy, or any special favour or advantage in the dividends or other benefits to accrue
thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or
indirectly, which is not specified in such policy or contract of insurance …

40. Which of the following statement is true about CASH?

a. It has high yield potential

b. Amount invested in cash depends on the size of the cash flow requirement
c. Investment in cash increase when there is a bull run in the stock market
d. Investment in cash decreases when interest rates rise

Answer b. Cash investments must satisfy the minimum requirements because the amount of cash dictates
how high the returns will be.

41. Under a regular premium variable whole life insurance plan _________________

I. Premium top-ups and holidays, subject to the life company’s administrative rules are usually allowed
II. Life protection is the main objective of the plan with investment as a nominal purpose
III. Withdrawals after the payment of a few years premium are usually allowed
IV. 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 c. I, II and IV

b. I, III and IV d. I, II and III

Answer d. Statement IV contradicts the statement which asks something about regular premium variable
whole life, hence it is not applicable to the above statement.

42. Which of the following statements about investment objective is FALSE?

a. People invest money in fixed deposits to produce high and 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

Answer a. Investing in Fixed deposits gives low returns since it has relatively low risk. Remember that in the
risk return profile, we say that the lower the risk, the lower the potential returns (Chapter 7, p. 31 of the
ULP Manual).

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43. Which of the following is/are the main characteristic(S) of variable life policies?

I. The policies can be used for investment, as a source of regular savings and protection
II. The withdrawal values and protection benefits are determined by the investment performance of
the underlying assets
III. 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 c. I, II and III
b. I d. I and II

Answer d. Cash values (guaranteed) are not associated with Variable Life Policies. The savings/investments
component of Variable life Policies are referred to as Fund/Account Values which are not guaranteed.

44. Risk can be classified into two particulars categories in relation to investment. They include
__________________:

I. The risk of not losing some or all of a person’s initial investment

II. The risk of rate of return on the investment not matching up to the individual’s expectation
III. The risk of rate of return on the investment matching up to the individual’s expectation
IV. The risk of losing some or all of a person’s initial investment

a. I and III c. III and IV

b.I and II d. II and IV

Answer d. Variable life Policies have account values which are not guaranteed. There is a possibility that the
policy holder’s investment may decline and may even lose his initial investments due to market
performance/conditions.

45. The duties of the trustees of unit trust do not include:

a. Managing the portfolio of investment and administering the buying and selling of shares in the unit
trust itself
b. Ensuring that the fund manager adhere to the provision of the trusts deeds
c. Acting generally to protect the unit-holders
d. Holding the pool of money and assets in trust in behalf of the investors

Answer a. This is the primary job of Fund Managers. Manage the Investment portfolio and analyses market
conditions to optimize the returns for the benefit of the stakeholders.

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

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Answer d. The Policy Fee is an additional charge placed on the initial premium to reflect the cost of issuing a
policy, establishing records and other expenses. This is the same fee charged for traditional policies.

47. The selling price under a variable life insurance policy is:

a. The price at which units the policy are bought back by the life company
b. The price at which units under the policy are offered for the sale by the life company
c. Also known as the bid price
d. A fixed amount throughout

Answer b. Offer price is the price at which units under a variable life insurance policy are offered for sale by
the company (Chapter 6, p. 28, definitions of the ULP Manual).

48. In risk-return profile of cash funds, bonds 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 the equity funds
IV. The relatively risk-less cash funds sit at the bottom end of the graph

a. I, II and III c. I, II and IV

b. II, III and IV d. I, III and IV

Answer b. The relationship between risk and return is directly proportional. The higher the risk, the higher the
potential returns.

49. Diversification in investment involves ______________________

a. Putting all the funds under management into one category of investment
b. Spreading the risks of investment by not putting the fund into several categories investment
c. Reducing the risks of investment by putting one fund under management into several categories of
investment
d. Reducing the risks of investment by putting all one’s eggs in one basket

Answer c. Diversification is a process of investing across different asset classes and across different market
environments. The rationale behind this technique contends that a portfolio of different kinds of
investments will, on average, yield higher returns and pose a lower risk than any individual investment
found within the portfolio. Diversification is a strategy used by professional fund managers that has proven
effective in reducing risk without sacrificing returns. The simplest example of Diversification is provided by
the proverb “Don't put all your eggs in one basket.” By dropping the basket, one will break all the eggs:
therefore, placing all the eggs in one basket represents an extremely non-diversified strategy.

50. Variable life funds can be invested in any financial instruments including cash funds, bond funds, equity
funds, property funds specialized funds and diversified funds. Equity funds ______________:

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a. Invest in shares of stocks and the magnitude of the change in unit prices will only depend on the
quantity of the equities held
b. Invest in shares of stocks and during market recession, such assets are usually the last to depreciate
c. Invest in share of stocks which are inherently of lower risk in nature and the prices of stocks are stable
d. Invest in shares of stocks and investor who buy such assets usually aims for capital appreciation

Answer d. Equity Funds invest in equity assets such as stocks and shares. Prices of equity shares are inherently
higher risk in nature and are volatile. Investors who buy equity assets usually aim for capital appreciation.

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