Life Insurance Reviewer - Variable Part 1
Life Insurance Knowledge Quiz
Test your understanding of variable life insurance policies with our comprehensive quiz! This quiz consists of 50 carefully crafted questions that cover essential concepts and details related to life insurance, ensuring you gain valuable knowledge in the process.
Whether you are preparing for a certification or simply want to improve your understanding, this quiz is perfect for you.
- 50 Multiple Choice Questions
- Topics ranging from policy benefits to investment instruments
- Score and review your answers instantly
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 managed by the life company
IV. Fluctuate according to the rise and fall of the market prices
I, II and III
I, II and IV
I, III and IV
II, III and IV
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 evaluation.
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.
II and III
I, II and III
I and III
I and II
Variable life insurance policy owners may make withdraw in terms of __________________.
Number of units or fixed monetary amount through cancellation of units
Number of units or fixed monetary amount through reduction of the life cover sum assured
Fixed monetary amount only through reduction of the life cover sum assured
Number of units through cancellation of units
Which one of the following statements about the flexibility features of variable life policies is FALSE?
Policyholders may request for a partial withdrawal of the policy and the withdrawal amount will be met by cashing the units at bid price
Policyholders can take loans against their variable life policies up to the entire withdrawal value of their policies
Policyholders have the flexibility of switching from one fund to another provided it satisfies the company’s switching criteria
Policyholders have the flexibility of increasing or decreasing their premiums for regular premiums variable life policies
Which of the following statements 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
I and II
I, II and III
I and III
II and III
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
I, II
I, III
II, III
I, II, and III
What is the most suitable investment instrument for investor who is interested in protecting his principal while receiving a steady stream of income?
Equities
Warrants
Variable Life Policies
Fixed Income Securities
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
I and II
I and III
II and III
All of the above
Which of the following statements is FALSE?
Rebating is to offer a prospect a special inducement to purchase a policy
Twisting is a specific form of misrepresentation
Misrepresentation is a specific form of twisting
Switching is a facility allowing policyholders to switch to another variable life funds offered by company
A UNIT TRUST is __________________________.
Established by a trust deed which enable a trustee to hold the pool of money and assets in trust on behalf of the investor
A close-end fund and does not have to dispose of its assets if a large number of investors sell their shares
One whereby an investor buys units in the trust itself and not shares in the company
An organization invests in a wide range of equities and other investments
Rank the following in terms of liquidity, from the least liquid to the most liquid:
I. Short Term Securities
II. Property
III. Cash
IV. Equities
IV, II, III, I
III, I, IV, II
II, I, IV, III
II, IV, I, III
What are the benefits available when investing in variable life funds?
I. The variable life funds offer policyholders an access to 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
I and II
I and III
I, II and III
II and III
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 risk tolerance. What kind of policy would you recommend him to buy?
Participating endowment
Variable life policies
Participating whole life
Annuities
Which of the following statements about twisting are FALSE?
It refers to an agent inducing a policyholder to discontinue policy with another company without disclosing the disadvantage of doing so
It includes misleading or incomplete comparison of policies
It refers to an agent offering a prospect a special inducement to purchase a policy
Which of the following about rebating is 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
I and II
I and III
II and III
II and III
Why is it important that the customer has to understand the sales proposal completely?
Because the insurer does not guarantee any return
Because the impact of changes in investment condition on variable life policy borne solely by the customer
Because the agent may give the wrong recommendations
Because the policyholders expects higher returns
Which of the following BEST describes the policy benefits of variable life policies?
The policy benefits are payable only on death or disability
The policy benefits will depend on the long-term performance of the life company
The policy benefits are directly linked to the investment performance of the underlying assets
The policy benefits are guaranteed
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
I, II and IV
I, III and IV
I, II and III
II, III and IV
Under variable life insurance policies _________________________.
I. There is no guaranteed minimum sum assured for the purposed 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 for 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
I and IV
II and IV
III and IV
II and III
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-up single premium injections are allowed in these plans
III. Policyholders have the flexibility of varying the level cover
I, II and III
II and III
I and II
I and III
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 costs 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
I, II and III
II, III and IV
I, II and IV
I, III and IV
Which of the following statements about option to top-up under variable life insurance products is FALSE?
Policy owners may buy additional units of the variable life fund and these units will be allocated to new variable life insurance policies
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.
To top-up a policy, the policy owner pays further single premium at the time of top-up
Policy owners are normally allowed to top-up their policies at any time, subject to a minimum amount
Which one of the following statements is FALSE?
Variable life insurance policies offer investors plans with values that are indirectly linked to the investment performance of the life company
A life insurance company will carry out a evaluation of its funds yearly and any surplus may be allocated to participating policyholders as cash dividends
Both Whole Life and Endowment policies can be used as an investment media with benefits that become payable at a future date
The investment element of variable life policies varies according to underlying assets of portfolio
Which of the following statements about benefits in variable life fund is FALSE?
It offers protection to the principal and guaranteed steady stream of income
It is a place of temporary refuge when the investor foresees that the market outlook is uncertain
It allows the investor a chance for capital preservations
It enables the investors an opportunity for capital appreciation
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
I, II and III
I and II
I and III
II and III
Investing in bonds offer the following advantages EXCEPT
It offers protection to the principal and guaranteed steady stream of income
It is a place of temporary refuge when the investor foresees that the market outlook is uncertain
It allows the investor a chance for capital preservations
It enables the investors an opportunity for capital appreciation
Single premium variable life insurance policy:
Must be issued with a minimum death benefit
Must be issued with a maximum withdrawal value
Has no death benefit
Has no withdrawal value
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
I, II and III
I and II
II and III
I and III
Which of the following statements about surrender value under traditional participating life insurance products is TRUE?
Cash value is paid when a yearly renewable term insurance policy is surrendered
When a participating insurance policy is surrendered, the surrender value is calculated by multiplying the bid price with number of units
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
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
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
I, III and IV
II, III and IV
I, II and III
I, II and IV
The flexibility of investing in variable life funds includes _______________.
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
All of the choices
I, II and III
I, II and IV
I, III and IV
The switching facility under a variable life insurance policy is a very useful _________________
For the purpose of profit planning by the life policies
For the purpose of assets planning by the trustee
For the purpose of sales planning by the fund managers
For the purpose of financial planning by the policy owners
The protection costs under a variable life insurance policy __________________
I. Are met by a flat initial charges for regular premium loans
II. Are generally covered by cancellation of units in the fund
III. Are generally met by explicit charges stipulated openly
IV. Vary with age of policy owner and level of coverage
I, II and III
I, II and IV
I, III and IV
II, III and IV
Which of the following statements about risks of investing in variable life funds is TRUE?
Policy owners who are risk averse should buy variable life insurance policies with high equity investment
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
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
Policy owner who are risk averse should not purchase life insurance policies with high protection and guaranteed cash and maturity values
What would be the withdrawal value after a year?
Offer Price P 16.00
Bid-offer spread 4.5%
Number of Units bought 25,000
Policy Fee 1,800
Admin and Mortality charge 8,750
Top-up Fee 700
Admin for Top-up 2,000
Sum assured is 190% of single premium or the value of the units, whichever is higher.
ASSUMPTIONS:
1. Charges and Fees are deducted after 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
P 432,000.00
P 420, 069.02
P 401, 107.58
P 412, 500.00
Advantages of investing in preferred shares are:
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
I, II and III
I and II
I and III
II and III
Which one of the following statements about an investor diversifying his portfolio is FALSE?
A diversified portfolio provides for greater security to an investor having sacrifice the return for the portfolio
Diversification can completely eliminate the risk of investing in stocks in a portfolio
Diversification can involve purchasing different countries
Divesification helps to spread the portfolio risk by investing in different categories of investment in portfolio
With traditional 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 the life company
IV. Are not fixed at the inception of the policy, but are greatly dependent on the investment performance of the life company
I, II and III
I, II and IV
I, III and IV
II, III and IV
The objective of satisfying customers needs profitably can be achieved by an agent through
I. The giving of freebies to 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
I and III
II and III
I, II and IV
II, III and IV
Risk can be classified into two particular 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
I and III
I and II
III and IV
II and IV
In 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
II, III and IV
I, III and IV
I, II and IV
I, II and III
Which of the following are 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
II
I
I, II and III
I and II
Which of the following statements is true about CASH?
It has high yield potential
Amount invested in cash depends on the size of the cash flow requirement
Investment in cash increases when there is a bull run in the stock market
Investment in cash decreases when interest rates rise
Which of the following statements about investment objectives is FALSE?
People invest money in fixed deposits to produce high and guaranteed returns
People invest money to enhance a comfortable standard living
People invest money to provide funds for higher education for their children
Investment in commodities has no regular income
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 means___________
Invest in shares of stocks and the magnitude of the change in unit prices will only depend on the quantity of the equities held
Invest in shares of stocks and during market recession, such assets are usually the last to depreciate
Invest in share of stocks which are inherently of lower risk in nature and the prices of stocks are stable
Invest in shares of stocks and investor who buys such assets usually aims for capital appreciation
In risk–return profile of bond funds, cash funds, managed funds, balanced 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
I, II and III
II, III and IV
I, II and IV
I, III and IV
The duties of the trustees of unit trust do not include
Managing the portfolio of investment and administering the buying and selling of shares in the unit trust itself
Ensuring that the fund manager adhere to the provision of the trusts deeds
Acting generally to protect the unit-holders
Holding the pool of money and assets in trust in behalf of the investors
The selling price under a variable life insurance policy is:
The price at which units under the policy are bought back by the life company
The price at which units under the policy are offered for sale by the life company
Also known as the bid price
A fixed amount throughout
Policy fee payable by a variable life insurance policy owner is to cover _________________
The handling charges by professional investment managers
The price for each unit bought under the variable life insurance policy
The mortality costs of the variable life insurance policy
The administrative expenses of setting up the variable life insurance policy
Diversification in investment involves _________________
Putting all the funds under management into one category of investment
Spreading the risks of investment by not putting the fund into several categories investment
Reducing the risks of investment by putting one fund under management into several categories of investment
Reducing the risks of investment by putting all one’s eggs in one basket
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