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

2. Which one of the following statements 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 switching criteria.
d. Policyholders have the flexibility of increasing or decreasing their premiums for regular premiums
variable life policies.

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

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 the time of surrender
III. The life company needs to maintain a separate account for variable life policies distinct from the
general account.

a. I and II c. I and III

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

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
6. Which of the following statements about variable life policies are TRUE?
I. Offer price is used to determine 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

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

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

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

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

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
12. 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 apool of qualified and trained professional fund
managers.

a. I and II c. I,II and

b. I and III d. II and III

13. Rank the following in term of their liquidity, from their 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

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 COMMISION (SEC) which usually
invests in a wide range of equities and other investment.

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

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
III. Policy owners can gain access to variable life finds 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
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

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 expect higher returns

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

I. Rebating is prohibited under the Insurance Code
II. Rebating deals with offering the prospects 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

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 fund 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 the future date
d. The investment element of variable life policies varies according to underlying assets of portfolio

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
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

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

24. Investing in bonds offer the following 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

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

26. Single premium variable life insurance policy:

a. Must be issued with a minimum of death benefit

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

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 then with participating and
other traditional policies
II. The protection costs are generally met by implicit charges, which may 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

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
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

29. The flexibility benefits of investing in variable life funds include ____________________:
I. Policy owner can easily change the level of sum assured and switched 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

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

31. The switching facility under variable life insurance policies is very useful ______________
a. For the purpose of profit planning by the life policies
b. For the purpose of assets planning by the trustees
c. For the purpose of sales planning by the fund managers
d. For the purpose of financial planning by the policy owners
32. The following statement about surrender value under traditional participating life insurance product 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

33. Which of the following statements about risk of investing in variable life funds is TRUE?
a. Policy owners who are risk averse should buy variable life insurance policies with high equity
investment
b. 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 owners who are risk averse should not purchase life insurance policies with high protection and
guaranteed cash and maturity values.

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 of the value of 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.
a. Ps. 432,000.00 c. Ps. 401,107.58
b. Ps. 420, 069.02 d. Ps. 412,500.00

35. The protection cost 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
36. Which 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 involved 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

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

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

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

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
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 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

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

43. Which of the following is/are the main characteristics(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

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

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 trust deeds
c. Acting generally to protect the unit – holders
d. Holdings the pool of money and assets in trust in behalf of the investors

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

48. In risk-return profile of cash funds, bonds funds balanced funds, manage 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. 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

49. Diversification in investment involves __________________________.

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

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 __________________:
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.