VARIABLE EXAM REVIEWER

1. Variable life insurance policy owners may make withdrawals in terms of

a. Number of units or fixed monetary amount through the cancellation of units

b. Number of units of fixed monetary through reduction of the life cover sum assured
c. Fixed monetary amount only through the reduction of the life cover sum assured
d. Number of units through the cancellation of units

2. Which 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 the bid price
b. Policyholders can take loans against their variable life 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 premium
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 managed by the life
insurance company IV. Fluctuate according to the rise and fall of market prices

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

4. Which of the following statements is 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 the surrender III. The life company needs to maintain a separate account for variable
life policies distinct from the general account

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

5. Which of the following statements 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 the policyholders to switch to another variable life funds offered by
the company

6. Which of the following statements about variable life policies is TRUE? I. Offer price is used
to determine the number of units to be credited to the account II. The margin between the bid
and offer price is used to cover the managements cost of the policy III. The policy value is
calculated based on the bid price of units allocated into the policy

a. I only
b. I & II
c. I & III
d. II & 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
b. Warrants
c. Variable life policies
d. Fixed income securities

8. What are the disadvantages of investing in common shares? I. Dividends are paid 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
b. I & III
c. II & III
d. I, II & III

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

a. I & II
b. I, II & III
c. I & III
d. II & III
10. Which of the following statements about twisting is FALSE?
a. Twisting is a special form of misrepresentation
b. It refers to an agents including 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 Php 30,000.00 per month. He is 35 years old and he
has a reasonable amount of savings. He has a moderate level of risk tolerance. What kind of
policy would you recommend for him to buy?

a. Participating Endowment
b. Variable life policies
c. Participating whole life
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
policyholders can vary his premium payments, take premium holidays, add single premium
top —ups and change the level of the sum assured easily III. The variable life policyholder can
have access to a pool of qualified and trained professional fund

a. I & II
b. I, II & III
c. III only

13. A unit trust is:

a. Established by a trust deed which enables a trustee to hold the pool of money and assets in trust
in behalf of the investor
b. A close-end fund and does not have to dispose of if the large number investors sell their shares
c. One whereby the investor buys units in the trust itself and not share in the company
d. An organization registered under the SECURITY EXCHANGE COMMISSION (SEC) which usually
invests in a wide range of equities and other investment

14. Under variable life insurance policies: I. There is no guaranteed minimum sum assured for
the purpose of declaring dividends II. There is no 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
investment monies to the value of the fund
a. I & IV
b. II & IV
c. III & IV
d. II &III

15. 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 policies have clear structures
which cater separately for investment and III. Insurance protection IV. 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 & IV
b. I, III, & IV
c. I, II & III
d. II, III & IV

16. Which of the following BEST describes the policy benefits of 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

17. 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 conditions on variable life policy is borne solely by
the customer.
c. Because the agent may give the wrong recommendations
d. Because the policyholder expects higher returns

18. Which of the following statements 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 & II
b. I & III
c. II & III
d. All of the above

19. Which one of the following statements 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 policyholder 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 the
portfolio

20. Which of the following statements about option top —up under variable life insurance 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 the top —up will be used in full, after deducting charges for top —
ups, to purchase additional units of the variable life funds
c. Top —up policy, the policy owner pays further single premium at the time of the top —up
d. Policy owners are normally allowed to top —up their policies at any time, subject to a minimum
amount

21. The characteristics of a variable life insurance 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 explicit charges with normally 6months 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 & III
b. II, III & IV
c. I, II & IV
d. I, III & IV

22. 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 or single premium injections are allowed in these
plans III. Policyholders have the flexibility of varying the level cover

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

23. Investing in bonds offer the following EXCEPT:

a. Must be issued with a minimum death benefit

b. Must be issued with a maximum withdrawal value
c. It allows the investor a chance for capital preservation
d. It enables the investor an opportunity for capital appreciation
24. 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 & III
b. I & II
c. I & III
d. II & III

25. 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

26. Which of the following statements about characteristics of variable life policies are TRUE?
I. Variable policies generally have a longer 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. The commissions and company
expenses are met by a variety of explicit charges, some of which are variable

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

27. 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 for an investor since it is managed by professionals who are
well-versed in the management of risk of investment portfolios
c. The fund relieves the investor from the hassle of administering his /her investment
d. The fund enables small investors to participate in a pool of diversified portfolio in which he/she,
with a low investment capital, is likely to have acceded to

28. The flexibility benefit of investing in variable life funds include I. Policy owners 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 policies offer the potential for higher returns IV. Traditional participating policies
aim to produce a steady return by smoothing out market fluctuation

a. All of the above

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

29. 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 of 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 & IV
b. II, III, IV
c. I, II, III
d. I, II & IV

30. 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

31. The following statement about surrender value under traditional participating life
insurance products are TRUE?

a. Cash value is paid when 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 the 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

32. Which one of the following statements about risks of investing in variable life funds is
TRUE?

a. Policy owners who are risk averse should buy 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 higher risk but can
expect to achieve higher returns 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

33. What should be the withdrawal values after a year? Offer Price = Php.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 = 2000 Sum assured is 190% of single
premium or 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 bid-offer spread is maintained at 8% and 4.5% respectively.

a. Php 432,000.00
b. Php 420,069.20
c. Php 401,107.58
d. Php 412,500.00

34. The protection cost under a variable life insurance policy I. Are met by flat initial charges
for regular premium plans II. Are generally covered by cancellation of units in fund III. Are
generally met by explicit charges stipulated openly in the policy terms IV. Vary with the age of
policy owner and level of cover

a. I, II, & III

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

35. Which of the following statements about diversification in portfolio management is

FALSE?

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

36. What are the advantages of investing in preferred shares? I. It gives shareholders the right
to a fixed dividend II. Has the priority over the company III. Assets during a dissolution IV.
They enjoy the benefit of capital appreciation

a. I, II, & III

b. I & II
c. I & III
d. II & III
37. With traditional participating life insurance products, the allocations to policy owners in
the form of dividends I. Are not directly linked to the company's investment performance II.
Have already been smoothened by the life company III. Do not have the highs and lows of
investment return as in good investments years of life company IV. Are not fixed at the
inception of the policy but are greatly dependent on the investment performance of the
company.

a. I, II, & III

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

38. 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 a sales plan, where sales goals, strategies, and objectives are
coordinated with the market analysis, segmentation and training IV. The giving of monetary
assistance and discount to the customers

a. I, & III
b. II, & III
c. II, & IV
d. II, III, & IV

39. Which of the statements is true about CASH?

a. It has a high yield potential

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

40. Under a regular premium variable whole life plan I. Premium top-ups and holidays, subject
to the company's administrative rules are usually allowed II. Life protection is the main
objective of the plan with investment as the 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 a variable life fund to provide
a certain level of life cover

a. II, III & IV

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

41. Which of the following statements about investment objectives is false?

a. People invest money in fixed deposits to produce high and guaranteed returns
b. People invest money to enhance a comfortable standard of living
c. People invest money to provide funds for higher education for their children
d. Investment in commodities has no regular income

42. 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 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 and indebtedness including interest

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

43. Risk can be classified into two particular categories in relation to investment. They include:
I. The risk of not losing some or all of the 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 & III
b. I & II
c. III & IV
d. II & IV

44. The duties of the trustee 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. Holding the pool of money and assets in trust on behalf of the investors

45. Policy fee payable by variable life insurance policy owner is to cover

a. The handling charges by professional investment managers

b. The price of 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

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

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

47. 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 of 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

48. Variable life funds can be invested in any financial instrument 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 as assets are usually the last to
depreciate
c. Invest in shares of stocks which are inherently of lower risk in nature and the prices of stocks are
stable
d. Invest in shares of stocks and investors who buy such assets usually aim for capital appreciation

49. Which of the following statements describe the differences between variable life products
and participating products? I. Variable life products allow policyholders to vary the premium
payments, unlike participating products II. Variable life products can take the form of whole
life or endowment policies with participating products III. Variable life products allow
policyholders to pay a future single Premiums from time to time to add more units to his
account, unlike participating products

a. I, II, and III

b. I
c. I and III
d. II and III
50. Assuming no movement in the prices and charges/fees are deducted after the single
premium has been Invested into the account, how much will the policyholder lose if he
surrenders the policy now? Bid price=Ps. 13.00 Bid-offer spread=4% Single premium =Ps.
450,000 Policy fee Ps. 1,800 Admin and Mortality charge=3% Sum assured is 200% of single
premium or the value of the units, whichever is higher 0/1

a. Ps. 43,400.90
b. Ps. 33,246.78
c. Ps. 22,500.00
d. Ps. 15,299.96

51. Which of the following statements BEST describes "variable life" policies?

a. It is a fixed premium policy with returns that will not vary with the underlying value of investments
b. It is a fixed premium policy with returns that will vary with the underlying value of investments
c. It is a flexible premium policy with returns that will not vary with the underlying value of
investments
d. It is a flexible premium policy with returns that will vary with the underlying value of investments

52. Which of the following factors contribute to the specific risk of investment: I. Rate of
corporate taxes II. Fraud by senior management III. Financial leverage of the company

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

53. Investing in bonds offers the following advantages EXCEPT

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

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

54. Rank the following investment instruments in terms of their level of risks, from the least
risky to the most risky I. cash and deposit II. derivatives III. a well-diversified investment
portfolio of a company IV. stock options

a. I, IV, III & II

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

55. 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 the
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. I, II & IV
d. I, III, & IV

56. 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 & II
b. I, II & III
c. I & III
d. II & III

57. Which of the following information is NOT required to be disclosed to policyholders of

variable life policies?

a. The net withdrawal value as of the statement date

b. The premiums received and charges levied during the period
c. The basis and frequency for valuing the assets
d. Number and value of units held at the beginning of the period; bought and sold during the
period; and held at the end of the period

ANSWERS :

1. D 9. D 17. B
2. B 10. D 18. A
3. C 11. C 19. A
4. D 12. A 20. A
5. C 13. A 21. D
6. D 14. C 22. D
7. D 15. C 23. D
8. C 16. C 24. B
25. A
26. C
27. B
28. B
29. B
30. D
31. C
32. C
33. C
34. D
35. B
CEDE CG4
36. A SUPPORT STAFF
37. A
38. B
39. B
40. D
41. A
42. D
43. D
44. A
45. D
46. B
47. C
48. D
49. A
50. B
51. D
52. B
53. D
54. A
55. B
56. D
57. A