INSURANCE COMMISSION policy value of variable life endowment

I. The
INSURANCE AGENTS EXAMINATION
VARIABLE INSURANCE CONTRACTS policies directly reflect the performance of the fund of the
company.
DIRECTION: Choose the correct answer. Indicate your answer by II. The premiums and benefits of the endowment policies are
marking the appropriate parenthesis on the answer sheet with an x. described at inception of the policy whereas variable life policies are
1. The investment returns under variable life insurance policy ____ flexible as they are account driven
I. Are not guaranteed III. The benefits and risk of variable life and endowment policies
II. Are assured directly accrue to the policyholders
III. Are linked to the performance of the investment fund A. I and II
managed by the company. B. I, II and III
IV. Fluctuate according to the performance of the investment C. I and III
funds managed by the fund manager.
D. II and III
A. I, III & IV
B. I,II 6. What are the disadvantages of investing in common shares?
C. III, & IV dividends are paid not more than fixed
I.
D. II, III, & IV
rates
2. Which of the following statement are true? II. Investors are exposed to market and specific risks
I. The policy value of variable life policies is determined by the III. Shares can become worthless if company becomes insolvent
offer price time of valuation. A. I, II
II. The policy value of endowment policies is the cash value plus B. I, III
accumulated dividends less any outstanding loans due at time of
surrender. C. II, III
III. The life company needs to maintain a separate account for D. I, II and III
various policies distinct from the general account.
A. I and II 7. What is the most suitable investment instrument for an investor
B. I, II, and III who has interested in protecting his principal and receiving a steady
C. I and III stream of income?
a. Equities
D. II and III b. Warrants
c. Variable Life Policies
3. Variable life insurance policy owners may make
d. Fixed Income Securities
withdrawals in
terms of _____ 8. Which of the following statements about variable life policies are
A. Number of units or fixed monetary amount through TRUE?
cancellation of units I. Offer price is used to determine the number of units to be
B. Number of units or fixed monetary amount through reduction of credited to the accounts
the life cover sum assured II. The margin between the bid and offer price is used to cover the
C. Fixed monetary amount only through reduction of the life cover management cost of the policy
of units III. The policy value is calculated based on the bid price of units
D. Number of units through cancellation of units. allocated into the policy

4. Which of the following statements about the flexibility features of A. All of the above
variable life policies is FALSE? B. I and II
C. I and III
A. Policy holders may request for a partial withdrawal of the policy D. II and III
and the withdrawal amount will be met by cashing the units at bid
price. 9. Which of the following statements is FALSE?

B. Policyholders can make 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 signifies the companies switching criteria.
D. Policyholder have the flexibility of increasing or decreasing their
premiums for regular premium variable life policies.
5. Which of the following statements about the difference between
variable life policies and endowment policies are 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 fund offered by company

10. A UNIT TRUST is__________________________

 A. Established by a trust deed which enables a trustee to II. Rebating deals with offering the prospect a special
inducements to purchase a policy
hold the pooled money and assets in trust on behalf of the investor
III. Rebating will enhance the sales performance and uphold the
B. A close-end fund and does not have to dispose of its assets if
prestige of an agent
the number of investors to get their shares
C. One whereby investor buy units in the trust itself and not
shares of the company A. I and II
D. An organization invest in a wide range of equities and B. I and III
investment C. I, II and III
D. II and III
11. Rank the following in terms of their liquidity, from the least liquid
to most liquid 16. Why it is important that the costumer must understand the sales
I. Short term securities proposal in full?
II. Property
III. Cash A. Because the insurer does not guarantee any return
IV. Equities B. Because the impact of changes in
A. IV, II, III, I investment condition on variable life policy
B. III, I, IV, II is borne solely by the customer
C. II, I. LV, III
C. Because the agent may give the wrong recommendations
D. II IV, I, III D. Because the policy holder expects higher returns

12. What are the benefits available when investing in variable life 17. Which one of the following BEST describes the policy benefits
funds? variable life policies?

I. The variable life funds offer policyholders an access to pooled A. The policy benefits are payable only on death or disability
or diversified portfolio B. The policy benefits will depend on the long-term
II. The variable life policyholders can vary the premium payments, performance of the life company
take premium holidays, and single premium top-ups and change the C. The policy benefits are directly linked to the
level of sum insured easily.
investment performance of the underlying assets
III. The variable life policyholder can have access to a D. The policy benefits are guaranteed
pool of qualified and trained professional fund managers 18. The benefits of investing in variable life funds include ________;
I. Policy owners have access to period or diversified portfolio
A. I and II of investment
B. I and III II. Policy owners can easily change the level of the premium
C. I, II and III payments as the product design of variable life insurance policies
D. II and III have clear structures which enter separately for investment and
insurance protection
13. Mr. Juan dela Cruz is currently earning P30,000 per month. He III. Policy owners can’t gain access to variable life funds
is 36 years old and has a reasonable amount of savings. He has a managed by professional investment managers with proven track
moderate level of risk tolerance. What kind of policy would you records
recommend for him to buy? IV. Policy owners can buy a variable life insurance policy only

A. participating Endowment with a high investment

A. I, II and IV
B. Variable Life policies B. I, III and IV
C. Participating Whole life
D. Annuities C. I, II and III
D. II, III and IV
14. Which of the following statements about twisting is false?
19. Under variable life insurance policies__________
A. Twisting is a special form of misrepresentation I. There is no guaranteed minimum sum assured for the
B. Refers to an agent inducing a policyholder to discontinue purpose of declaring dividends
with another company without disclosing the disadvantage of doing
so. II. There is no guaranteed minimum sum assured as a
C. It includes misleading or incomplete comparison of policies. level of life insurance protection
III. Each of the policy owner’s premium will be used to
D. It refers to an agent offering a prospect a special purchase units, the number of which is dependent on the selling
inducement to purchase a policy. price of each unit
IV. Purchase of units can only be made from the variable life
15. Which of the following statement about rebating are true? fund itself, which will then create new units and add the investment
I. Rebating is prohibited under the insurance code. monies to the value of the fund
 A. I and IV
B. II and IV
C. III and IV
D. II and III
20. Which of the following statements about single premium variable
life policies are TRUE?
I. There is no fixed term in 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. Policy holders have the flexibility of varying the level cover
24. 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 ensure definite high yield for an investor
since it is managed by professionals who are well-versed in the
management of risks of investment.
C. The fund relieves the 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
unlikely to have acceded to

A. I, II & III 25. Which of the following statements about variable life policies are
B. II & III TRUE?
C. I & II I. The withdrawal value is not guaranteed
D. I & III II. The volatility of the returns depends on the investment
strategy of the fund

21. The characteristics of a variable life insurance policy

III. The variable life policyholder has direct control
include_________; over the investment decisions of the variable life fund
I. Its withdrawal value and protection benefits are determined
by the investment performance of the underlying assets A. I, II & III
II. Its protection cost are generally met by implicit charges B. I & II
III. Its commissions and company expenses are met by a C. I & III
variety of explicit charges D. II & III
IV. Its withdrawal value is normally the value of units allocated
to the policy owner calculated at the bid price 26. Investing in bonds offers the following advantage EXCEPT?
A. I, II, & III A. It offers protection to the principal and guaranteed
B. II, III & IV steady stream of income
C. I, II & IV B. It is a place of temporary refuge when the investor
foresees that the market outlook is uncertain
D. I, III & IV C. It allows the investor a chance for capital preservation
22. Which of the following statements about option to top-up under D. It enables the investor an opportunity for capital
variable life insurance product is FALSE? appreciation
A. Policy owners may buy additional units of variable life
27. Single premium variable life insurance policy
and these units will allocated be to new variable
A. Must be issued with a minimum death
life insurance policies.
B. Further premiums at time of top-up will be used in full, benefit
after deducting charges for top-ups, to purchase additional units of B. Must be issued with a maximum withdrawal value
the variable life funds. C. Has no death benefit
C. To top-up a policy, the policy owner pays further single D. Has no withdrawal value
premium at the time of top-up.
D. Policy owners are normally allowed to top-up their policies 28. Which of the following statements about characteristics of
at any time, subject to a minimum amount variable life policies are TRUE?
I. Variable life policies generally have a larger exposure to equity
23. Which of the following statements is FALSE? investment than with participating and other traditional policies
A. Variable life insurance policies offer investors policies II. The protection cost are generally met by implicit
with value indirectly linked to the investment performance of charges which vary with age level of cover
the life company III. Commissions and company expenses are met by a variety of
B. Life company will carry out a valuation of the funds yearly explicit charges, some of which are variable
and any surplus may be allocated to participating policy holder as A. I, II & III
cash dividends. B. I & II
C. Both whole life and endowment policies can be used as an C. II & III
investment media with benefits that become payable at a future date. D. I & III
D. The investment element of variable life policies varies
according to underlying assets of the portfolio
29. The following statement about surrender value under 33. The protection cost under a variable life insurance policy ______
traditional participating life insurance products are
I. Are met by a flat initial charges for regular premium
TRUE? II. Are generally covered by cancellation of units in the fund
A. Cash value is paid when a yearly renewable term III. Are generally met by explicit charges stipulated openly in
the policy name
insurance policy is surrendered IV. Vary with age of policy owner and level of cover
B. When participating insurance policy is A. I, II & III
surrendered, the surrender value is calculated by multiplying the old B. I, II & IV
C. I, III & IV
price with number of units
C. The amount of surrender value is usually higher than the D. II, III & I, IV
amount under non-participating policies and it varies with the 34. Which of the following about risks of investing in variable life
age of the insured being lower at elder ages funds is TRUE?
D. In the case of participating policies, the net cash surrender value A. Policy owners who are risk averse should buy variable life
includes the surrender value of the paid-up addition up to the date of insurance policies with high quality investment
surrender
B. Investment in Variable life funds which are fully invested in units of
30. The fundamental differences between traditional participating life equity bonds are not suitable for policy owner who can tolerate the
insurance policies and variable life insurance policies risks of short term fluctuation in their cash value.
include___________________:
I. Variable life insurance policies are less likely to offer C. Policy owner who invest in variable life funds with high
more choice in terms of the type of investment funds investment face greater risk but can expect to achieve higher return
than the traditional life insurance product over the long term.
II. The investment element of variable life insurance policies is
made known to the policy owner at the outset and is invented in a
D. Policy owner who are risk adverse should not purchase life
separately identifiable fund which is made up units of investment
insurance policies with high protection and guaranteed cash and
III. Variable life insurance policies offer the potential for higher
maturity values
returns
IV. Traditional participating policies aim to produce a steady return
35. What would be the withdrawal value after a year?
by smoothing out market fluctuation
A. I, III & IV Offer Price = P 16.00
B. II, III & IV Bid Offer Spread = 4.36
C. I, II & III Number of Units Bought = 25,000
D. I, II & IV Policy Fee = 1.60
Admin and Mortality charge = 8.75
31. The flexibility benefit of investing in variable life funds Admin for top-up = 2,000
include________________:
I. Policy owners can easily change the level of sum assured and Sum assured is 190% of single premium on the value of units
switch their nvestment between funds whichever is higher
II. Policy owners can easily take premium holidays and add single
premium to top-ups ASSUMPTIONS
III. Variable life insurance products have a simple product design
with a clear structure which caters separately for investment and 1. Charges and fees are deducted after the single premium has been
insurance protection invested into the account
IV. Policy owners can easily change the level of their premium 2. The growth rate of the unit price and bid-offer spread is maintained
payments at 8% and 4.5% respectively
A. Ps. 432,000.00
A. All of the above B. Ps. 420,069.02
B. I, II & III
C. I, II & IV
C. Ps. 401,107.58
D. I, III & IV D. PS. 412,500.00

32. The switching facility under variable life insurance policies is a 36. What are the advantages of investing in preferred shares
very useful ________ I. It gives the shareholders the right to fixed dividend
A. For the purpose of profit planning by the life policies II. Has priority over company assets during dissolution
B. For the purpose of assets planning by the trustee III. They enjoy benefit of capital appreciation
C. For the purpose of sales planning by the fund managers
A. I, II & III
D. For the purpose of financial planning by the policy
owners B. I, & II
C. I, & III
 D. II & III
37. 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 the returns for the portfolio
B. Diversification can completely eliminates the risk of investing in
stocks in a portfolio
C. Diversification can involve purchasing different types of stocks
and investing in stocks in different countries.
D. Diversification helps to spread the portfolio risk by investing in
different categories of investment in a portfolio
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 companys investment
performance
II. Have already been smothered by the life company
III. Do not have the highs and lows of investment return 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 & III
B. I, II & IV
C. I, III & IV
D. II, III & IV
39. The objective of satisfying customers need profitability can be
achieved by an agent through _______________
I. The giving of freebies to the customers
II. Extensive investments training by the company
III. The use of sales plan, where sales goals, strategies and
objectives are coordinated with market analysis, segmentation and
targeting
IV. The giving of monetary assistance and discount to the
customers
A. I & II
B. II & III
C. I, II & IV
D. II, III & IV
40. Risk can be classified into two 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 individuals 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
41. Under 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 the
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 cover
A. II, III & IV
B. I, III & IV
C. I, II & IV
D. I, II & III
42. Which of the following is/are the main characteristics of
variable life policies?
I. The policies can be used for investment, as a source of regular
savings and potection
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
B. I
C. I, II, III
D. I & II
43. Which one of the following statements 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 decrease when interest rates rise
44. Which of the following statements about investments are
FALSE?
A. People invest money in fixed deposits to produce high and
guaranteed returns
B. People invest money to enhance 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
45. Variable 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 stock and the magnitude of the change in
unit prices will only depend on the quantity of the equities hold
B. Invest in shares of stocks and during market recession, such
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 aims for capital appreciation

46. In half-return profile of cash funds, bond funds,

balance 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 and of the graph

A. I, II & III
B. II, III & IV
C. I, II & IV
D. I, III, & IV

47. The duties of the trustee of unit trust do not include:

A. Managing the portfolio of investments 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 money and assets in trust in behalf of the investors

48. 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 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

49. Policy fee payable by variable life insurance policy owner 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

50. 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 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