Question 1

A UNIT TRUST is _________.

Accepted Answer

Established by a trust deed which enable a trustee to hold the pool of money and assets in trust on behalf of the investor

Answer

A close-end fund and does not have to dispose of its assets if a large number of investors sell their shares

Answer

One whereby an investor buys units in the trust itself and not shares in the company

Answer

An organization registered under the SECURITIES AND EXCHANGE COMMISSION (SEC) which usually invests in a wide range of equities and other investments

Question 2

Which of the following statements are FALSE?

I. The policy value of variable life policies is determined by the offer price at the time of valuation

II. The policy value of endowment policies is the cash value plus any accumulated dividends less any outstanding loans due at time of surrender

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

Accepted Answer

I

Answer

II and III

Answer

I, II and III

Answer

I and III

Question 3

Variable life insurance policy owners may withdraw in terms of

Accepted Answer

Number of units or fixed monetary amount through cancellation of units

Answer

Fixed monetary amount only through reduction of the life cover sum assured

Answer

Number of units or fixed monetary amount through reduction of the life cover sum assured

Answer

Number of units through cancellation of units

Question 4

Which one of the following statements is FALSE?

Accepted Answer

Variable life insurance policies offer investors plans with values that are indirectly linked to the investment performance of the life company

Answer

The investment element of variable life policies varies according to underlying assets of portfolio

Answer

A life insurance company will carry out a valuation of its funds yearly and any surplus may be allocated to participating policyholders as cash dividends

Answer

Both Whole Life and Endowment policies can be used as an investment media with benefits that become payable at a future date

Question 5

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

I. The cash 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

Accepted Answer

I and II

Answer

II and III

Answer

I and III

Answer

I, II, and III

Question 6

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

Accepted Answer

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

Answer

Policy owners who are risk averse should buy variable life insurance policies with high equity investment

Answer

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

Answer

Policy owner who are risk averse should not purchase life insurance policies with high protection and guaranteed cash and maturity values

Question 7

Which of the following duties of the trustees are FALSE?

Accepted Answer

Managing the portfolio of investment and administering the buying and selling of shares in the unit trust itself

Answer

Ensuring that the fund manager adhere to the provision of the trusts deeds

Answer

Acting generally to protect the unit-holders

Answer

Holding the pool of money and assets in trust in behalf of the investors

Question 8

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

Accepted Answer

II and III

Answer

I, II, and III

Answer

I and II

Answer

I and III

Question 9

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

Accepted Answer

II, IV, I, III

Answer

IV, II, III, I

Answer

III, I, IV, II

Answer

II, I, IV, III

Question 10

Under a variable life insurance policy, the protection costs

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 in the policy terms

IV. Vary with age of policy owner and level of coverage

Accepted Answer

II, III, and IV

Answer

I, II, and IV

Answer

I, II, and III

Answer

I, III, and IV

Question 11

Investment diversification involves

Accepted Answer

Reducing the risks of investment by putting one fund under management into several categories of investment

Answer

Reducing the risks of investment by putting all one’s eggs in one basket.

Answer

Putting all the funds under management into one category of investment

Answer

Spreading the risks of investment by not putting the fund into several categories investment

Question 12

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

Accepted Answer

I, II, and III

Answer

I and II

Answer

I and III

Answer

II and III

Question 13

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

Accepted Answer

The fund ensures definite high yield for the investor since it is managed by professionals who are well-versed in the management of risks of investment portfolios

Answer

The fund enable small investor to participate in a pool of diversified portfolio in which he/she with low investment capital, is likely to have acceded to

Answer

The fund relieves investor from the hassle of administering his/her investment

Answer

The fund provides a highly diversified portfolio, thus, lowering the risk of investment

Question 14

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

Accepted Answer

II, III and IV

Answer

I, II and IV

Answer

I, III and IV

Answer

I, II and III

Question 15

The investment returns under variable life insurance

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

Accepted Answer

I, III, and IV

Answer

I, II, and III

Answer

II, III, and IV

Answer

I, II, and IV

Question 16

The policy fee payable by a variable life insurance policy owner is to cover

Accepted Answer

The administrative expenses of setting up the variable life insurance policy

Answer

The handling charges by professional investment managers

Answer

The mortality costs of the variable life insurance policy

Answer

The price for each unit bought under the variable life insurance policy

Question 17

What is the most suitable investment instrument for someone who is interested in protecting his principal while receiving a steady stream of income?

Accepted Answer

Fixed Income Securities

Answer

Equities

Answer

Warrants

Answer

Variable Life Policies

Question 18

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

I. Policy owners may buy additional units of the variable life fund and these units will be allocated to new variable life insurance policies.

II. 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.

III. To top-up a policy, the policy owner pays further single premium at the time of top-up

IV. Policy owners are normally allowed to top-up their policies at any time, subject to a minimum amount

Accepted Answer

II, III, and IV

Answer

I, II, and III

Answer

I, II, and IV

Answer

I, III and IV

Question 19

What are the disadvantages when 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

Accepted Answer

II&#44; III

Answer

I&#44; III

Answer

I, II, and III

Answer

I&#44; II

Question 20

The flexibility of investing in variable life funds includes these benefits:

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

Accepted Answer

I, II, and IV

Answer

All of the above

Answer

I, II, and III

Answer

I, III, and IV

Question 21

Which of the following statements is FALSE?

Accepted Answer

Misrepresentation is a specific form of twisting

Answer

Switching is a facility allowing policyholders to switch to another variable life funds offered by company

Answer

Rebating is to offer a prospect a special inducement to purchase a policy

Answer

Twisting is a specific form of misrepresentation

Question 22

Mr. 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?

Accepted Answer

Variable life policies

Answer

Annuities

Answer

Participating whole life

Answer

Participating endowment

Question 23

The selling price under a variable life insurance policy is:

Accepted Answer

The price at which units under the policy are offered for sale by the life company

Answer

A fixed amount throughout

Answer

The price at which units the policy are bought back by the life company

Answer

Also known as the bid price

Question 24

Which of the following best describes the benefits of variable life policies?

Accepted Answer

The policy benefits are directly linked to the investment performance of the underlying assets

Answer

The policy benefits are guaranteed

Answer

The policy benefits will depend on the long-term performance of the life company

Answer

The policy benefits are payable only on death or disability

Question 25

Variable life funds can be invested in any financial instruments including bond funds, property funds, specialized funds, and equity funds. Equity funds

Accepted Answer

Invest in shares of stocks and investor who buys such assets usually aims for capital appreciation

Answer

Invest in shares of stocks and during market recession, such assets are usually the last to depreciate

Answer

Invest in share of stocks which are inherently of lower risk in nature and the prices of stocks are stable

Answer

Invest in shares of stocks and the magnitude of the change in unit prices will only depend on the quantity of the equities held

Question 26

In 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

Accepted Answer

II, III, and IV

Answer

I, III, and IV

Answer

I, II, and III

Answer

I, II, and IV

Question 27

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

Accepted Answer

II and III

Answer

I and II

Answer

I, II, and II

Answer

I and III

Question 28

An investor in variable life funds gets to enjoy these benefits:

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

Accepted Answer

I, II, and III

Answer

II, III, and IV

Answer

I, II, and IV

Answer

I, III, and IV

Question 29

Which one of the following statements about the flexibility features of variable life policies is FALSE?

Accepted Answer

Policyholders can take loans against their variable life policies up to the entire withdrawal value of their policies

Answer

Policyholders may request for a partial withdrawal of the policy and the withdrawal amount will be met by cashing the units at bid price

Answer

Policyholders have the flexibility of switching from one fund to another provided it satisfies the company’s switching criteria

Answer

Policyholders have the flexibility of increasing or decreasing their premiums for regular premiums variable life policies

Question 30

The differences between traditional participating life insurance and variable life insurance 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

Accepted Answer

II, III, and IV

Answer

I, II, and III

Answer

I, II, and IV

Answer

I, III, and IV

Question 31

Why is it important that the customer has to understand the sales proposal completely?

Accepted Answer

Because the impact of changes in investment condition on variable life policy borne solely by the customer

Answer

Because the policyholders expects higher returns

Answer

Because the insurer does not guarantee any return

Answer

Because the agent may give the wrong recommendations

Question 32

The objective of satisfying the needs of the customers 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

Accepted Answer

II and III

Answer

I and III

Answer

I, II, and IV

Answer

II, III and IV

Question 33

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

Accepted Answer

I, II, and III

Answer

II, III, and IV

Answer

I, II, and IV

Answer

I, III, and IV

Question 34

In variable life insurance policies

I. There is no guaranteed minimum sum assured for the purposed 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 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

Accepted Answer

III and IV

Answer

II and III

Answer

II and IV

Answer

I and IV

Question 35

What would be the withdrawal value after a year?

Offer Price =Ps 16.00

Bid-offerspread=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

Accepted Answer

Ps. 401, 107.58

Answer

Ps. 412, 500.00

Answer

Ps. 420, 069.02

Answer

Ps 432,000.00

Question 36

Which of the following about rebating is FALSE?

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

Accepted Answer

III

Answer

I and III

Answer

II and III

Answer

I and II

Question 37

Which of the following statements about 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

Accepted Answer

I and II

Answer

I and III

Answer

I, II, and III

Answer

II and III

Question 38

A single premium variable life insurance policy must be issued with

Accepted Answer

A minimum death benefit

Answer

A maximum withdrawal value

Answer

Without withdrawal value

Answer

Without death benefit

Question 39

Investing in bonds offer the following advantages with the exception of

Accepted Answer

Enabling the investors an opportunity for capital appreciation

Answer

Offering protection to the principal and guaranteed steady stream of income

Answer

Allowing the investor a chance for capital preservation

Answer

Being a place of temporary refuge when the investor foresees that the market outlook is uncertain

Question 40

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

Accepted Answer

I, II, and IV

Answer

II, III, and IV

Answer

I, III, and IV

Answer

I, II, and III

Question 41

The facility to do switching under a variable life insurance policy is a very useful

Accepted Answer

For the purpose of financial planning by the policy owners

Answer

For the purpose of assets planning by the trustee

Answer

For the purpose of sales planning by the fund managers

Answer

For the purpose of profit planning by the life policies

Question 42

Which of the following statements about surrender value under traditional participating life insurance products is TRUE?

Accepted Answer

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

Answer

When a participating insurance policy is surrendered, the surrender value is calculated by multiplying the bid price with number of units

Answer

In the case of participating policies, the net cash surrender value includes the surrender value of the paid-up addition up to the date of surrender

Answer

Cash value is paid when a yearly renewable term insurance policy is surrendered

Question 43

Which of the following are main characteristics 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

Accepted Answer

I and II

Answer

I, II, and III

Answer

II

Answer

I

Question 44

Which of the following statements about twisting are TRUE?

I. Twisting is a special form of misrepresentation

II. It refers to an agent inducing a policyholder to discontinue policy with another company without disclosing the disadvantage of doing so

III. It includes misleading or incomplete comparison of policies

IV. It refers to an agent offering a prospect a special inducement to purchase a policy

Accepted Answer

I, II and III

Answer

I and IV

Answer

II, III, and IV

Answer

III and IV

Question 45

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

Accepted Answer

I and III

Answer

I and II

Answer

I, II, and III

Answer

II and III

Question 46

There are two particular risk 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

Accepted Answer

II and IV

Answer

I and III

Answer

I and II

Answer

III and IV

Question 47

In investment objectives, which of the statements is FALSE?

Accepted Answer

People invest money in fixed deposits to produce high and guaranteed returns

Answer

People invest money to provide funds for higher education for their children

Answer

People invest money to enhance a comfortable standard living

Answer

Investment in commodities has no regular income

Question 48

Which one of the following statements about an investor diversifying his portfolio is FALSE?

Accepted Answer

A diversified portfolio can completely eliminate the risk of investing in stocks in a portfolio

Answer

A diversified portfolio can involve purchasing different types of stocks and investing in stocks of different countries

Answer

A diversified portfolio provides greater security to an investor having to sacrifice the return for the portfolio

Question 49

Which of the following statements is true about cash?

Accepted Answer

Amount invested in cash depends on the size of the cash flow requirement

Answer

It has high yield potential

Answer

Investment in cash decreases when interest rates rise

Answer

Investment in cash increases when there is a bull run in the stock market

Question 50

When investing in variable life funds, what are the benefits available?

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

Accepted Answer

I, II, and III

Answer

II and III

Answer

I and II

Answer

I and III

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