Question 1

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

Accepted Answer

Policy owner may buy additional units in the variable life fund and these units will be allocated to
new variable life insurance policies.

Answer

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.

Answer

Policyowners are normally allowed to top-up their policies at any time, subject to a minimum
amount

Answer

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

Question 2

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 and III

Answer

I and III

Answer

I, II and III

Answer

I and II

Question 3

Which 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 4

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

Variable Life Policies

Answer

Equities

Answer

Warrants

Question 5

A unit trust is ____.

Accepted Answer

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

Answer

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

Answer

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

Answer

An organization registered under the Securities and Exchange Commission (SEC) which usually
invests in a wide range of equities and other investments.

Question 6

The following are characteristics of a variable life insurance policy
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 commissions and company expenses are met by a variety of explicit charges, notice of which is given by life companies normally 6 months prior to any change in such charges.
IV. Its withdrawal value is normally the value of units allocated to the policyholder calculated at the
bid price

Accepted Answer

I, III and IV

Answer

II, III and IV

Answer

I, II and IV

Answer

I, II and III

Question 7

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 values 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, II, and III

Answer

II and III

Answer

I and III

Answer

I

Question 8

Variable life insurance policy owners may withdraw in terms of ____.

Accepted Answer

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

Answer

Number of units 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 though reduction of the life cover sum assured.

Question 9

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

I, II, and IV

Answer

I, III, and IV

Answer

II, III, and IV

Question 10

Which of the following statements about rebating is/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.

Accepted Answer

I and II

Answer

II and III

Answer

I and III

Answer

III

Question 11

Which 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 12

Which of the following statements about single premium variable life policy 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, II, and III

Answer

I and III

Answer

I and II

Question 13

Which of the following statements about variable life policies is/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

I and III

Answer

I, II, and III

Answer

II and III

Question 14

Which of the following statements about variable life policies are TRUE?
I. Variable life policies generally have larger exposure to equity investment that 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 III

Answer

I, II, and III

Answer

II and III

Answer

I and II

Question 15

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 profit planning by the life policies

Answer

For the purpose of sales planning by the fund managers

Question 16

Which of the following is/are TRUE about the flexibility benefit of investing in variable life funds?
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 products have a single 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

I, III, and IV

Answer

I, II, and III

Answer

All of the above

Question 17

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

Accepted Answer

Policyowners who invest in variable life funds with high equity investment face greater risk but
offer the potential for higher returns over the long term than traditional life insurance policies.

Answer

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

Answer

Policyowners 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 is not suitable for
policyowners who can tolerate the risks of short term fluctuations in their account value.

Question 18

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 units
Policy Fee = Ps. 1,800
Admin and Mortality Charge = Ps. 8,750
Top-Up Fee = Ps. 700
Admin for Top-Up = Ps. 2,000
Sum assured is 190% of single premium of 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. 420,069.02

Answer

Ps. 412,500.00

Answer

Ps. 432,000.00

Question 19

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

Accepted Answer

A diversified portfolio can completely eliminate the risk of investing the 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 20

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, II, and III

Answer

I, II, and IV

Answer

I, III, and IV

Question 21

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

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

Answer

It has high yield potential.

Answer

Investment in cash decreases when interest rates rise.

Question 22

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

I

Answer

II

Question 23

The duties of the trustee of unit investment trust do not include

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 trusts deeds

Answer

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

Answer

Acting generally to protect the unit-holders

Question 24

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 prices for each unit bought under the variable life insurance policy

Answer

The handling charges by professional investment managers

Answer

The mortality costs of the variable life insurance policy

Question 25

. 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 26

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 share of stocks and investor who buys such assets usually aims for capital appreciation

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

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 during market recession, such assets are usually the last to
depreciate

Question 27

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

I, II, and IV

Answer

II, III, and IV

Question 28

Which of the following statements is FALSE?

Accepted Answer

Misrepresentation is a specific form of twisting.

Answer

Switching is a facility allowing policyholder to switch to another variable life funds offered by the company.

Answer

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

Answer

Twisting is a specific form of misrepresentation.

Question 29

Which of the following statements about the differences between variable l ife 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

II and III

Answer

I, II, and III

Answer

I and II

Question 30

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.
Insurance Commission Reviewer VUL IC Reviewer v.1.2 15 January 2021 Page 8
III. The policy value is calculated based on the bid price of units allocated into the policy.

Accepted Answer

II and III

Answer

I and II

Answer

I and III

Answer

I, II, and III

Question 31

Mr. Cruz is currently earning Ps 30,000 each 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

Participating endowment

Answer

Participating whole life

Answer

Annuities

Question 32

Which of the following statements about twisting is FALSE?

Accepted Answer

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

Answer

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

Answer

Twisting is a special form of misrepresentation.

Answer

It includes misleading or incomplete comparison of policies.

Question 33

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

II, I, IV, III

Answer

III, I, IV, II

Answer

IV, I, III, I

Question 34

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 will depend on the long-term performance of the life company.

Answer

The policy benefits are payable only on death or disability.

Answer

The policy benefits are guaranteed.

Question 35

Investing in bonds offers the following advantages EXCEPT :

Accepted Answer

It enables the investor an opportunity for capital appreciation

Answer

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

Answer

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

Answer

It allows the investor a chance for capital preservation

Question 36

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 37

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 38

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

II and III

Answer

I and III

Answer

I and II

Answer

I, II, and III

Question 39

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 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

I, III, and IV

Answer

II, III, and IV

Answer

I, II, and IV

Question 40

Risk can be classified into two particular categories in relation to investment. They include__________
I. The risk of not losing some or all of a person’s initial investment
II. The risk of rate of return on the investment not matching up to the individual’s expectation
III. The risk of rate of return on the investment matching up to the individual’s expectation
IV. The risk of losing some or all of a person’s initial investment

Accepted Answer

II and IV

Answer

I and III

Answer

III and IV

Answer

I and II

Question 41

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

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

Answer

A fixed amount throughout

Answer

Also known as the bid price

Question 42

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

I and III

Answer

II and III

Answer

I and II

Question 43

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 policyowner’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 the investment will add value to the fund

Accepted Answer

I, III and IV

Answer

II, III and IV

Answer

I, II and IV

Answer

I, II and III

Question 44

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

Accepted Answer

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

Answer

Because the agent may give the wrong recommendations

Answer

Because the policyholders expects higher returns

Answer

Because the insurer does not guarantee any return

Question 45

A single premium variable life insurance policy ____.

Accepted Answer

Must be issued with a minimum death benefit

Answer

Has no withdrawal value

Answer

Has no death benefit

Answer

Must be issued with a maximum withdrawal value

Question 46

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

Accepted Answer

Policyholders who are risk averse should purchase life insurance policies with high protection and guaranteed cash and maturity values

Answer

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

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

Question 47

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 III

Answer

I, III, and IV

Answer

I, II, and IV

Question 48

The objective of satisfying customers’ need and business profitability 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

II, III, and IV

Answer

I, II, and IV

Question 49

Which of the following statements about investment objectives 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 50

Diversification in investment involves ___.

Accepted Answer

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

Answer

Putting all the funds under management into one category of investment

Answer

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

Answer

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

Question 51

Diversification in investment involves ___.

Accepted Answer

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

Answer

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

Answer

Putting all the funds under management into one category of investment

Answer

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

Question 52

Which of the following statements about diversification in portfolio management is FALSE?

Accepted Answer

Diversification can completely eliminate risk of investing in stocks in a portfolio.

Answer

Diversification helps to spread the portfolio risk by investing in different categories of investment in a portfolio.

Answer

A diversified portfolio provides greater security to an investor without sacrificing the returns of the portfolio.

Answer

Diversification can involve purchasing different types of stocks and investing in stocks of different countries.

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