VARIABLE LIFE MOCK EXAM SET I

INSTRUCTIONS: Read each question carefully then select the letter corresponding to the answer
which you think is best. Please write your answer on the provided answer sheet. DO NOT mark this
questionnaire.

1. Which statement describes the difference between Variable Life insurance products and
Traditional participating products?

I. Traditional participating life policies aim to produce steady return by smoothing out
market fluctuations, while variable life insurance policies offer the potential for higher
returns but at the expense of market volatility and higher risk.
II. Variable Life insurance products can take the form of Whole Life or Endowment policies
but Traditional Participating life policies cannot.
III. The investment element of variable life insurance policies is made known at the outset
and is invested in a separately identifiable fund, which is made up of units of
investments.

A. I only C. II & III only

B. I &III only D. All of the above

2. Which statement about diversification in portfolio management is FALSE?

A. Diversification can completely eliminate the risk of investing in stock portfolio.

B. Diversification helps spread the portfolio risk by investing in different categories of
investment.
C. Diversification involves purchasing different types of stocks and investing in stocks of
different countries.
D. A diversified portfolio provides greater security to an investor without having to sacrifice
the return of the portfolio.

3. People generally invest their money to provide:

I. an improvement in their financial position

II. a less comfortable standard of living
III. retirement income
IV. funds for paying necessary expenses and taxes when the person dies

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

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

4. What are the DISADVANTAGES of investing in cash and deposits?

I. The safest type of investment.

II. They provide the lowest return.
III. There is reinvestment risk.

A. I only C. II & III only

B. II only D. I, II & III

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5. Which of the following are fixed-income securities?

I. Corporate bonds
II. Government bonds
III. Preferred shares
IV. Money Market instruments
V. Properties

A. I, II, III & IV only C. I, III & V only

B. I & III only D. All of the above

6. Which of the following are types of corporate stocks?

I. Debenture Stocks
II. Government Stocks
III. Loan Stocks
IV. Money Market Instruments
V. Convertible Stocks

A. I, II, & III only C. I, III & V only

B. I, II, III & IV only D. All of the above

7. Which of the following investment options entitle the holder ownership and share of profits in the
form of dividends?

A. Cash C. Futures
B. Bonds D. Ordinary Shares

8. Which of the following statements are the ADVANTAGES of money market instruments?

I. High liquidity
II. Long-term investment
III. Low returns
IV. Low risks
V. No-reinvestment risk

A. I & II only C. I & IV only

B. II & III only D. All of the above

9. Which of the following statements are FALSE?

I. Higher capital gain is normally associated with lower risk.

II. One way to lower the risk in investment is to diversify.
III. One method of measuring risk is to determine the average return and its standard
deviation from future data.
IV. Diversification can be achieved by investing in different countries and / or types of
assets.
V. An investor can always choose an investment that is risk free.

A. I, II & III only C. I, III & V only

B. II, III & IV only D. All of the above

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10. Which of the following funds comprise a higher proportion of equity and a lower proportion of
fixed-income instruments?

A. Bond Funds C. Managed Funds

B. Cash Funds D. Mixed Funds

11. Factors to consider in buying Properties:

I. Quality of land
II. The location of land
III. The value of building on land
IV. The investment objective
V. Place of work

A. I, II & III only C. I, III& V only

B. II, III & IV only D. All of the above

12. What are the basic types of real estate investment?

I. Rural Property
II. Domestic Property
III. Agricultural Property
IV. Commercial/Industrial Property
V. Foreign Property

A. I, II & III only C. I, III& V only

B. II, III & IV only D. All of the above

13. The amount of risk a person can take depends on:

I. Age
II. Investment objective
III. Financial condition
IV. Personality

A. I & II only C. I, II& III only

B. II, III & IV only D. All of the above

14. Which of the following are the main characteristics of Variable Life insurance policies?

I. The policies can be used for investments, as a source of regular savings and protection.
II. The withdrawal and protection benefit are determined by the investment performance of
the underlying assets.
III. The net withdrawal values of the policies are the gross withdrawal values shown in the
policy which includes cash dividends up to the date of surrender, less all indebtedness,
includes interests.

A. I only C. I & II only

B. II only D. I, II & III

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15. Which statement about twisting is FALSE?

A. It includes misleading or incomplete comparison of policies.

B. It is a special form of misrepresentation.
C. Twisting refers to an agent inducing a policy holder to discontinue his policy with another
company without disclosing the disadvantages of doing so.
D. It refers to an agent offering a prospect special inducement to purchase a policy.

16. Which of the following statements are FALSE?

I. The policyholders may request a partial withdrawal of the policy and the amount will be
met by cashing the units at the offer price.
II. The structure of charges and the investment content of a Variable life policy are specified
in the policy document and the policy statement.
III. Some Variable Life policies grant loans to policyholders which is limited to a percentage
of the cash value.
IV. Commissions and office expenses are met by a variety of implicit charges, some of
which are variable.

A. I & II only C. II & III only

B. I & IV only D. All of the above

17. Investing in bonds offers the following advantages EXCEPT

A. It is a place of temporary refuge when the investor foresees that the market outlook is
uncertain.
B. It offers protection of the principal and guaranteed stream of income.
C. It enables the investor an opportunity for capital appreciation.
D. It allows the investor a chance for capital preservation.

18. A risk-return graph for the risk-return profile of cash funds, bond funds, balanced funds,
managed funds and equity funds will show that:

I. Higher returns have lower risk.

II. Higher returns have higher risk.
III. Equity funds are at the top end of the graph.
IV. Cash funds are less risky and are at the bottom end of the graph.

A. I, II, & III

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

19. Which of the following information must NOT be conveyed to the client in the sale of variable life
insurance policies?

A. Guaranteed Interest rate

B. Time horizon of the product
C. Benefits illustrations using 10% as the gross
D. Rate of return

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20. Which of the following is NOT a characteristic of a Variable Life policy?
A. It is used solely for investment purposes.
B. The commission and office expenses are met by explicit charges.
C. It has generally, though not necessarily, more exposure to equity investments.
D. Its cash value is usually the value of units allocated to the policy calculated at the
prevailing bid price.

21. Which of the following statements about the feature of Regular Premium Variable Life Policy are
TRUE?

I. Top-ups are usually allowed.

II. The level of cover can be varied.
III. Premium holidays are usually allowed.

A. I & II only C. II & III only

B. I & III only D. I, II & III

22. Which statement is NOT TRUE about the benefits of investing in a Variable life insurance
policy?

A. The fund provides a highly diversified portfolio, thus, lowering the risk of investment.
B. The fund relieves the investor from the hassle of administering his/her investment.
C. 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 portfolio.
D. The fund enables small investors to participate in a pool of diversified portfolio in which
he/she is unlikely to have access to with low investment capital.

23. This type of plan provides the sum assured at a maturity date or at death of the life assured
before the maturity date.

A. Term insurance policy

B. Traditional participating whole life policy
C. Participating endowment policy
D. Regular premium Variable life Endowment Policy

24. Which of the following statements describe the difference between Variable Life insurance
products and Traditional participating products?

I. Variable life insurance products allow policyholders to change the premium payments but
traditional participating life products do not.
II. Variable life insurance products can take the form of Whole Life or Endowment policies
but Traditional life policies cannot.
III. Variable life insurance products allow the policyholders to pay future single premiums
from time to time to add more units to his account but traditional life participating
products do not.

A. I only C. II & III only

B. I & III only D. I, II & III

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25. Which are some of the flexibility features of Variable life insurance policies?

I. Partial Withdrawal
II. Variation in sum assured
III. Guaranteed withdrawal values

A. II only C. I & II only

B. III only D. All of the above

26. 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, it is
technically whole life insurance.
II. Top-ups or single premium injections are allowed.
III. Policyholders have the flexibility of varying the life coverage.

A. I & II C. II & III

B. I & III D. All of the above

27. The benefits of investing in variable life fund include:

I. Policyholders have access to a pooled and diversified portfolio of investment.

II. The policyholder can easily change the level of premium payments as the product design
of variable life insurance policies have clear structures which cater separately for
investment and insurance protection.
III. Policyholders can gain access to variable life funds managed by professional investment
managers.
IV. The policyholder is relieved of the day to day administration of his investment.

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

B. I, II, & IV D. All of the above

28. The flexibility benefits of investing in variable life funds include:

I. Policyholders can easily change the level of sum insured and switch their investments
between funds.
II. Policyholders can easily take premium holidays and add single premium top-ups.
III. Variable life insurance products have simple product design with a clear structure which
caters separately to investment and insurance protection.
IV. Policyholders can easily change the level of their premium payment.

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

B. I, II, & IV D. All of the above

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29. Term insurance _______________

A. Provides for payment of the sum insured when the life insured survives a specific period.
B. Provides protection for a specific period, the policy ceases, and no return of premium is
given.
C. Is the most complex and expensive of all the life insurance.
D. Provides for surrender or cash values on early termination of the insurance.

30. Which of the following statements describe the difference between variable life products and
participating products?

I. Variable life products allow policyholders to pay top-up premiums from time to time to
buy more units for his account unlike traditional participating life policies.
II. Variable life products allow policyholders to take premium holiday unlike traditional
participating life products.
III. Variable life products can take the form of whole life or endowment policies unlike
traditional participating life products.

A. I only C. I & III

B. I & II D. All of the above

31. Which statement about rebating is FALSE?

A. Rebating is prohibited under the Insurance Code.

B. Rebating refers to an agent offering a prospect a special inducement to purchase a
policy.
C. Rebating will enhance performance and uphold the prestige of the agents.
D. None of the above.

32. Variable Life funds can be invested in any financial instrument including equity funds. Equity
funds _________?

A. Invest in shares of stocks and investors who buy such assets usually aim for capital
appreciation.
B. Invest in shares and stocks which are inherently of lower risk in nature and the prices of
which are stable.
C. Invest in shares of stocks and during market recession, such assets are usually last to
depreciate.
D. Invest in shares of stocks and the magnitude of the change in unit price will only depend
on the quantity of the equities held.

33. A UNIT TRUST is ____________

A. An organization registered at the Securities and Exchange Commission (SEC) which

usually invests in a wide range of equities and other investments.
B. When an investor buys units in the trust itself and not share in the company.
C. Established by a trust deed, and enables a trustee to hold the pool of money and asset
in trust for the investor.
D. A close-end fund and does not have to dispose off its assets in large numbers if
investors sell their shares.

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34. Your client is a 35 year-old male, earning P35,000 a month, has savings, and with moderate
risk tolerance. What product would you recommend?

A. Participating whole life C. Term

B. Endowment D. Variable life

35. Risk in investment can be categorized into two. These are:

I. The risk of not losing some or all of a person’s initial investment.

II. The risk of rate of return on the investment not matching up to the individual’s
expectation.
III. The risk of rate of return on the investment matching up to the individual’s expectation.
IV. The risk of losing some or all of a person’s initial investment.

A. I & III C. II & IV

B. I & II D. III & IV

36. In a Unit Trust investment, the duties of a Trustee include all of these EXCEPT:

A. Selects and manages the investments of the Trust.

B. Holds the pool of money and assets in trust on behalf of the investors.
C. Ensures that the fund managers adhere to the provisions of the trust deed.
D. Protects the interests of unit holders.

37. To the Policyowners, administration benefits under variable life include:

A. Engaging independent professional fund managers personally to manage the

complicated transaction.
B. Constructing their own diversified portfolio.
C. Keeping track of their investment through the statements provided regularly by the
insurance company.
D. Exercising investment expertise by selecting funds that will give higher returns.

38. Which statement best describes Variable Life?

A. Fixed premium with returns that will not vary.

B. Fixed premium with returns that will vary.
C. Flexible premium with returns that will not vary.
D. Flexible premium with returns that will vary.

39. With traditional participating life insurance products, the allocations to policyowners of
dividends:

I. Are not directly linked to the investment performance of the life company.
II. Have already been smoothened.
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.

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

40. Which contributes to specific risks?

I. The amount of corporate taxes the company pays

II. Fraud by Senior Management.
III. Leverage Ratio of the Company.
A. I only C. II & III
B. I & III D. All of the above

41. The benefits of investing in variable life funds are:

I. Variable life funds give the policyholder access to a pooled and diversified portfolio.
II. The policyholder can vary his premium payments, change the level of sum assured, add
single premium top-ups and take premium holidays easily.
III. Variable life policyholders have the access to a pool of qualified and trained professional
fund managers.

A. I & II C. II & III

B. I & III D. All of the above

42. Which statements are FALSE regarding the difference between endowment policies and
variable life policies?

I. The benefits and risks of endowment and variable life policies directly accrue to the
policyholders.
II. The premiums and benefits of the endowment policies are stated at its inception while
those of variable life policies are flexible as they are account driven.
III. Their policy values directly reflect the performance of the fund of the life company.

A. I & II C. II & III

B. I & III D. All of the above

43. Diversification in investment involves

A. Reducing the risks of investment by putting the fund under management into several
categories of investment.
B. Reducing the risk of investment by putting all one’s eggs in one basket.
C. Putting all the funds under management into one category of investment.
D. Spreading the risk of investment by not putting the fund into several categories of
investment.

44. Three elements affect the accessibility of the funds. These are:

I. The age and attitude of investor toward risk.

II. The initial cost in setting up or buying into the investment.
III. The time horizon when the fund is needed.
IV. The cost or penalty of realizing the investment before its maturity period.

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

45. What are the DISADVANTAGES of investing in common shares?

I. Shares can become worthless if company becomes insolvent.

II. Investors are exposed to market and specific risks.
III. Dividends are paid not more than the fixed rates.

A. I & II C. II & III

A. I & III D. All of the above

46. Which statement about cash is TRUE?

A. Investment in cash increases when there is a bull run in the stock market.
B. Investment in cash decreases when there is a rise in interest rates.
C. Amount invested in cash is dependent on the size of the cash flow requirement.
D. Its yield potential is high.

47. These statements are true EXCEPT

A. No regular income may be gained from investing in commodities.

B. Investing in fixed deposits gives high guaranteed returns.
C. People invest money to enhance a comfortable standard of living.
D. People invest money to provide funds for the higher education of their children.

48. Which of the following is NOT a type of fixed income securities?

A. Money market instruments
B. Government bonds
C. Preferred shares
D. None of the above

49. What are the ADVANTAGES of investing in preferred shares?

I. It has priority on company assets during dissolution.

II. Has a benefit of capital appreciation.
III. The shareholder has the right to a fixed dividend.

A. I & II C. II & III

B. I & III D. All of the above

50. Which of the following investment options has all the advantages of capital appreciation,
liquidity, and inflation hedge?

A. Cash C. Futures
B. Bond D. Ordinary shares

-End of Set 1-

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