TRADITIONAL LIFE MOCK EXAM 1

Direction: Choose the best answer. Indicate your answer on an answer sheet by writing the
letter.

1. Both endowment and term life policies provide that

a. No cash value is available to the policy owner during the term of the policy
b. Renewal and conversion privileges are available
c. A benefit will be paid at the end of the period of coverage if the person is then alive
d. Insurance protection will be limited to a specified period

2. Indicate which of the following is not a function of an application for life insurance policy.
a. To give details pertaining to non-forfeiture options

b. To furnish information on which the contract of life insurance may be written

c. To furnish initial information as to insurability
d. To convey to the company the desire of the applicant to obtain insurance

3. A father has his present life insurance payable to his estate and because he has now retired he
wants to pass the policy on to his son who will assume the premium payments. Which of the
following will he have to appoint his son to achieve his desire and protect the son from Estate
Tax Liability?
a. Irrevocable primary beneficiary
b. Absolute assignee
c. Irrevocable secondary beneficiary
d. Revocable primary beneficiary

4. A policy where an irrevocable beneficiary has been designated the insured, without the
beneficiary’s permission, can
a. Avail of a non-forfeiture option
b. Discontinue premium payments
c. Borrow minimal cash loan
d. Alter the dividend option now in effect
5. What are the basic settlement options?
a. Policy loan, guaranteed insurability
b. Cash surrender value, automatic premium loan
c. Fixed amount, fixed period, life income, interest on deposit
d. Double indemnity, total and permanent disability waiver

6. An insurance company generally has the right to rescind a life insurance policy if
a. Company discovers at any time that the policy owner was actually a minor at the time of
application b. Insured person intentionally kills himself during the suicide exclusion period
specified in the policy
c. Insured person is killed in military action during the contestable period of the policy
d. Company discovers during the contestable period that the application contains a material
statement.

7. Which of the following is the least important reason for requiring that insurance agents be
licensed?

a. To establish and maintain high professional and ethical standards

b. To protect the public
c. To give the government adequate control over the conduct of agents

d. To provide additional income to the government through license fees

8. In the event that a policy owner elects the paid-up insurance option
a. The premiums stop and the policy continues for the full face amount until age 65
b. The insurance continues at a reduced amount and with a reduced premium
c. The policy will automatically terminate

d. The premiums cease and protection continues with a reduced amount of Coverage

9. The company will allow a policy change from a higher premium to a lower premium
provided the insured
a. Buys a new plan altogether
b. Presents satisfactory evidence of insurability
c. Momentarily assigns the policy to the company

d. Obtains written consent from his or her spouse

10. A policy which permits the policyholder to vary the level of premiums, the sum insured and
has its cash values dependent upon the investment performance and the level of premium paid
is known as __________ policy
a. Participating whole life policy

b. Participating endowment
c. Universal life
d. None of the above

11. Which of the following statements about “ Disability Waiver of Premium Rider” is false?
a. Disability must occur before a stated date
b. The insured has to die while disabled
c. There is a waiting period
d. It has to be attached to a life insurance policy

12. In most life insurance applications, the largest amount of information requested is data
which
a. Identifies the applicant
b. Describes the type of insurance applied for
c. Relates to the insurability of the applicant
d. Describes the desired benefits and mode of payment

13. Paid-up additions

a. Affect both cash and loan value of the policy
b. Don’t affect the cash value of the policy

c. Don’t affect the loan or cash value of the policy

d. Only affect the cash value of the policy

14. The total life coverage of a permanent basic policy can be greatly increased through the use
of
a. An accidental death benefit rider
b. An interim term rider

c. A supplemental term rider

d. None of the above
15. Life insurance companies make use of the laws of probability in order to
a. Estimate future death rates among members of a given group
b. Predict when an individual insured will die
c. Develop statistics of past deaths among the general population
d. Determine the experienced death rate among the insured persons

16. In the case of renewable term insurance, the policy owner may
a. Renew the coverage based on a higher premium

b. Change the life insured at renewal date

c. Renew providing the insurance company agrees to continue coverage
d. Renew at the same premium for further period of years

17. A man applied for a Ps. 20,000 whole life policy and paid the full initial premium to the
soliciting agent. The agent issued a binding receipt. Under such a receipt, the insurance
company
a. Offers permanent insurance coverage effective as of the date of the application
b. Promises that the insurance coverage will become effective as of the date the application is
approved
c. Guarantees the policy will be issued as applied for
d. Immediately provides interim insurance that remains in effect until the policy is issued or the
application is declined

18. Endowment life insurance and term life insurance are similar in that both plans
a. Build up cash value rapidly in the early policy years
b. Provide for payment of the face amount if the insured is alive at the end of the specified
period
c. Provide life insurance protection for only the period of time specified in the policy contract
d. Contain provisions for automatic continuation of the insurance protection at the end of a
specified period
19. An agent who determines a prospect’s complete financial requirements preparatory to
offering him a policy using the correct selling approach knows as
a. Counselor selling
b. Total needs selling
c. Planned selling
d. Multiple products selling

20. Name the provision in a permanent life insurance policy under which premiums are
discontinued, full insurance will be maintained for a specified period:
a. Extended term insurance
b. Paid-up insurance additions
c. Life income option pension
d. Reduced paid-up insurance

21. Notwithstanding various possible legal impediments, if the owner of an endowment at age
65 policy tells you that the maturity of the policy he wants to provide his church with a monthly
donation for as long as the church exists. which option do you recommend?
a. Fixed income option
b. Periodic annuity option

c. Interest option
d. Life annuity option

22. The extent of medical evidence required is determined by

a. The age of the applicant and the proposed sum to be insured
b. Occupation of the applicant

c. Financial condition of the applicant

d. Date of the last medical examination

23. The conservation of a life insurance policy is dependent on all the following except
a. The level of first year commission
b. Agent’s service oriented attitude

c. Pressure selling
d. The use of effective needs selling
24. All of the following are sources of information to an insurance company pertaining to the
insurability of an applicant except
a. The applicant’s personal appearance
b. Medical examination report
c. Agent’s inspection report
d. Government tax records

25. If the applicant for life insurance fails to disclose or misrepresents material fact, the contract
is
a. Valid if the insurer issues a policy which is delivered to the applicant
b. Void from the beginning
c. Voidable by the insurer if it has been in force less than 2 years
d. Valid unless the insurer can prove fraud

26. The settlement options provision may provide all of the following except:
a. Payment of the proceeds for the life of the insured
b. Payment of the proceeds over a fixed period
c. Payments of the proceeds in fixed amounts until exhausted
d. Proceeds held by the company, with interest payable to the beneficiary on request

27. Non-forfeiture provisions are included in whole life and endowment policies to assure the
policyowner that certain minimum policy benefits shall remain with him even under certain
changed conditions. Non-forfeiture values guarantee to the policyowner that
a. No death claim will be denied for any misstatement on the application
b. Any guaranteed policy values will belong to the policy owner even if premium payments are
discounted
c. The face amount of the policy will remain the same even if the insured’s health becomes
impaired
d. The premium on the policy will remain the same even when another beneficiary is added to
the policy
28. Purchasing a continuous-premium, whole life policy rather than a limited payment, whole
life policy gives the policyowner the advantage of
a. Concentration of premium payments during the period of highest Earnings
b. Liberal risk selection procedures
c. More insurance protection for the same annual premiums outlay
d. More rapid accumulation of cash values

29. In certain situations a company may file interpleader actions with a Court of Law This
remedy is used to
a. Determine if the cause of the insured’s death was an excluded risk
b. Decide conflicting claims on the same insurance proceeds
c. Resolve the question of insurable interest
d. Recommend the best settlement options for the beneficiary If the interest on a policy loan is
not paid at the policy anniversary the insurance

30. Which of the following statement is false?

a. The cash value of a whole life policy builds up at a slower rate than for a 20 year endowment
b. The cash value in a permanent policy is guaranteed by the company
c. The cash value of an endowment builds up faster than that for a limited pay life policy of the
same duration
d. Because of its very short duration the cash value of a yearly renewable term policy grows
very fast

31. Which of the following does not have a legitimate insurable interest?
a. An individual on the life of his mistress
b. An individual on his own life
c. An individual on the life of his spouse
d. A finance company on the life of its borrower
32. The basic coverage provided by the life insurance policies may be supplemented by a
separate provision that provides coverage for accidental amounts or of a different nature.
Collectively these provisions are known as
a. riders

b. deposit privileges
c. dividends
d. assignment

33. Which of the following statements regarding insurance premiums is false?

a. Cash is required for all premiums paid in the grace period
b. A premium is the legal consideration needed to affectuate a life insurance policy
c. The grace period is usually 31 days
d. Premiums which are paid quarterly or semi-annually are higher than those paid annually

34. A non-forfeiture option would ordinarily be selected at the time a policyowner

a. Renews a term life policy
b. Converts a term policy to a whole life policy
c. Chooses a mode of settlement for the life proceeds
d. Discontinues premium payments for a whole life or endowment policy

35. If the interest on a policy loan is not paid at the policy anniversary the insurance company
may
a. Demand full settlement of the loan
b. Terminate the contract

c. Refuse to grant future additional loan

d. Increase the present loan by the interest

36. The incontestability clause

a. Gives the company the right to rescind a policy at any time
b. Permits the company to pay claims within 2 years
c. Makes it necessary for the beneficiary to present proof of death in the event of a death claim
d. Prevents the company from denying a claim after the policy has been in force for 2 years
37. The insured named a primary and secondary revocable beneficiary for Ps. 20,000 policy.
Which of the following is correct?
a. The designation of a contingent beneficiary is subject to the primary beneficiary’s approval
b. The insured can add a third beneficiary at any time
c. Any policy loan assignment will require the primary beneficiary’s signature
d. Upon the insured’s death the primary and secondary beneficiaries shall each receive Ps.
10,000

38. When you bought an insurance policy on your wife’s life, you were 27 and she was 26, but
you stated that you were 26 and she was 27. Five years later your wife died. The insurer will pay
a. Slightly less than the face amount
b. The face amount
c. The face amount adjusted for misstatement of age
d. The sum of the premium paid

39. If the interest on a policy loan is not paid at the policy anniversary the insurance company
may
a. Increase the present loan by the interest

b. Terminate the contract

c. Refuse to grant future additional loan
d. Demand full settlement of the loan

40. A yearly renewable term life insurance policy generally specifies that
a. The policyowner may renew the policy only once

b. Premiums shall increase every time the policy is renewed

c. Evidence of insurability shall be required every renewal
d. Cash values will increase for as long as the policy is in force
Direction: Write T if the statement is TRUE and F if the statement is FALSE.

1. In a case where the premium has not been paid and the cash values has been exhausted, the
policy can still avail of the grace period.

2. According to the law of large numbers, events which happen seemingly by chance will
actually be bound to follow a predictable pattern, if enough such happenings are observed.

3. Anti-selection occurs when persons in poor health wish to buy insurance.

4. A policy is still in force for the full face amount and will remain in force for a further period of
four years and 118 days, without the payment of any premiums has availed of paid up insurance
option.

5. In the case of misstatement of age, the amount of insurance is adjusted to the amount which
the premium paid at the correct age would have purchased.

6. A policy that provides guaranteed cash values plus extra annual distributions and pays the
insured after a specified time is known as a participating endowment.

7. In a group insurance it is assumed that every member of the group is insurable, provided that
every member of the group is working a minimum number of (usually 50 hours) each week.

8. An endowment at age 65 policy with premium payable for a limited period of 20 years pays
the full amount after 20 years.

9. In most life insurance applications, the largest amount of information requested is data which
identifies the applicant.

10. A policy is not rendered void by reason of misstatement of the assured’s death.
MOCK 1 ANSWER KEY

Multiple choice: True or False

Multiple Choices True or False

1. D. 1. F
2. A. 2. T
3. B. 3. T
4. B. 4. F
5. C. 5. T
6. A. 6. T
7. D. 7. F
8. D. 8. F
9. B. 9. F
10. C. 10. T
11. B.
12. C.
13. C.
14. C.
15. A.
16. A.
17. D.
18. C.
19. B.
20. A.
21. C.
22. A.
23. C.
24. D.
25. D.
26. D.
27. B.
28. C.
29. B.
30. D.
31. A.
32. A.
33. A.
34. D.
35. D.
36. D.
37. B.
38. C.
39. A
40. B
VARIABLE LIFE LICENSING MOCK EXAM (Set D)

NAME: _____________________________________________
BRANCH: ___________________________________________
SCORE: _____________________________________________

Instructions: Please encircle the correct answer.

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

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

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

2. Which of the following statements about flexibility features of variable life policies is false?
a. Policyholders may request for a partial withdrawal of the policy and the withdrawal amount
will be met by cashing the units at the bid price.

b. Policyholders can take loans against their variable life up to the entire withdrawal value of
their policies
c. Policyholders have the flexibility of switching from one fund to another provided it satisfies
the company’s switching criteria
d. Policyholders have the flexibility of increasing or decreasing their premiums for regular
premium variable life policies

3. The investment returns under variable life insurance policy _______________

I. Are not guaranteed

II. Are assured

III. Are linked to the performance to of the investment fund managed by the life insurance
company
IV. Fluctuate according to the rise and fall of market prices

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

c. I, III and IV
d. II, III and IV
4. Which of the following statements is TRUE?
I. The policy value of variable life policies is determined by the offer price at the time of
valuation
II. The policy value of endowment policies is the cash value plus any accumulated dividends less
any outstanding loans due at the time of the surrender
III. The life company needs to maintain a separate account for variable life policies distinct from
the general account

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

5. Which of the following statements is FALSE?

a. Rebating is to offer a prospect a special inducement to purchase a policy
b. Twisting is a specific form of misrepresentation
c. Misrepresentation is a specific form of twisting
d. Switching is a facility allowing the policyholders to switch to another variable life funds
offered by the company

6. Which of the following statements about variable life policies is TRUE?

I. Offer price is used to determine the number of units to be credited to the account
II. The margin between the bid and offer price is used to cover the managements cost of the
policy
III. The policy value is calculated based on the bid price of units allocated into the policy

a. I, II & III
b. I & II
c. I & III
d. II & III
7. What is the most suitable investment instrument for an investor who is interested in
protecting his principal and receiving a steady stream of income?
a. Equities
b. Warrants
c. Variable life policies
d. Fixed income securities

8. What are the disadvantages of investing in common shares?

I. Dividends are paid more than fixed rates

II. Investors are exposed to market and specific risks

III. Shares can become worthless if company becomes insolvent

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

9. Which of the following statements about the difference between variable life policies and
endowment policies are FALSE?
I. The policy values of variable life policies directly reflect the performance of the fund of the life
company

II. The premiums and benefits of the endowment policies are described at the inception of the
policy whereas variable life are flexible as the are account driven
III. The benefits and risks of variable life and endowment policies directly accrue to the
policyholders

a. I & II
b. I, II & III
c. I & III
d. II & III
10. Which of the following statements about twisting is FALSE?
a. Twisting is a special form of misrepresentation
b. It refers to an agents including a policyholder to discontinue policy with another company
without disclosing the disadvantage of doing so
c. It includes misleading or incomplete comparison of policies
d. It refers to an agent offering a prospect a special inducement to purchase a policy

11. Mr. Juan dela Cruz is currently earning Php 30,000.00 per month. He is 35 years old and he
has a reasonable amount of savings. He has a moderate level of risk tolerance. What kind of
policy would you recommend for him to buy?
a. Participating Endowment
b. Participating whole life
c. Variable life policies
d. Annuities

12. What are the benefits available when investing in variable life funds?
I. The variable life funds offer policyholders an access to pooled or diversified portfolios
II. The variable life policyholders can vary his premium payments, take premium holidays, add
single premium top – ups and change the level of the sum assured easily

III. The variable life policyholder can have access to a pool of qualified and trained professional
fund managers
a. I & II
b. I & III
c. I, II & III
d. II & III

13. Rank the following in terms of their liquidity, from the least liquid to the most liquid:
I. Short term securities
II. Property
III. Cash
IV. Equities

a. IV, II, III, I

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

14. A unit trust is ____________________

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

15. Under variable life insurance policies ______________________

I. There is no guaranteed minimum sum assured for the purpose of declaring dividends
II. There is no guaranteed minimum sum assured as a level of life insurance protection
III. Each of the policy owner’s premium will be used to purchase units the number of which is
dependent on the selling price of each unit
IV. Purchase of units can only be made from the variable life fund itself, which will then create
new units and add investment monies to the value of the fund
a. I & IV
b. II & IV
c. III & IV
d. II &III

16. The benefits of investing in variable life funds include ___________________

I. Policy owners have access to pooled or diversified portfolios of investment
II. Policy owners can easily change the level of the premium payments as the product design of
variable life policies have clear structures which cater separately for investment and 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
a. I, II & IV
b. I, III, & IV
c. I, II & III
d. II, III & IV

17. Which of the following BEST describes the policy benefits of variable life policies?
a. The policy benefits are payable only on death or disability
b. The policy benefits will depend on the long – term performance of the life company.

c. The policy benefits are directly linked to the investment performance of the underlying assets
d. The policy benefits are guaranteed

18. Why is it important that the customer must understand the sales proposal in full?
a. Because the insurer does not guarantee any return
b. Because the impact of changes in investment condition on variable life policy is borne solely
by the customer.
c. Because the agent may give the wrong recommendations

d. Because the policyholder expects higher returns

19. Which of the following statements about rebating are TRUE?

I. Rebating is prohibited under the Insurance Code

II. Rebating deals with offering the prospect a special inducement to purchase a policy
III. Rebating will enhance the sales performance and uphold the prestige of an agent.

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

20. Which one of the following statements is FALSE?

a. Variable life insurance policies offer investors policies with values and indirectly linked to the
investment performance of the life company
b. Life company will carry out a valuation of its funds yearly and any surplus may be allocated to
participating policyholder as cash dividends
c. Both Whole Life and Endowment policies can be used as an investment media with benefits
that become payable at a future date
d. The investment element of Variable life policies varies according to underlying assets of the
portfolio
21. Which of the following statements about option top – up under variable life insurance is
false?
a. Policy owners may buy additional units of the variable life fund and these units will be
allocated to new variable life insurance policies

b. Further premiums at time of the top – up will be used in full, after deducting charges for top –
ups, to purchase additional units of the variable life funds
c. Top – up policy, the policy owner pays further single premium at the time of the top – up
d. Policy owners are normally allowed to top – up their policies at any time, subject to a
minimum amount

22. The characteristics of a variable life insurance include ________________:

I. Its withdrawal value and protection benefits are determined by the investment performance
of the underlying assets.
II. Its protection costs are generally met by implicit charges
III. Its commission and company expenses are met by a variety of explicit charges with normally
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
a. I, II & III

b. II, III & IV

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

23. Which of the following statements about single premium variable life policies are TRUE?
I. There is no fixed term in a single premium variable life policy and therefore, they are
technically whole life insurance
II. Top – ups or single premium injections are allowed in these plans
III. Policyholders have the flexibility of varying the level cover

a. I, II & III
b. II & III
c. I & II
d. I & III
24. Investing in bonds offer the following EXCEPT
a. Must be issued with a minimum death benefit
b. Must be issued with a maximum withdrawal value
c. It allows the investor a chance for capital preservation
d. It enables the investor an opportunity for capital appreciation

25. Which of the following statements about variable life policies are TRUE?
I. The withdrawal value is not guaranteed

II. The volatility of the returns depends on the investment strategy of the fund
III. The variable life policyholder has direct control over the investment decisions of the
variable life fund

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

26. Single premium variable life insurance policy:

a. Must be issued with a minimum death benefit

b. Must be issued with a maximum withdrawal value

c. Has no death benefit
d. Has no withdrawal value

27. Which of the following statements about characteristics of variable life policies are TRUE?
I. Variable policies generally have a longer exposure to equity investment than with
participating and other traditional policies
II. The protection costs are generally met by implicit charges, which vary with age and level of
cover

III. The commissions and company expenses are met by a variety of explicit charges, some of
which are variable
a. I, II III
b. I & II

c. II & III
d. I & III
28. Which of the following statements about benefits in variable life fund is FALSE?
a. The fund provides a highly diversified portfolio, thus, lowering the risk of investment
b. The fund ensures definite high yield for an investor since it is managed by professionals who
are well – versed in the management of risk of investment portfolios
c. The fund relieves the investor from the hassle of administering his / her investment
d. The fund enables small investors to participate in a pool of diversified portfolio in which he /
she, with a low investment capital, is likely to have acceded to

29. The flexibility benefit of investing in variable life funds include _____________:
I. Policy owners can easily change the level of sum assured and switch their investment between
funds
II. Policy owners can easily take premium holidays and add single premium to Top – ups
III . Variable life insurance policies offer the potential for higher returns
IV . Traditional participating policies aim to produce a steady return by smoothing out market
fluctuation
a. All of the above

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

30. The fundamental differences between traditional participating life insurance policies and
variable life insurance policies include _____________.
I. Variable life insurance policies are less likely to offer more choices in terms of the type of
investment funds

II. The investment elements of variable life insurance policies is made known to the policy
owner at the outset and is invested in a separately identifiable fund which is made up of units of
investment
III. Variable life insurance policies offer the potential for higher returns
IV. Traditional participating policies aim to produce a steady return by smoothing out market
fluctuation

a. I, III & IV
b. II, III, IV
c. I, II, III
d. I, II & IV
31. The switching facility under variable life insurance policies is a very useful _____
a. For the purpose of profit planning by the life policies
b. For the purpose of assets planning by the trustee
c. For the purpose of sales planning by the fund managers
d. For the purpose of financial planning by the policy owners

32. The following statement about surrender value under traditional participating life insurance
products are TRUE?
a. Cash value is paid when yearly renewable term insurance policy is surrendered

b. When a participating insurance policy is surrendered, the surrender value is calculated by

multiplying the bid price with the number of units
c. The amount of surrender value is usually higher than the amount under non – participating
policies and it varies with the age of the assured, being lower at older ages
d. In the case of participating policies, the net cash surrender value includes the surrender
value of the paid – up addition up to the date of surrender

33. Which one of the following statements about risks of investing in variable life funds is TRUE?
a. Policy owners who are risk averse should buy life insurance policies with high equity
investment
b. Investment in variable life funds which are fully invested in units of equity bonds are not
suitable for policy owners who can tolerate the risks of short term fluctuation in their cash
value
c. Policy owners who invest in variable life funds with high equity investment face higher risk
but can expect to achieve higher return than the traditional life insurance product over the long
term
d. Policy owners who are risk averse should not purchase life insurance policies with high
protection and guaranteed cash and maturity values
34. What should be the withdrawal values after a year?

Offer Price = Php. 16.00

Bid-Offer Spread = 4.5%
Number of units bought = 25,000

Policy Fee = 1,800

Admin and Mortality Charge = 8,750
Top-up Fee = 700

Admin for Top-up = 2000

Sum assured is 190% of single premium or the value of units, whichever is higher.
ASSUMPTIONS:
1. Charges and fees are deducted after the single premium has been invested into the account.
2. The growth rate of the unit price and bid-offer spread is maintained at 8% and 4.5%
respectively.

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

d. Php. 412,500.00

35. The protection cost under a variable life insurance policy ___________________.

I. Are met by flat initial charges for regular premium plans

II. Are generally covered by cancellation of units in 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 cover

a. I, II, & III

b. I, II, & IV
c. I, III & IV
d. II, III, & IV
36. Which of the following statements about diversification in portfolio management is FALSE?
a. A diversified portfolio provides greater security to an investor having to sacrifice return for
the portfolio.
b. Diversification can completely eliminate the risk of investing in stocks in a portfolio.
c. Diversification can involve purchasing different types of stocks and investing stocks in
different countries
d. Diversification helps to spread the portfolio risk by investing in different categories of
investment in a portfolio

37. What are the advantages of investing in preferred shares?

I. It gives shareholders the right to a fixed dividend
II. Has the priority over company assets during a dissolution
III. They enjoy benefit of capital appreciation

a. I, II, & III

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

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

a. I, II, & III

b. I, II & IV
c. I, III, & IV
d. II, III, & IV
39. The objective of satisfying customers need profitably can be achieved by and agent through
I. The giving of freebies to the customers
II. Extensive investment training by the company
III. The use of sales plan, where sales goals, strategies, and objectives are coordinated with the
market analysis, segmentation and training
IV. The giving of monetary assistance and discount to the customers

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

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

40. Which of the statements is true about CASH?

a. It has a high yield potential
b. Amount invested in cash depends on size of the cash flow requirement
c. Investment in cash increase when there is a bull run in the stock market

d. Investment in cash decrease when interest rates rise

41. Under a regular premium variable whole life plan _______________________

I. Premium top-ups and holidays, subject to the company’s administrative rules are usually
allowed
II. Life protection is the main objective of the plan with investment as the nominal purpose
III. Withdrawals after the payment of a few years premium are usually allowed
IV. A single premium contribution is made to the policy which uses the premium to purchase
units in a variable life fund to provide a certain level of life cover

a. II, III & IV

b. I, III & IV
c. I, II, & IV
d. I, II, & III
42. Which of the following statements about investment objectives is false?
a. People invest money in fixed deposits to produce high and guaranteed returns
b. People invest money to enhance a comfortable standard of living
c. People invest money to provide funds for higher education for their children
d. Investment in commodities has no regular income

43. Which of the following is / are the main characteristic (s) of variable life policies?
I. The policies can be used for investment, as a source of regular savings and protection

II. The withdrawal values and protection benefits are determined by the investment
III. The net cash values of the policies are the gross cash values shown in the policy that includes
dividends up to the date of surrender less and indebtedness including interest
a. II

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

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

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

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

a. Managing the portfolio of investment and administering the buying and selling of shares in
the unit trust itself
b. Ensuring that the fund manager adhere to the provision of the trust deeds
c. Acting generally to protect the unit-holders
d. Holding the pool of money and assets in trust in behalf of the investors
46. Policy fee payable by variable life insurance policy owner is to cover__________________
a. The handling charges by professional investment managers
b. The price of each unit bought under the variable life insurance policy
c. The mortality costs of the variable life insurance policy

d. The administrative expenses of setting up the variable life insurance policy

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

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

48. Diversification in investment involves___________________:

a. Putting all the funds under management into one category of investment
b. Spreading the risk of investment by not putting the fund into several categories of
investment
c. Reducing the risks of investment by putting one fund under management into several
categories of investment
d. Reducing the risks of investment by putting all one’s eggs in one basket

49. Variable life funds can be invested in any financial instruments including cash funds, bond
funds, equity funds, property funds, specialized funds, and diversified funds. Equity funds______:
a. Invest in shares of stocks and the magnitude of the change in unit prices will only depend on
the quantity of the equities held

b. Invest in shares of stocks and during market recession, such as assets are usually the last to
depreciate
c. Invest in shares of stocks which are inherently of lower risk in nature and the prices of stocks
are stable
d. Invest in shares of stocks and investors who buy such assets usually aim for capital
appreciation
50. Which of the following statements describe the differences between variable life products
and participating products?
I. Variable life products allow policyholders to vary the premium payments unlike participating
products.

II. Variable life products can take the form of whole life or endowment policies with
Participating products.
III. Variable life products allow policyholders to pay future single premiums from time to time
to add more units to his account unlike participating products.
a. I, II, and III

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

51. Assuming no movement in the prices and charges / fees are deducted after the single
premium has been Invested into the account, how much will the policyholder lose if he
surrenders the policy now?
Bid price = Ps. 13.00
Bid-offer spread = 4%
Single premium = Ps. 450,000
Policy fee = Ps. 1,800
Admin and Mortality charge = 3%
Sum assured is 200% of single premium or the value of the units, whichever is higher
a. Ps. 43,400.90
b. Ps. 33,246.78
c. Ps. 22,500.00

d. Ps. 15,299.96

52. Which of the following statements BEST describes “variable life” policies?

a. It is a fixed premium policy with returns that will not vary with the underlying value of
investments.
b. It is a fixed premium policy with returns that will vary with the underlying value of
investments.
c. It is a flexible premium policy with returns that will not vary with the underlying value of
investments.
d. It is a flexible premium policy with returns that will vary with the underlying value of
investments.
53. Which of the following factors contribute to the specific risk of an investment:
I. Rate of corporate taxes
II. Fraud by senior management
III. Financial leverage of the company
a. I and II

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

54. Investing in bonds offers the following advantages EXCEPT

a. It offers protection to the principal and guaranteed steady stream of income
b. It is a place of temporary refuge when the investor foresees that the market outlook is
uncertain
c. It allows the investor a chance for capital preservation
d. It enables the investor an opportunity for capital appreciation

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

56. In risk-return profile of cash funds, bond funds, balanced funds, managed funds and equity
funds, a risk-return graph will show that _____________
I. Higher return normally comes with lower risk
II. Higher return normally comes with higher risk
III. At the top end of the graph are the equity funds
IV. The relatively risk-less cash funds sit at the bottom end of the graph
a. I, II, & III
b. II, III, & IV
c. I, II & IV
d. I, III, & IV

57. Which of the following statements are TRUE?

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

. II. The policy value of endowment policies is the cash value plus any accumulated dividends
less any outstanding loans due at the time of surrender.
III. The life company needs to maintain a separate account for variable life policies distinct From
the general account.
a. I & II
b. I, II, & III
c. I & III
d. II & III

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

variable life policies?
a. The net withdrawal value as of the statement date.
b. The premiums received and charges levied during the period
c. The basis and frequency for valuing the assets.
d. Number and value of units held at the beginning of the period; bought and sold during the
period; and held at the end of the period.
Answer Key

1. D. 45. A.
2. B. 46. D.
3. C. 47. B.
4. D. 48. C.
5. C. 49. D.
6. D. 50. A.
7. D. 51. B.
8. C. 52. D.
9. D. 53. B.
10. D. 54. D.
11. C. 55. A.
12. A. 56. B.
13. C. 57. D.
14. A. 58. A.
15. c.
16. c.
17. c.
18. b.
19. a.
20. a.
21. a.
22. c.
23. c.
24. d.
25. b.
26. a.
27. a.
28. b.
29. b.
30. b.
31. d.
32. c.
33. c.
34. c.
35. d.
36. b.
37. a.
38. a.
39. b.
40. b.
41. d.
42. a.
43. d.
44. d.
45. a.