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REVIEWER > VUL > Flashcards

VUL Flashcards

1
Q

Which of the following information is not conveyed to the VUL prospects? *
a. Guaranteed Interest Rate
b. Risk involved
c. Flexibility of the VUL product
d. Historical Rate of Return

A

Guaranteed Interest Rate

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2
Q

What is the right sequence of the steps in Financial Planning?

i. Analyze Resources
ii. Evaluate Investment Options
iii. Set Goals
iv. Evaluate the Plan
v. Implement the Plan

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

A

III, I, II, V, IV

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3
Q

Which of the following statements is TRUE? *

a. Conservative investors are usually those with less financial resources.
b. Policy owners whose goal is capital preservation should invest their money on equity funds.
c. High risk and high yield investments Investors are used to meet short term goals.
d. Younger clients are more risk-averse than older clients.

A

Conservative investors are usually those with less financial resources.

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4
Q

Which of the following statements regarding excess premiums is/are TRUE?

i. Excess premiums are premiums paid in addition to the Single Premium or the Annual Regular Premium.
ii. Excess premiums are single premium injections used to buy additional investments into the VUL policy.
iii. Excess premium is considered as such only after the Annual Regular Premium has been fully paid.
iv. Excess premium is the premium paid if the insured is rated as above average risk.

a. I, II, and III
b. II, III, and IV
c. None of the statements is true.
d. All of the statements are true.

A

I, II, and III

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5
Q

Which of the following statements about the features of Regular Premium Variable Universal Life policy are TRUE?

i. Top-ups are usually allowed
ii. The level of coverage can be varied.
iii. Premium holidays are usually allowed.

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

A

I, II, and III

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6
Q

An insurer must provide each investment-linked policy holder with ___. *

a. an advice of daily investment of funds.
b. a policy statement and the fund performance report.
c. the company annual financial reports.
d. the fund manager entertainment expenses.

A

a policy statement and the fund performance report.

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7
Q

The offer price under a Variable Universal Life insurance policy is ___. *

a. a fixed amount throughout the life of the policy.
b. the price at which units under the policy are brought back by the company.
c. the price at which units under the policy are offered for sale by the company.
d. also known as the bid price.

A

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

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8
Q

Three elements affect the accessibility of the funds. They include ___:

i. the age and attitude of the investment towards risk
ii. the initial cost in setting up or buying into the investment
iii. the time horizon of needs of the fund
iv. the cost or penalty or realizing the investment before its maturity period

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

A

II, III, and IV

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9
Q

Which of the following statement/s is/are true?

i. The level of risk tolerance refers to the tolerance for magnitude and variability of historical returns or loss.
ii. The level of risk tolerance is influenced by a person’s age, personality, investment objectives, and financial condition.
iii. Investor needs to choose between assets that yield regular income, or provide capital gain.

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

A

II and III

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10
Q

Which of the following is NOT a characteristic of a Variable Universal Life policy?

a. Its cash value is usually the value of units allocated to the policy calculated at the prevailing bid price.
b. It generally, though not necessarily, more exposure to equity investments.
c. The commissions and office expenses are met by explicit charges.
d. It is used solely for investment purposes.

A

it is used solely for investment purposes.

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11
Q

Which one of the following statements is FALSE?

a. The principles of Variable Universal Life insurance policies vary but all operate on the same features.
b. Variable Universal Life insurance policies can be classified as a single premium insurance plans or regular premium insurance plans.
c. Investment-linked policies can be used for investment, regular savings, and protection.
d. The cash value and protection benefits are determined by the investment performance of the underlying assets.

A

The principles of Variable Universal Life insurance policies vary but all operate on the same features.

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12
Q

Diversification in investment involves ___.

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

A

reducing the risks of investment by putting the fund under management into several categories of investment.

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13
Q

Which one of the following statements about investment-linked policies are TRUE?

i. the cash value is not guaranteed
ii. the volatility of the returns depends on the investment strategy of the fund
iii. the variable life insurance policyowners have direct control over the investment decisions of the fund.

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

A

I and II

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14
Q

Which of the following statements is a proper step when analyzing your client’s resources?

i. Ask your client to keep stock of what he already has.
ii. Ask your client to set aside less liquid assets from those he could use for investment purposes.
iii. Determine how much your client can invest on a regular basis.

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

A

I, II and III

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15
Q

If the current offer price = P1.50
And the Bid-offer Spread = 5%
Calculate for the Bid Price:

a. P1.425
b. P1.234
c. P1.408
d. P1.367

A

P1.425

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16
Q

Which one of the following statements is FALSE?

i. Treasury Bills are long-term government borrowings.
Money market securities are examples deposit instruments with a maturity of one year or less.
Preferred stock entitles the owner to a share of the corporation’s profits and a share of the voting power in shareholder elections.

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

A

I and III

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17
Q

Which of the following characteristics pertaining to common shares is/are TRUE?

i. Guaranteed small returns
ii. The holder of an ordinary share is a part owner of the company
iii.There is no certainty that the company will make profits and thus no certainty that there will be dividends
iv. There is no risk involved in the investment of ordinary shares

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

A

II and III

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18
Q

The risk profile of a person depends on:

i. age
ii. investment objectives
iii. financial conditions
iv. Personality

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

A

I. II, III, and IV

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19
Q

The switching facility under Variable Universal Life insurance policies is very useful ___. *

a. for the purpose of sales planning by the fund managers.
b. for the purpose of profit planning by the life policies.
c. for the purpose of assets planning by the trustee.
d. for the purpose of financial planning by the policyholders.

A

for the purpose of financial planning by the policyholders.

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20
Q

Mr. Custodia wishes to invest P20,000 in a single premium Variable Universal Life policy with the following parameters.
Offer Price = P1.20
Bid-offer-spread = 5%
Policy Fee = P120.00
Administrative and Mortality Charge = 2.5% of single premium
Assumptions:
The charges and fees are deducted by canceling units from the policy at inception.

How many units can Mr. Custodia purchase?

a. 16,150.76
b.16,666.67
c. 16,122.81
d. None of these options

A

16,122.81

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21
Q

Which one of the following statements about investment objectives is FALSE? *

a. People invest money to enhance a comfortable standard of living.
b. People invest money in equities to produce high and guaranteed income.
c. People invest money to provide funds for higher education for their children.
d. Investment in commodities has no regular income.

A

People invest money in equities to produce high and guaranteed income.

22
Q

Which of the following statements describe/s the differences between Variable Universal Life insurance products and Traditional participating products?

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

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

A

I and III

23
Q

Identify the charges that are applicable to a single premium policy: *

a. Policy fee
b. Administrative and Mortality Charge
c. Investment Management Fee
d. All of the above

A

All of the above

24
Q

Which one of the following investment options entitles the holder ownership and has a share of profits in the form of dividends appreciation? *

a. Bonds
b. Futures
c. Cash
d. Ordinary shares

A

Ordinary shares

25
Q

Which one of the following statements is not true about the benefits of investing in a Variable Universal Life insurance policy? *

a. 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.
b. The fund relieves the investor from the hassle of administering his/her investment.
c. The fund provides a highly diversified portfolio, thus, lowering the risk of investment
d. The fund ensures definite high yields for an investor since it is managed by professionals who are well-versed in the management of risk of investment Portfolios.

A

The fund ensures definite high yields for an investor since it is managed by professionals who are well-versed in the management of risk of investment Portfolios.

26
Q

This is a collection of pooled investment maintained by a bank and closely monitored by the Bangko Sentral ng Pilipinas. *

a. Common Trust Fund
b. Mutual Funds
c. Security Bonds
d. Treasury Bills

A

Common Trust Fund

27
Q

What is the most suitable investment vehicle for an investor who is interested in protecting his principal and receiving a steady stream of income? *

a. Equities
b. Variable life insurance policies
c. Cash and deposits
d. Fixed income securities

A

Fixed income securities

28
Q

Which of the following statements is true? *

a. Amount invested in cash depends on the size of cash flow requirement
b. Cash has high yield potential
c. Investment in cash decreases when interest rates rise
d. Investment in cash increases when there is a strong performance in the stock market

A

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

29
Q

Which of the following information must not be conveyed to client in sales of Variable Universal Life insurance policies? *

a. Guaranteed interest rate
b. The risk involved
c. Time horizon of the product
d. Benefits illustrations using 10% as the gross
e. Rate of return

A

Guaranteed interest rate

30
Q

Which is/are the benefits of Variable Universal Life funds? *
a. Pooling or diversification
b. Flexibility
c. Expertise of fund managers
d. All of the above

A

All of the above

31
Q

Why is it important that the client understands the agent’s recommendation in full? *

a. because the policyholder expects higher returns
b. because the insurer does not guarantee any return
c. because the insurer may give the wrong recommendations
d. because the impact on change in investment conditions of variable life insurance policy falls wholly on the client

A

because the impact on change in investment conditions of variable life insurance policy falls wholly on the client

32
Q

Which of the following statements about single premium Variable Universal Life policies are TRUE?

i. There is no fixed term in a single premium Variable Universal Life policy and therefore, it is technically whole life insurance
ii. Top-ups or single premium injections are allowed in the plans
iii. Policyholders have the flexibility of varying the life coverage

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

A

I and II

33
Q

In selling VUL, we can use this philosophy. *

a. Newton’s Law of Motion
b. Maslow’s Hierarchy of Needs
c. Einstein’s Theory of Relativity
d. Darwin’s Theory of Evolution

A

Maslow’s Hierarchy of Needs

34
Q

An insurer must provide each Variable Universal Life insurance policy owner with ___. *

a. A policy statement and the fund performance report.
b. The company’s annual financial reports.
c. An advice of daily investment funds.
d. The fund manager’s entertainment expenses.

A

A policy statement and the fund performance report.

35
Q

This age bracket has the following needs: Maximum Protection, Maximum Investment for Education and Maximum Savings *

a. Retirees
b. Young Professional
c. Young Couple with Children
d. Couple preparing for Retirement

A

Young Couple with Children

36
Q

Which of the following statement/s is/are the advantages of money market instruments?

i. High liquidity
ii. Long-term of investments
iii. Low returns
iv. Low risks
v. No re-investment risk

a. I and IV
b. I, II, III, IV, and V
c. I and II
d. II and III

A

I and IV

37
Q

What are the disadvantages in investing in common shares?

Dividends are paid not more than the fixed rate
Investors are exposed to market and specific risks
Shares can become worthless if company becomes insolvent

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

A

II and III

38
Q

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

a. Money Market
b. Bond
c. Cash
d. Common Shares

A

Common Shares

39
Q

People generally invest their money to provide:

i. an improvement in their financial position
ii. a less comfortable standard of living
iii. income in retirement
iv. funds for paying necessary expenses and taxes when the person dies

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

A

I, III and IV

40
Q

Which of the following statement/s is/are FALSE?

i. Higher capital gain is normally associated with lower risk.
ii. One way to lower risks 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, and III
b. II, III, and IV
c. I, III and V
d. I, II, III, IV, and V

A

I, III and V

41
Q

Under the dual pricing method of single premium policies, ___.

a. the Policyholder buys the units at the offer price and sells the units at the bid price.
b. the bid price is always higher than the offer price.
c. the Policyholder buys the units at the company buying price and sells the units at the company selling price.
d. there is only one price quoted whether the Policyholder is buying or selling his units.

A

the Policyholder buys the units at the offer price and sells the units at the bid price.

42
Q

Which of the following statements is TRUE? *

a. The proceeds from a Variable Universal Life insurance policy is tax free in the hands of the policy owner.
b. The death benefit is taxed at the current tax rate.
c. When the policy is partially surrendered the investor is taxed at his current tax rate.

A

The proceeds from a Variable Universal Life insurance policy is tax free in the hands of the policy owner.

43
Q

The bid price can be computed as follows: *

a. Bid Price = Offer Price (1 - Spread)
b. Bid Price = Offer Price / (1 - Spread)
c. Bid Price = (1 - Spread)/Offer Price
d. Bid Price = Spread (1 - Offer Price)

A

Bid Price = Offer Price (1 - Spread)

44
Q

The offer price can be computed as follows: *

a. Offer Price = Bid Price (1 - Spread)
b. Offer Price = Bid Price / (1 - Spread)
c. Offer Price = (1 - Spread)/Bid Price
d. Offer Price = Spread (1 - Bid Price)

A

Offer Price = Bid Price / (1 - Spread)

45
Q

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

a. Diversification helps to spread the portfolio risk by investing in the different categories of investment in a portfolio.
b. A diversified portfolio provides greater security to an investor without having to sacrifice the return for the portfolio.
c. Diversification involves purchasing different types of stocks and investing in stocks of different countries.
d. Diversification can completely eliminate the risk of investing in stock portfolio.

A

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

46
Q

Which of the following statements is/are FALSE?

i. With VUL, you can switch funds, i.e. change how premiums paid are allocated into the funds.
ii. With VUL, you can make changes in the fund allocation, e.g. transfer earnings from bond fund to equity fund.
iii. With VUL, you can make full withdrawal.

a. I and II
b. I and III
c. II and III
d. None of the statements is false.

A

I and II

47
Q

The benefits of investing in Variable Universal Life funds include ___:

i. Policyholders have access to a pooled or diversified portfolio of investment
ii. Policyholders 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’t gain access to Variable Universal Life funds managed by professional investment managers.
iv. Policyholders are relieved of the day-to-day administration of his investment
*
a. I, II, and III
b. I, II, and IV
c. I, III, and IV
d. II, III, and IV

A

I, II, and IV

48
Q

Variable Universal Life funds can be invested in any financial instruments including cash funds, bond funds, property funds, specialized funds, and diversified funds. Equity funds ___. *

a. invest in stocks and shares and investor who buy such assets usually aim for capital appreciation
b. invest in stocks and shares and during market recession, such assets are usually the last to depreciate
c. invest in stocks and shares and are inherently of lower risk in nature and the prices of the stocks and shares are stable
d. invest in stocks and shares and the magnitude of the change in unit prices will depend on the quantity only of the equities held

A

invest in stocks and shares and investor who buy such assets usually aim for capital appreciation

49
Q

Which of the following statements regarding VUL policies is/are FALSE?

i. VUL is an INSURANCE, SAVINGS and INVESTMENT package all rolled into one.
ii. Similar to dividends in participating traditional policies, VUL allows the policy owners to withdraw from the fund as the need arises.
iii. Similar to traditional policies, non-payment of premiums in VUL policies beyond the grace period automatically translates to a lapsed policy and is invested in a separately identifiable fund, which is made up of units of investment.

a. I
b. II
c. III
d. None of the statements is false.

A

III

50
Q

These are debt loans that pay a specific interest over a fixed period of time. *

a. Bonds
b. Mutual Funds
c. Money Market Equities
d. Loan Stocks

A

Bonds

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