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 or
fixed monetary amount 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 Answer a. Withdrawals can be done by cancelling units directly or giving a
specific monetary amount from the account value to determine how many units to be cancelled.
Withdrawals are not taken from the life cover sum assured (Chapter 4.4.1.2, p. 16 ULP Manual).
2. Which one of the following statement about the 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 bid price b. Policyholders can take loans against their
variable life policies 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 premiums variables life policies Answer b. The Loan Provision generally applies for
traditional life insurance policies; although some ULP’s grant loans up to a certain percentage of
the account value to policy holders; and not up to the entire withdrawal value ( Chapter 6.7, p.
27 ULP Manual). 3. The investment returns under variable life insurance policy
__________________ I. Are not guaranteed II. Are assured III. Are linked to the performance of
the investment fund management by the life company IV. Fluctuate according to the rise and fall
of the market prices a. I, II and III c. I, III and IV b. I, II and IV d. II, III and IV Answer c. Investment
returns in ULP’s are not guaranteed and fixed; and depends on the performance of underlying
ULP funds. 4. 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 time of surrender III. The life company needs to maintain a separate account for variable
life policies distinct from the general account. VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 2
of 16 a. I, and II c. I and III b. I, II and III d. II and III Answer d. Once a policy holder surrenders
his/her traditional life insurance policy; the surrender value will be equivalent to the
accumulated cash value and dividends less any outstanding loan plus interest. Section 237 of the
Insurance Code requires Insurers to establish one or more separate variable accounts so they
could issue, deliver, sell or use variable life insurance contracts (Pls. refer to Section 7 , p. 37 of
ULP Manual for further details). 5. Which of the following statement 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 policyholders to switch to another variable life funds offered by company Answer c.
Misrepresentation is giving false or misleading statements about products, company, services
and advisor credentials. 6. Which of the following statements about variable life policies are
TRUE? I. Offer price is used to determined the numbers of units to be cancelled to the account II.
The margin between the bid and offer price is used to cover the management cost of the policy
III. The policy value is calculated based on the bid price of units allocated into the policy a. I, II
and III c. I and III b. I and II d. II and III Answer d. The bid price is the price at which the units
under a ULP are cashed when the policy matures, or when the policy is surrendered, or at which
units are cashed to pay for charges under the policy (p. 28 ULP Manual). The margin between
the bid and offer price is also known as the Bid Offer Spread. 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 c. Variable life policies b. Warrants d. Fixed income
securities Answer d. Fixed Income Instruments (government & corporate bonds, preferred
shares, & money market instruments) offer fixed periodic rate of returns base on the interest
rate of the instrument, which could be a source of a steady stream of income. FII’s are virtually
safe investment assets, but offer little or no appreciation in value (Chapter 2.2, p. 4 of ULP
Manual). VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 3 of 16 A Warrant is a derivative
security that gives the holder the right to purchase securities (usually equities) from the issuer at
a specific price within a certain time frame. Warrants are often included in a new debt issue as a
sweetener to entice investors (Investopedia) 8. What are the disadvantages of 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 a. I, II
c. II, III b. I, III d. I, II and III Answer c. Common shares can be a volatile investment. The price of a
share depends on the market’s perception on the worth of the company. If a company falls, the
price of a share could drop to zero. 9. Which of the following statement about the differences
between variable life policies and endowment policies are FALSE? I. The policy values of variable
life and endowment policies directly reflect the performance of the fund of the life company II.
The premiums and benefits of the endowment policies are described at inception of the policy
whereas variable life policies are flexible as they are account driven III. The benefits and risks
variable life and endowment policies directly accrue to the policyholders a. I and II c. I and III b. I,
II and III d. II and III Answer d. The policy values of endowment policies and ULP’s reflect the
performance of their investment funds respectively; but does not necessarily reflect the
performance of the company. The benefits and risks of ULP’s are accrued directly to the
policyholders; however, for endowment policies, only a percentage of the investment earnings
are given to the policyholders, but the risks of investing are shouldered by the company
(Chapter 1, p. 1 of ULP Manual) 10. Which of the following statements about twisting is FALSE?
a. Twisting is a special form of misrepresentation b. It refers to an agent inducing 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 Answer d. Letter “d” is the definition of
rebating. Twisting occurs when the agent influences or convinces the policyholder to lapse a
policy in favor of a new one which he/she is selling VUL MOCK EXAM 2 June 6, 2011 Version 1
Page 4 of 16 11. Mr. Juan dela Cruz is currently earning Ps, 30,000/month. He is 35 years old and
has a reasonable amount of savings. He has a moderate level for risks tolerance. What kind of
policy would you recommend for him to buy? a. Participating endowment c. Participating whole
life b. Variable life policies d. Annuities Answer b. ULP’s are ideally suitable for clients that have
already have enough savings and life insurance enforced; and still have disposable income to
invest. Although there are conservative/safe ULP funds; what’s important is clients should
understand the “risk-return” trade-off of their chosen fund. 12. What are the benefits available
when investing in variable life funds? I. The variable life funds offer policyholders an access to a
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. a. I and II c. I,II and III b. I and III d. II and III Answer c. For a more comprehensive
discussion of ULP benefits, please refer to Chapter 5, p. 23 of ULP Manual 13. Rank the following
in term of their liquidity, from the least liquid to the most liquid: I. Short Term Securities III. Cash
II. Property IV. Equities a. IV, II, III, I c. II, I, IV, III b. III, I, IV, II d. II, IV, I, III Answer c. Liquidity is
how easily an investment asset can be converted to its actual value in the form of cash. In this
case property is the least liquid since it is difficult to sell property for its actual book value. Short
term securities have a specific date when they can be redeemed, while equities can generally
bought and sold anytime. Cash in hand is the most liquid since it is already cash. 14. A UNIT
TRUST is __________________________: a. Established by a trust deed which enables a
trustees to hold the pool of money and assets in trust on behalf of the investor b. A close-end
fund and does not have to dispose off its assets if large number of investors sell their shares c.
One whereby investor buys units in the trust itself and not shares in the company d. An
organization registered under the SECURITY AND EXCHANGE COMMISSION (SEC) which usually
invests in a wide range of equities and other investment. VUL MOCK EXAM 2 June 6, 2011
Version 1 Page 5 of 16 Answer a. A unit trust or trust fund is usually an open-ended fund (you
can buy and sell units anytime) and is registered under the Central Bank (Chapter 2.4, p. 7 of
ULP Manual). 15. Under variable life insurance policies ____________________ I. There is no
guaranteed minimum sum assured for the purpose of declaring dividends II. There is not
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 the investment monies to the value of the fund.
a. I and IV c. III and IV b. II and IV d. II and III Answer c. ULP’s have a guaranteed sum assured for
life insurance coverage. The selling price of each unit will determine how many units can be
purchased by the premium. Units purchased can be invested in different ULP funds available
under a specific ULP plan (Chapter 4, p. 12 of ULP Manual). 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 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. a. I, II
and IV c. I, II and III b. I, III and IV d. II, III and IV Answer c. On his own, the policyholder, with
small sum of money, is unable to construct such a diversified portfolio (Chapter 5, p. 23 of ULP
Manual), thus, getting ULP does not require a high initial investment. A policyholder can get ULP
for just a minimum of Php 16,000 a year. 17. Which of the following BEST describes the policy
benefits 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 Answer c. The investment returns under variable life insurance policies
are not guaranteed and they are linked to the performance of an investment fund managed by
the company (Chapter 1, p. 1 of the ULP Manual). VUL MOCK EXAM 2 June 6, 2011 Version 1
Page 6 of 16 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 borne solely by the customer c. Because the agent
may give the wrong recommendations d. Because the policyholders expects higher returns
Answer b. All the risks of a ULP is shouldered by the policyholder; therefore they should study
the projections of their investments illustrated in the proposal and consider whether they will
purchase a ULP. 19. Which of the following statement 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 and II c. II and III b. I and III Answer a. Rebating occurs when the
agent shares a portion of his/her commission, whether given in cash or kind, in his/her interest
to win the sale. 20. Which one of the following statement 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 policyholders 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 portfolio Answer a. The value of a ULP is dependent on the performance of the Life
Company’s investment funds which will directly impact the policyholders. 21. Which of the
following statements about option to top-up under variable life insurance products 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 top-up will be used in full,
after deducting charges for top-ups, to purchase additional units of the variable life funds c. To
top-up a policy, the policy owner pays further single premium at the time of top-up d. Policy
owners are normally allowed to top-up their policies at anytime, subject to a minimum amount
VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 7 of 16 Answer a. To top-up a policy, the
policyholder pays additional single premiums at the time of top-up and these premiums will be
used in full (after deducting charges for top-ups) to purchase additional units of the variable life
fund which will be added to the existing units in the policyholder’s account (Chapter 4, p. 13, of
the ULP Manual). 22. The characteristics of a variable life insurance policy include
_____________________ I. Its withdrawal value and protection benefits are determined by the
investment performance of the underlying assets II. Its protection cost are generally met by
implicit charges III. Its commission and company expenses are met by a variety of implicit
charges with normally 6 months notice given by the life companies prior to any change IV. Its
withdrawal value is normally the value of units allocated to the policy owner calculated at the
bid price a. I, II and III c. I, II and IV b. II, III and IV d. I, III and IV Answer c. The Advisor’s
Commission are implicit however the expenses are explicit due to the fact that the client is not
just a policyholder but also an investor. 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 single premium
injections are allowed in these plans III. Policyholders have the flexibility of varying the level
cover a. I, II and III c. I and II b. II and III d. I and III Answer b. Single Premium Variable Life
Policies have fixed term and it does not have to be whole life insurance. 24. Investing in bonds
offer the following advantages EXCEPT a. It offers protection to the principal and guaranteed
steady stream of income b. It is place of temporary refuge when the investor foresees that the
market outlook is uncertain c. It allows the investor a chance for capital preservations d. It
enables the investors an opportunity for capital appreciation Answer d. Investing in Bonds does
not give capital appreciation. Clients who choose this opti on basically wants regular stream of
income. VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 8 of 16 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 and
III c. I and III b. I and II d. II and III Answer b. The policyholder can choose which fund can best
suit their financial needs. Variable Funds are managed by professional fund managers who have
the investment expertise to invest the fund to achieve high return over the long term in
accordance with the investment objectives. An ordinary policyholder does not normally have
good knowledge of financial market to invest his money wisely (Chapter 5, p. 23, of the ULP
Manual). Portfolio management is the job of the fund managers, not the policyholders. 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 Answer a. To secure the face amount to be given to the beneficiaries, the
Insurance commission mandates that there should be a Minimum Guaranteed Death Benefit to
make sure that if the market crashes due to extreme inflation and circumstances, the
beneficiaries will receive the Minimum guaranteed death benefit. 27. Which of the following
statements about characteristics of variable life policies are TRUE? I. Variable life policies
generally have a larger exposure to equity investment than with participating and other
traditional policies II. The protection costs are generally met by implicit charges, which vary with
age and level of cover III. Commissions and company expenses are met by a variety of explicit
charges, some of which are variable a. I, II and III c. II and III b. I and II d. I and III Answer b. For
the protection of the Financial Advisor, their commission is not revealed to the client to prevent
rebating. 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 an investor since it is managed by professional who are wellversed in
the management of risks of investment portfolios c. The fund relieves investor from the hassle
of administering his/her investment VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 9 of 16 d.
The fund enables 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 b. The investment returns
under variable life insurance policies are not guaranteed and they are linked to the performance
of an investment fund managed by the company (Chapter 1, p. 1 of the ULP Manual). 29. The
flexibility benefits of investing in variable life funds include ________________: I. Policy owner
can easily change the level of sum assured and switch their investment between funds II. Policy
owners can easily take premium holidays and add single premium to top-ups III. Variable life
insurance products have a simple product design with a clear structure which cater separately
for investment and insurance protection IV. Policy owners can easily change the level of their
premium payment a. All of the above c. I, II and IV b. I, II and III d. I, III and IV Answer c. Although
all the statements are applicable to variable life funds, Statement III does not describe any of
the flexibility benefits. 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 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 and IV c. I, II and III b. II, III and IV d. I, II and IV Answer b. Statement I is
incorrect because Variable Life offers (and is not “less likely”) diversification thus giving more
opportunities for the client to choose the best investment vehicle that can best suit their
Objective (regular stream of income or for capital appreciation). 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 VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 10 of 16 Answer d. Financial
planning of policy owners is one of the primary reasons why advisors seek out the goals of their
clients for which is the basis for what our plans/programs can offer to ensure that we can cater
to their future savings or investment needs. 32. The following statement about surrender value
under traditional participating life insurance products is TRUE? a. Cash value is paid when a
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 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 Answer c. The amount of the mortality charge
is based on the insured’s risk classification, and the charge typically increases each year as the
insured ages. (Chapter 6, p. 105, Principles of Insurance: Life, Health, and Annuities (LOMA
280)). 33. Which of the following statement about risk of investing in variable life funds is TRUE?
a. Policy owners who are risk averse should buy variable 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
greater risk but can expect to achieve higher return than the traditional life insurance product
over the long term d. Policy owner who are risk averse should not purchase life insurance
policies with high protection and guaranteed cash and maturity values. Answer c. Risk averse
SHOULD buy guaranteed returns since they are not willing lose some of their
savings/investments. Policy owners can choose to invest in equities which can give them higher
potential returns but also exposes them to market volatility. 34. 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 Policy Fee = 1,800 Admin and Mortality charge = 8,750 Top-up Fee = 700 Admin for Top-
up = 2,000 Sum assured is 190% of single premium or the value of the units, whichever is higher.
VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 11 of 16 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. a. Ps.
432,000.00 c. Ps. 401,107.58 b. Ps. 420,069.02 d. Ps. 412,500.00 Answer c. What is the
Withdrawal Value after a year? Step 1: Calculate first the number of units allocated without
charges 25,000 Units Step 2: Add the charges Policy Fee = 1,800 Admin & Mortality Charge =
8,750 Total Charges: Php = Php 10,550 Step 3: Compute for the bid price BO1S Offer Price (1-
Spread%) = Bid Price 16 (1-4.5%) = Php 15.28 Step 4: Convert total charges into units Total
Charges / Bid Price = Units of Charges 10,550 / Php 15.28 = 690.445 Step 5: Deduct units to be
cancelled from units allocated w/o charges Units w/o Charges - Units of Charges = Units Net of
Charges 25,000 Units - 690.445 Units = 24,309.555 Units Step 6: Compute for the Bid Price after
1 year by using Accumulation of Fund X (1 + i)n = Bid Price (1 year) 15.28 (1 + 8%)1 = 16.50 (1
year) Step 7: Compute for FWV by Multiplying number of Units In the Account by the Bid Price
after 1 year 24,309.555 Units x Php 16.50 = 401,107.66 35. The protection costs under a variable
life insurance policy ______________________: I. Are met by a flat initial charges for regular
premiums 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 and III c. I, III and IV b. I, II and IV d. II, III and IV Answer b. Due to
individual differences (age, occupation, and conditions), the cost of mortality or protection cost
is not made known in detail to the policy owner to protect the company’s standards in
Underwriting from competitors. 36. Which one of the following statement about diversification
in portfolio management is FALSE? a. A diversified portfolio provides greater security to an
investor having to sacrifice the return for the portfolio b. Diversified can completely eliminate
the risk of investing in stocks in a portfolio c. Diversified can involve purchasing different types of
stocks and investing in stocks of different countries d. Diversified helps to spread the portfolio
risk by investing in different categories of investment in a portfolio VUL MOCK EXAM 2 June 6,
2011 Version 1 Page 12 of 16 Answer b. Diversification cannot complete eliminate risks in
investments but instead it minimizes it by spreading the risks through different investment
assets. A well-diversified variable life fund has netter risk characteristics than a less diversified
one (Chapter 5, p. 23, of the ULP Manual). 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 dissolution III. They enjoy benefit of capital appreciation a. I, II and III c. I and III b. I
and II d. II and III Answer a. These are shares which give the holder a right to fixed dividend
provided enough profit has been made. This right takes precedence over the right of the
ordinary shareholders to dividends. Preferred shares differ from stocks in that although the
income is fixed, it is not interest and may not be paid if profits are not made (Chapter 2, p. 7 of
the ULP Manual). 38. With traditional participating 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 life
company IV. Are not fixed at the inception of the policy, but are greatly dependent on the
investment performance of the life company a. I, II and III c. I, III and IV b. I, II and IV d. II, III and
IV Answer d. Dividends are dependent on company performance as it is based on 3 main factors:
Company mortality experience, expenses, and earnings. 39. The objective of satisfying
customers need profitably can be achieved by an 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, strategic and objectives are coordinated with market analysis, segmentation and
targeting IV. The giving of monetary assistance and discount to the customers a. I and III c. I, II
and IV b. II and III d. II, III and IV Answer b. Freebies and monetary assistance are forms of
“Rebating” which is one of the things that we have to avoid as Financial advisors. As stated on
the Insurance code of the Philippines: VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 13 of 16
Sec. 361. No insurance company doing business in the Philippines or any agent thereof, no
insurance broker, and no employee or other representative of any such insurance company,
agent, or broker, shall make, procure or negotiate any contract of insurance or agreement as to
policy contract, other than is plainly expressed in the policy or other written contract issued or
to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission
or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any
employee of such insured, either as an inducement to the making of such insurance or after
such insurance has been effected, any rebate from the premium which is specified in the policy,
or any special favour or advantage in the dividends or other benefits to accrue thereon, or shall
give or offer to give any valuable consideration or inducement of any kind, directly or indirectly,
which is not specified in such policy or contract of insurance … 40. Which of the following
statement is true about CASH? a. It has high yield potential b. Amount invested in cash depends
on the 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 decreases when interest rates rise Answer b. Cash
investments must satisfy the minimum requirements because the amount of cash dictates how
high the returns will be. 41. Under a regular premium variable whole life insurance plan
_________________ I. Premium top-ups and holidays, subject to the life company’s
administrative rules are usually allowed II. Life protection is the main objective of the plan with
investment as a nominal purpose III. Withdrawals after the payment of a few years premium are
usually allowed IV. A single premium contribution is made to the policy which uses the premium
to purchase units in variable life fund and to provide certain level of life cover a. II, III and IV c. I,
II and IV b. I, III and IV d. I, II and III Answer d. Statement IV contradicts the statement which asks
something about regular premium variable whole life, hence it is not applicable to the above
statement. 42. Which of the following statements about investment objective is FALSE? a.
People invest money in fixed deposits to produce high and guaranteed returns b. People invest
money to enhance a comfortable standard living c. People invest money to provide funds for
higher education for their children d. Investment in commodities has no regular income Answer
a. Investing in Fixed deposits gives low returns since it has relatively low risk. Remember that in
the risk return profile, we say that the lower the risk, the lower the potential returns (Chapter 7,
p. 31 of the ULP Manual). VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 14 of 16 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 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 a. II c. I, II and III
b. I d. I and II Answer d. Cash values (guaranteed) are not associated with Variable Life Policies.
The savings/investments component of Variable life Policies are referred to as Fund/Account
Values which are not guaranteed. 44. Risk can be classified into two particulars 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 a.I
and III c. III and IV b.I and II d. II and IV Answer d. Variable life Policies have account values which
are not guaranteed. There is a possibility that the policy holder’s investment may decline and
may even lose his initial investments due to market performance/conditions. 45. The duties of
the trustees 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 trusts deeds c. Acting generally to protect the unit-
holders d. Holding the pool of money and assets in trust in behalf of the investors Answer a. This
is the primary job of Fund Managers. Manage the Investment portfolio and analyses market
conditions to optimize the returns for the benefit of the stakeholders. 46. Policy fee payable by
variable life insurance policy owner is to cover _______________: a. The handling charges by
professional investment managers b. The price for 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 VUL MOCK EXAM 2 June 6, 2011 Version
1 Page 15 of 16 Answer d. The Policy Fee is an additional charge placed on the initial premium to
reflect the cost of issuing a policy, establishing records and other expenses. This is the same fee
charged for traditional policies. 47. The selling price under a variable life insurance policy is: a.
The price at which units the policy are bought back by the life company b. The price at which
units under the policy are offered for the sale by the life company c. Also known as the bid price
d. A fixed amount throughout Answer b. Offer price is the price at which units under a variable
life insurance policy are offered for sale by the company (Chapter 6, p. 28, definitions of the ULP
Manual). 48. In risk-return profile of cash funds, bonds funds balanced funds, managed funds
and equity funds, a riskreturn 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 and III c. I, II and IV b. II, III and IV d. I, III and IV Answer b. The relationship
between risk and return is directly proportional. The higher the risk, the higher the potential
returns. 49. Diversification in investment involves ______________________ a. Putting all the
funds under management into one category of investment b. Spreading the risks of investment
by not putting the fund into several categories 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 Answer c. Diversification is a process of
investing across different asset classes and across different market environments. The rationale
behind this technique contends that a portfolio of different kinds of investments will, on
average, yield higher returns and pose a lower risk than any individual investment found within
the portfolio. Diversification is a strategy used by professional fund managers that has proven
effective in reducing risk without sacrificing returns. The simplest example of Diversification is
provided by the proverb “Don't put all your eggs in one basket.” By dropping the basket, one will
break all the eggs: therefore, placing all the eggs in one basket represents an extremely non-
diversified strategy. 50. 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 ______________: VUL MOCK EXAM 2 June 6, 2011 Version 1 Page 16 of 16 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
assets are usually the last to depreciate c. Invest in share of stocks which are inherently of lower
risk in nature and the prices of stocks are stable d. Invest in shares of stocks and investor who
buy such assets usually aims for capital appreciation Answer d. Equity Funds invest in equity
assets such as stocks and shares. Prices of equity shares are inherently higher risk in nature and
are volatile. Investors who buy equity assets usually aim for capital appreciation.