Insurance Commission VUL Simulated Exam

Direction: Choose the best answer. Write the CAPITAL LETTER of your answer
on the answer sheet provided

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

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

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

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

3. People generally invest their money to provide:

I. an improvement in their financial position

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

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

1 IC –VUL Simulated Examination v.1 March 2015

 4. 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 & III only

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

5. The risk profile of a person depends on:

I. age
II. investment objectives
III. financial conditions
IV. personality

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

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

A. Guaranteed interest rate

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

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

A. It is used solely for investment purposes

B. The commissions and office expenses are met by explicit charges.
C. It’s generally, though not necessarily, more exposure to equity investments.
D. Its cash value is usually the value of units allocated to the policy calculated at the
prevailing bid price.

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

A. The fund provides a highly diversified portfolio, thus, lowering the risk of investment
B. The fund relieves the investor from the hassle of administering his/her investment.
C. The fund ensures definite high yields for an investor since it is managed by professionals who
are well-versed in the management of risk of investment Portfolios.
D. The fund enables small investors to participate in a pool of diversified portfolio in which he/she
is unlikely to have access to with low investment capital.

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 9. Diversification in investment involves ______________

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

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

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

A. diversification can completely eliminate the risk of investing in stocks in a portfolio

B. diversification helps to spread the portfolio risk by investing in different categories
of investment in a portfolio
C. diversification can involve purchasing different types of stocks and investing in stocks of
different countries
D. a diversified portfolio provides greater security to an investor.

12. The fundamental differences between Traditional Participating Life insurance policies and Variable
Universal Life insurance policies include ______________.

I. Variable Universal Life insurance policies are less likely to offer more choice in terms of the
type of investment funds
II. The investment element of Variable Universal Life insurance policies is made known to the
Policyholder at the outset and is invested in a separately identifiable fund which is made up of
units of investment
III. Variable Universal Life insurance policies offer the potential for higher returns
IV. Traditional Participating Life policies aim to produce a steady return by smoothing out
market fluctuation

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

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

3 IC –VUL Simulated Examination v.1 March 2015

 14. The flexibility benefit of investing in Variable Universal Life funds include ____________

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

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

15. Term insurance __________

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

16. Which of the following statements is FALSE?

A. Company will carry out a valuation of its funds yearly and any surplus may be
allocated to traditional participating life policyholder as dividends
B. Variable life insurance policies offer investors policies with values indirectly linked to the
investment performance of the company
C. The investment element of variable life policies varies according to underlying assets of the
portfolio
D. Both whole life and endowment policies can be used as an investment media with benefits that
become payable at a future date

17. Why is it important that the customer understand the agent’s recommendation in full?

A. because the insurer may give the wrong recommendations

B. because the insurer does not guarantee any return
C. because the impact on change in investment conditions of variable life insurance policy falls
wholly on the customers
D. because the policyholder expects higher returns

18. Which one of the following information is NOT required to be disclosed to the policy owner in the sales
process?

A. Disclosure guidelines
B. Agent’s commission
C. Flexibility options
D. Risk and products

19. 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 conditions
III. Investor needs to choose between assets that yield regular income, or provide capital
gain.

A. I and II only
B. I and III only
C. II and III only
D. I, II , and III

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 20. 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

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

22. 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

23. 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

24. 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

25. 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. When the policy is partially surrendered the investor is taxed at his current tax rate.
C. The death benefit is taxed at the current tax rate.

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

A. An advice of daily investment funds

B. A policy statement and the fund performance report
C. The company’s annual financial reports
D. The fund manager’s entertainment expenses

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 27. What is/are the disadvantage(s) of investing in cash and deposits?

I. The safest type of investment

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

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

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

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

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

30. Factors to consider in buying Properties:

I. Quality of land
II. The location of Land
III. The value of the buildings on land
IV. The Investment Objective
V. Place of work

A. I, II & III only

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

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

I. Intellectual Property
II. Domestic Property
III. Agricultural Property
IV. Commercial/Industrial Property
V. Commodities

A. I, II & III only

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

6 IC –VUL Simulated Examination v.1 March 2015

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

A. money market instruments

B. government bonds
C. corporate bonds
D. none of the above

33. What are the disadvantages in investing in common shares?

I. dividends are paid not more than the fixed rate

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

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

A. cash
B. bond
C. money market
D. common shares

35. Which of the following statements is true?

A. amount invested in cash depends on the size of cash flow requirement

B. investment in cash decreases when interest rates rise
C. investment in cash increases when there is a strong performance in the stock market
D. cash has high yield potential

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

37. 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. Fixed income securities

B. Equities
C. Variable life insurance policies
D. Cash and deposits

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 38. 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. I and IV only
B. II and III only
C. II,III and IV only
D. II only

39. Which of the following statement(s) is/are FALSE?

I. The bid-offer spread is used to provide death benefit for the Variable Universal Life
insurance policy.
II. The bid-price is always higher than offer price.
III. The bid-offer spread is usually about 5%.
IV. There are two types of death benefit under the variable life insurance product. They may
offer either or both types depending on its product design and discretion of the
policyholder.

A. I & II only
B. II & III only
C. II & IV only
D. None of the above

40. Identify 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

41. This is called as the difference between the offer price and bid price:

A. Bid price spread

B. Offer price spread
C. Bid offer spread
D. None of the above

42. If the current offer price = P1.50

And the Bid-offer Spread = 5%
Calculate for the Bid Price:

A. P1.367
B. P1.425
C. P1.408
D. P 1.234

43. 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

8 IC –VUL Simulated Examination v.1 March 2015

 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 the above

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

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

46. Which of the following is/are some of the flexibility features of Variable Universal Life insurance policies?

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

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

47. The offer price under a Variable Universal Life insurance policy is ___________.

A. a fixed amount throughout the life of the policy

B. also known as the bid price
C. the price at which units under the policy are brought back by the company
D. the price at which units under the policy are offered for sale by the company

48. The switching facility under Variable Universal Life insurance policies is very useful ____________.

A. for the purpose of assets planning by the trustee

B. for the purpose of profit planning by the life policies
C. for the purpose of financial planning by the policyholders
D. for the purpose of sales planning by the fund managers

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 49. Under the dual pricing method of single premium policies, ___________

A. the Policyholder buys the units at the company buying price and sells the units at
the company selling price
B. the Policyholder buys the units at the offer price and sells the units at the bid price
C. there is only one price quoted whether the Policyholder is buying or selling his units
D. the bid price is always higher than the offer price

50. The two purposes of regular premium variable life insurance plan include investment and

A. Regular savings
B. Protection
C. Total and permanent disability
D. Death benefit

10 IC –VUL Simulated Examination v.1 March 2015