PRU LIFE UK

VARIABLE LIFE LICENSING MOCK EXAM (Set D)

NAME: ______________________________________________
BRANCH: ____________________________________________
SCORE: _____________________________________________

Instruction: 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 or 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 of the investment fund managed by the life insurance company.
IV. Fluctuate according to the rise and fall of the market prices.
a. I, II and III
a. I, II and IV
b. I, III and IV
c. 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

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circulated, reproduced, or distributed in whole or in part to any other person without the company's prior written
consent.
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 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 prices 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. Equites
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 premium and benefits of the endowment policies are described at the inception of the policy
whereas variable life are flexible as there account driven.
III. The benefits and risks of variable life and endowment policies are 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 the twisting is FALSE?

a. Twisting is a special form of misinterpretation.
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 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 months. 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 c. Participating whole life
b. 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
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 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
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
c. customer.
d. Because the agent may give the wrong recommendations
e. 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. Lie 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.
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circulated, reproduced, or distributed in whole or in part to any other person without the company's prior written
consent.
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 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.
I. 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.
II. 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
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circulated, reproduced, or distributed in whole or in part to any other person without the company's prior written
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 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 me 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 Variable life
insurance policies offer the potential for higher returns
III. Traditional participating policies aim to produce a steady return by smoothing our 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 n 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 Variable
life insurance policies offer the potential for higher returns
III. Traditional participating policies aim to produce a steady return by smoothing out market fluctuation
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 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 values 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 TRIIE?

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.

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circulated, reproduced, or distributed in whole or in part to any other person without the company's prior written
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 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 or 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
b. I & III
c. 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

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 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 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 o produce high and guaranteed returns
b. People invest money to enance 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

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 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 to 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
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 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
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?

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 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.

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circulated, reproduced, or distributed in whole or in part to any other person without the company's prior written
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 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
2. B
3. C
4. D
5. C
6. D
7. D
8. C
9. D
10. D
11. C
12. A
13. C
14. A
15. C
16. C
17.C
18. B
19. A
20. A
21. A
22. D
23. C
24. D
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 25. B
26. A
27. D
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
46. D
47. B
48. C
49. D
50. A
51. B
52. D
53. B
54. D
55. A
56. B
57. D
58. A

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circulated, reproduced, or distributed in whole or in part to any other person without the company's prior written
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