Series 6 Keir-Variable Life Insurance

(D) Variable life policies are similar to whole life in that they build cash value against
which policy loans may be taken. Unlike whole life, which guarantees a fixed rate of return, variable life does not. The rate of investment return depends on the perfol1llance of the securities in the separate account that funds the variable policy. Thus, the variable life policyholder bears investment risk. Variable policies do offer a minimum guaranteed death benefit; there is no maximum limit to the death benefit since this will vary, depending upon separate account performance. Ch 9 - 1 b

(B) Variable life policies are similar to whole life in that they build cash value against which policy loans may be taken. Unlike whole life, which guarantees a fixed rate of return, variable life does not. The rate of investment return depends on the perfol1llance of the securities in the separate account that funds the variable policy. Tel1lllife offers no cash buildup - it is a pure insurance product without any investment feature. Universal life policies are also similar to whole life, but in a different way. Universal policies allow the holder to increase or decrease premiums to buy a different death benefit amount. These policies build cash value from the interest income of the insurer's investments. Insurers fund universal policies from the general account - not from a separate account. As with whole life, they guarantee a fixed rate of return. A fixed annuity offers an unchanging annuity payment - there is a guaranteed rate of return. Variable products offer a rate of return that will vary, depending upon the performance of the
separate account. Ch 9 - 1 b

(B) Premiums paid into a variable life policy are fixed amounts (e.g., $100 a month for 120 months). The money is invested in a separate account to provide the death benefit. These policies offer a minimum guaranteed death benefit; however, the death benefit will increase if the separate account investments perform better than anticipated. Thus, premiums are fixed, while the death benefit may vary, depending upon separate account performance. Ch 9 - lc

(D) Universal life policies allow their holders to change premium payments up or
down to buy a higher or lower death benefit. With, a universal variable life policy, the insurer invests premium dollars in a separate account to provide the death benefit. These policies offer a minimum guaranteed death benefit; however, the death benefit will increase if the separate account investments perfol1ll better than anticipated. Thus, premiums may vary, and the death
benefit may vary, depending upon separate account performance. Ch 9 - lc

(B) Premiums paid into a variable life policy are fixed amounts (e.g., $100 a month for 120 months). The insurer invests the monies in a separate account to provide the death benefit. These policies offer a minimum guaranteed death benefit; however, the death benefit will increase if the separate account investments perform better than anticipated. Thus, premiums are fixed, while the death benefit may vary, depending upon separate account performance. Universal life policies allow their holders to change premium payments up or down to buy a higher or lower death benefit. With a variable universal life policy, the insurer invests premium dollars in a separate account to provide the death benefit. These VUL policies offer a minimum guaranteed death benefit; however, the death benefit will increase if the separate account investments perform better than anticipated. Thus, premiums may vary, and the death benefit may vary, depending upon separate account performance.
Both policies build cash value; however, the owner can borrow only a portion of the cash value since investment returns are not guaranteed and may fluctuate. Ch 9 - lc

(B) During the first 24 months of the variable life contract, the holder can convert to a whole life policy without penalty. Whole life policies are characterized by fixed premiums and a guaranteed death benefit. Ch 9 - 2a

(D) The Investment Company Act of 1940 limits variable life sales charges to a maximum of 9% of all payments made for policies requiring payments for 20 years or longer. Ch 9 - 2a

(C) Advantages of variable life policies include the first three choices. The investor has the option to choose the type of investments by selecting the proper separate account, assuring compatibility with the investor's objectives. The policy has the potential of paying a higher death benefit than stated in the prospectus due to better than expected growth in the separate account. Any earnings and capital gains from the investment are tax-deferred. The owner cannot borrow 100% of cash value in a variable life policy. Only a portion of cash value can be borrowed since investment results may vary. Ch 9 - 2a

(B) Whole life provides a death benefit, and it builds cash value at a guaranteed rate, against which the policyholder may borrow. Variable policies only build cash value to the extent that the separate account performance generates investment return. There is no guarantee of this return. Term life is a pure insurance product with no investment or cash value features. Ch 9 - 1 b

(B) The insurer must compute separate account net asset value daily, generally as of the NYSE close. Policy cash values must be computed monthly under most state laws. Death benefit values for variable policies must be computed at least annually. Ch 9 - 2b

(D) The Investment Company Act of 1940 limits sales charges on variable contracts to 9% of the amount invested over the life of the plan. The 1940 Act states that the sales charge can be deducted in a front-load manner or a spread-load manner. In a front-end load, the insurer may deduct 50% of the first year's payments as sales charges, with the balance deducted pro rata over the life of the plan. Many variable universal policies offered today have contingent deferred sales charges. Ch 9 - 2a

(D) Borrowing against cash value is not taxable. (When you take a loan, are you taxed on the amount borrowed? No!) Ch 9 - 2c

(D) The insurer must compute a separate account net asset value daily, generally as of the NYSE close. Policy cash values must be computed monthly under most state laws. Death benefit values for variable policies must be computed at least annually. Ch 9 - 2b

(C) If there is a policy loan outstanding at the time of a person's death, the loan amount is deducted from the death benefit paid to the beneficiary. Ch 9 - 2a

(B) Whole life is funded from the insurance company's general account and provides an interest rate guarantee. The owner may borrow the full cash value from these policies. Variable policies are funded from one of the insurance company's separate accounts and do not provide an interest rate guarantee. The owner may borrow only a fraction of the cash value from variable policies. No borrowing is permitted from term policies - they have no investment feature and are simply pure insurance. Ch 9 - lc

(C) Any insurance funded from a separate account is considered a security since the policyholder bears investment risk. Thus, variable life policies and variable universal life policies must be offered under prospectus. Whole life and universal life are funded by general account investments and provide an interest rate guarantee. They are considered insurance, not securities, since the policyholder does not bear investment risk. Ch 9 - la, Ib

(B) Insurance companies must provide an annual statement of death benefit to policyholders, detailing all earnings and charges for that year. Each policy funded by a separate account must meet the SEC's reporting requirement for investment companies. Investment companies must provide semiannual financial statements to shareholders (Of, in this case, unit holders in the separate account). Ch 9 - 2b

(C) Investment options are available to persons who hold separate account interests.
They can choose the type of separate account to fund either variable annuities or variable life policies (e.g., common stock, bonds, money market securities). Policies funded by the general account do not offer investment options. Thus, no options are available for whole life Of universal life policyholders. These guarantee an investment rate of return, so no choice is offered or needed. Ch 9 - 2a

(D) Cost of insurance is a deduction from the separate account value for a variable life policyholder and represents the annual charge for the death benefit. Unrealized appreciation, capital gains, and dividends will increase the separate account value. Ch 9 - lc

(A) Term policies have no investment feature. The purchaser is simply buying life insurance for a specified period. There is no cash value with term insurance. Whole life has an investment feature, as do universal and variable life. These all build cash value, which the owner can borrow. Ch 9 - Ib

(A) If an owner takes a loan against cash value, it will reduce that balance. In a surrender, the policy is terminated, and the cash value is paid to the policyholder. Therefore, the cash value is eliminated. Ch 9 - 2a

(C) Because the customer has canceled after 24 months, he or she is entitled only to a refund of cash value. Ch 9 - 2a

(B) Variable life policies provide a guaranteed minimum death benefit; however, the death benefit will increase beyond this amount if the separate account performs better than the assumed interest rate (AIR). Variable life policies do not have a guaranteed cash value. Cash value accumulates, depending upon the performance of the separate account, and not all cash value can be borrowed in variable policies. Ch 9 - 2a

(B) The net asset value of separate account units is computed daily, whether the account funds a variable annuity or a variable life policy.5ash values for variable life policies are computed monthly. Ch 9 - 2b

(B) An annuity can be exchanged for another annuity in a tax-free exchange. A life insurance policy can be exchanged tax-free for an annuity, but an annuity cannot be exchanged tax-free for a life insurance policy. Ch 9 - 2c