IIQE Paper 5 Comparison of Investment-linked Long Term Insurance Policies with Guaranteed and With-Profits Policies 投資相連長期保單與保證保單及有利潤保單的比較 Practice questions

Question 1

What does it principally mean when a guaranteed policy is sold on a guaranteed cost basis?

Accepted Answer

Contractual premiums, face amounts and cash values, where provided, are guaranteed without adjustment for the insurer's actual experience

Answer

Premiums are recalculated each year according to the insurer's actual operating expenses

Answer

The policyholder is guaranteed the same surplus dividend every year

Answer

Policy value follows entirely the performance of funds selected by the policyholder

Question 2

Mrs Ho holds a participating endowment policy in Hong Kong. Her intermediary explains that the insurer can build reserves in stronger investment years and use them in weaker years to smooth returns. Mrs Ho therefore believes future dividends are guaranteed. Which response is most appropriate?

Accepted Answer

Smoothing can reduce fluctuations in returns between years, but future dividends remain non-guaranteed

Answer

Once smoothing is used, the insurer must pay the same dividend every year thereafter

Answer

Dividends depend only on investment funds Mrs Ho selects, with no link to the insurer's overall investment performance

Answer

The basic cash value of a participating policy must be entirely non-guaranteed

Question 3

Which of the following is NOT a general feature of investment-linked long term insurance policies?

Accepted Answer

Cash values are guaranteed and unaffected by linked fund performance

Answer

Policyholders are offered investment choices

Answer

The insurer may adjust some charges under the policy terms

Answer

Partial surrender may incur withdrawal charges

Question 4

Which statements about guaranteed and participating policies are correct? (i) Guaranteed term insurance may have a predetermined level or increasing premium schedule; (ii) term insurance has no cash value; (iii) future dividends under participating policies are guaranteed because smoothing is used; (iv) participating policies generally allow dividend withdrawals or withdrawals through partial surrender.

Accepted Answer

(i), (ii) and (iv) only

Answer

(i) and (ii) only

Answer

(ii) and (iii) only

Answer

(i), (ii), (iii) and (iv)

Question 5

Ms Leung is considering a participating policy offered in Hong Kong. Its features make it Class C business and a collective investment scheme under the Securities and Futures Ordinance. Which statement about SFC authorisation is correct?

Accepted Answer

SFC authorisation is required even though it is called a participating policy

Answer

SFC authorisation is unnecessary as long as an authorized insurer issues it

Answer

SFC authorisation is unnecessary as long as basic guaranteed benefits are provided

Answer

All participating policies are exempt from SFC authorisation

Question 6

Suppose Ms Chan pays a HK$20,000 premium into an investment-linked policy. A HK$1,000 charge is deducted first, and the balance buys units at HK$10 each. The unit price later falls to HK$9, with no other charges, withdrawals or additions. If policy value equals units held multiplied by the current unit price, what is her policy value?

Accepted Answer

HK$17,100

Answer

HK$18,000

Answer

HK$19,000

Answer

HK$20,000

Question 7

Suppose Mr Lee's investment-linked policy holds 2,000 units worth HK$12 each. He partially surrenders by cancelling 500 units. The insurer deducts a HK$100 withdrawal charge from the proceeds of those 500 units without cancelling extra units. Assuming an unchanged unit price and no other charges or transactions, what cash does he receive and what policy value remains?

Accepted Answer

HK$5,900 received; HK$18,000 policy value remaining

Answer

HK$6,000 received; HK$18,000 policy value remaining

Answer

HK$5,900 received; HK$17,900 policy value remaining

Answer

HK$5,900 received; HK$24,000 policy value remaining

Question 8

Which statements about investment-linked long term insurance policies are correct? (i) They offer investment choices; (ii) common death benefit options include increasing death benefit, level death benefit and the 105 Plan; (iii) flexible premium payments mean all insurer charges are guaranteed; (iv) a minimum death benefit means the cash value is also guaranteed.

Accepted Answer

(i) and (ii) only

Answer

(i) and (iii) only

Answer

(ii) and (iv) only

Answer

(i), (ii), (iii) and (iv)

Comparison of Investment-linked Long Term Insurance Policies with Guaranteed and With-Profits Policies 投資相連長期保單與保證保單及有利潤保單的比較

Guaranteed Policies/Without-Profits/Non-Participating Policies 保證保單∕無利潤∕不分紅保單

With-Profits/Participating Policies 有利潤∕分紅保單

Comparison Criteria 比較準則

Practice