Variable Contracts Practice Questions
Master Variable Contracts for the Series 6 exam with comprehensive practice questions, detailed explanations, and proven study strategies.
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Practice Questions
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Students Passed
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What You'll Learn
Variable Contracts is an important topic for the Series 6 exam, as it covers the various types of variable insurance products that financial professionals may sell. These products, which include variable annuities and variable life insurance, combine elements of both insurance and investment, allowing policyholders to participate in the performance of an underlying investment portfolio. Understanding the features, risks, and regulations surrounding variable contracts is crucial for passing the Series 6 exam and providing appropriate recommendations to clients.
Key Concepts
Variable Annuity
A type of annuity contract where the value of the contract and the amount of the periodic payments fluctuate based on the performance of the underlying investment portfolio, which is typically made up of mutual funds.
Variable Life Insurance
A type of life insurance policy where the death benefit and cash value fluctuate based on the performance of the underlying investment portfolio, which is typically made up of mutual funds.
Subaccounts
The investment options available within a variable annuity or variable life insurance policy, typically consisting of various mutual funds that the policyholder can choose to allocate their premiums to.
Surrender Charges
Fees charged by the insurance company if the policyholder withdraws money from a variable contract before the end of a specified time period, usually 5-7 years.
Death Benefit
The amount paid to the beneficiary upon the death of the policyholder in a variable life insurance policy, which can fluctuate based on the performance of the underlying investment portfolio.
Common Mistakes to Avoid
- Failing to understand the distinction between variable annuities and variable life insurance policies and their unique features and regulations.
- Overlooking the importance of subaccount selection and the impact of investment performance on the value of the variable contract.
- Not being aware of the surrender charges and other fees associated with variable contracts, which can significantly impact the policyholder's returns.
- Confusing the death benefit structure of variable life insurance with that of traditional life insurance policies.
- Underestimating the level of risk and volatility inherent in variable contracts due to their investment-linked nature.
Sample Variable Contracts Questions
Question 1
Which of the following statements concerning the separate account of a variable annuity is FALSE?
The separate account may only be used to invest in mutual fund shares
(Correct)If the separate account is a direct investment account it is classified as an open end investment company
If the variable annuity's separate account is an indirect investment account it is classified as a UIT
The separate account may not be commingled with the general account of the insurance company
Explanation:
The name "separate account" indicates that the assets within it must be held separately from the insurance company's general account. If a separate account invests in mutual fund shares, then the account is an indirect investment account, and the account is classified as a UIT under the investment c...
Question 2
Your firm is underwriting a new mutual fund that operates under a 12b-1 plan. Which statement regarding this fund is permissible in communications with clients?
None of the choices listed
(Correct)The fund has the added advantage of being a no load investment
You will not have to pay any sales charges with this fund because we are buying it as a long-term investment
Investments in no-load funds of this type carry some risks, and you should review the prospectus carefully
Explanation:
Making any statement implying a mutual fund operating under a 12b-1 plan is a no load fund constitutes a misleading representation and a violation of FINRA rules.
Question 3
What conditions must be met by a mutual fund, according to the Investment Company Act of 1940? I. It must publish an investment policy statement. II. Its minimum net worth must be $100,000. III. At least 51% of its directors must be independent, i.e., not officers or investment advisers of the company.
I, II and III
(Correct)I only
II only
II and III only
Explanation:
The Investment Company Act of 1940 mandates that an investment company must publish its investment policy, maintain a minimum net worth of $100,000, and ensure that at least 51% of its directors are unaffiliated with the investment company, meaning they are neither officers nor investment advisers.
Study Tips for Variable Contracts
Thoroughly review the definitions and key characteristics of variable annuities and variable life insurance, understanding the similarities and differences between the two product types.
Practice selecting appropriate subaccounts and understanding how the underlying investments can affect the value of the variable contract over time.
Familiarize yourself with the common fees and charges associated with variable contracts, such as surrender charges, mortality and expense (M&E) fees, and administrative fees.
Understand the unique features of the death benefit in variable life insurance policies and how it differs from traditional life insurance.
Utilize practice questions and simulated exams to gauge your understanding of variable contracts and identify any areas that require further study.
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Related Series 6 Topics
Series 6 Question Types
Frequently Asked Questions
How many Variable Contracts questions are on the Series 6?
Variable Contracts makes up approximately 24% of the Series 6 exam. Upsero includes hundreds of practice questions covering all aspects of this topic.
How do I study for Variable Contracts?
Start with understanding the key concepts, then practice with realistic exam questions. Upsero's ReadyScore tracks your mastery of Variable Contracts so you know when you're ready for the real exam.
Are the practice questions similar to the real Series 6?
Yes! Our Variable Contracts questions are designed to match the exact format, difficulty, and style of the actual Series 6 exam. Many students say our questions are even harder than the real exam.
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