Terms:

VARIABLE LIFE INSURANCE:

 A life insurance policy with an investment component attached to it. A portion of the premium is placed
in an investment fund.
 The value of the fund at any time varies according to the performance of the fund chosen by the policy
owner.

UNIT PRICE:
 The price per unit of investment in a separate fund. It is calculated based on the underlying assets it
holds divided by the number of units issued.

ACCOUNT VALUE:
 This is the current value of the total investment in each fund.

FORWARD PRICING:
 Pricing structure wherein the buying and selling prices of units are determined at the next valuation
date.

OFFER PRICE:
 The offer price is the price at which units under a variable life insurance policy are offered sale by the
company.

BID PRICE:
 The bid price is the price at which the units under a variable life insurance policy are cashed when the
police matures, or when the policy is surrendered, or at which units are cashed to pay for charges
under the policy. The bid price is always lower than the offer price at the published date.

BID-OFFER SPREAD:
 The difference between offer price and bid price, with the offer price being higher than the bid price.
This difference is known as the bid-offer spread and is an effective initial charge of 5% to 6% by the
company to the poilcyowner on every premium made to cover expenses in setting up the policy.

PREMIUM ALLOCATION:

ALLOCATED PREMIUM:
 Premium used to buy units from the variable fund.

UNALLOCATED PREMIUM:
 Charges deducted from the premium, which is paid to the company to cover initial expenses.

TOP UP:
 Additional investment/single premium injections used to purchase additional units in the fund.

FUND ALLOCATION:
 Allotment/distribution of the investable amount in the available investment funds.
1
FUND SWITCH:
 The transfer of investment from one fund to another.

PREMIUM HOLIDAY:
 Refers to the cessation of premium payments on a variable life insurance contract for a period with a
view to continue it later on.

PARTIAL WITHDRAWAL:
 Refers to the redemption of some units owned by the policy owner.

FULL WITHDRAWAL:
 Refers to the redemption of all units.

DEATH BENEFIT:

Death Benefit 1:
 Full Withdrawal Value or Account Value of the Units AND the Sum Assured; or

Death Benefit 2:
 Full Withdrawal Value or Account Value of the Units or the Sum Assured, whichever is higher.

POLICY FEE:
 The policy fee payable by the policy owner is the same as that of traditional life insurance policies. it
covers the administrative expenses of setting up the policy.

MORTALITY CHARGE:
 This covers the mortality cost of the policy and is, therefore, dependent on age. It is possible for the
mortality charge to be a recurrent charge (e.g. Monthly).

ANNUAL FUND MANAGEMENT FEE:

 The management of the variable life funds is handled by professional investment managers. A
deduction of a percentage of the variable life fund to cover investment management charges.

FULL WITHDRAWAL CHARGE:

 This is a charge deducted from the value of units at full withdrawal and is applicable to policies with
uniform allocation. It represents initial expenses which have already been incurred but not yet
recovered.

2
FORMULAS:
No. of Units= Single Premium/Unit Price

Bid Price= Offer Price (1-Spread %)

Tip: Bid Price is always lower than the Offer Price

Offer Price= Bid Price/ (1-Spread %)

Tip: Offer Price is always higher than the Bid Price

Full Withdrawal Value= Number of Units x Bid Price (at the time of withdrawal)
Tip: Full Withdrawal is converting your units to Philippine Peso or US Dollar value.

Yield= (Full Withdrawal Value / Single Premium) 1/n- 1

Tip: Yield is the return of your investments

Accumulation of Fund= x (1 + i) n
Tip: Accumulation of Fund is the value of your investment over a period of time

You will be able to compute the other price (bid or offer) as long as you know one price and the spread%

3
WHAT IS INVESTMENT?
 Assets acquired to realize income and/or earn profit
 Expected to increase one’s equity or reduce future financial worries
 Protect one’s financial resources from inflation

INVESTMENT EARNED TROUGH 4 MEANS:

1. CAPITAL APPRECIATION:
 The increase of value of assets
i.e. $ 1.00/Share= $ 1,000
$ 1.10/Share= $ 1,100
2. INTEREST:
 The profit you get from lending money.

3. DIVIDENDS:
 This is the income you get from being a business owner trough stocks and a policy owner of life
insurance. Basically its money your company earns in the stock market.

4. CAPITAL GAINS:
 This are the profits you get from the sale of assets like real estate.

6 TYPES OF INVESTMENT ASSETS:

1. FIXED INCOME SECURITIES:

 Offer a fixed periodic return
 Certificate showing investor has lent money to the issuer in return for fixed interest income and
payment of principal at maturity
 Offer little or no opportunity for appreciation in value
 Principal or PAR Value is protected

4 TYPES OF FIXED INCOME SECURITIES

1. MONEY MARKET INSTRUMENTS
 Short Term Debt Instruments (one year or less)

CASH AND DEPOSITS- Which refer to all liquid instruments that carry little or no risk that
the principal amount invested can be lost.

 Bank Accounts
- Have the Highest Safety
- Lowest Returns.
2 Types of Bank Accounts:
1. Demand Deposit (Savings Account) - allows depositors to have access to
their money on demand. They have the convenience of withdrawing cash form
ATM or over the counter.
2. Certificate of Deposit (Time Deposit) - has a holding period of less than a
year and can be re-invested. Should the depositor wish to terminate, applicable
penalty fess applied.

4
 FACTORS THAT INFLUENCE CHOICE OF DEPOSITS:

 Available funds
 How long the funds can remain in the account
 If emergency withdrawals are likely
 Prevailing market conditions
DISADVANTAGES OF BANK ACCOUNTS:

 Low yield
 Not a good inflation hedge
 Penalties upon early or premature withdrawal

 Treasury Bills
 Short term government securities issued by governments to borrow money from
the investing public
 These are “riskless” as it is lending money to a sovereign government

 Commercial Papers
 Short term, unsecured promissory notes issued by corporations that mature in
less than a year.
 Interest rate reflects level of risk of issuing corporation

ADVANTAGES AND DISADVANTAGES OF MONEY MARKET INSTRUMENTS:

 AVANTAGES
 LIQUID  DISADVANTAGES
 ACCUMULATE FUNDS UNTIL  LOW RETURNS
NEEDED  REINVESTMENT RISK
 CONSIDERED “SAFE HAVENS”

2. Government Bonds
 Financial instrument used by government to borrow money from the public.
 (WITH LONG-TERM MATURITY:>10 YEARS)
 Interest payments and repayment of principal are guaranteed by the
government.
 (DEFAULT FREE)
 Marketable income for future years is guaranteed. However, in times of high
inflation, the capital may be eroded.

TYPES OF GOVERNMENT SECURITIES TERMS
Treasury- Bills Less than 1 year
T- Notes 2-10 years
T- Bonds More than 10 years

3. Corporate Bonds
 DEBENTURE STOCKS
 UNSECURED
 FIXED TERM INTEREST
5
  INTERESTED RATES

 SECURED STOCKS / LOAN STOCKS

 SECURED OBBLIGATION TO A COMPANY BACKED BY A LEGAL
CLAIM ON A SPECIFIED PROPERTY OF THE ISSUER.
 FIXED TERMS
 LOWER INTEREST RATES

 CONVERTIBLE STOCKS
 THIS STOCKS CAN BE CONVERTED TO ORDINARY SHARES OF A
COMPANY ON A FIXED DATE AND THE INVESTOR CAN CONVERT
THIS INVESTMENT FOR A FIXED INTEREST LOAN TO BEING PART
OWNER AND BEING ENTITLED TO A SHARE OF ITS PROFIT
THROUGH DIVIDENDS DECLARED.

4. PREFERRED SHARES
- PROVIDES FIXED DIVIDEND RATES

2. SHARES:
 Shares represent an ownership interest in a corporation
 The value of share fluctuates according to the markets view of the worth of the company
 A share can be a volatile instrument their very sensitive to the economic situation at any given
time. In fact, shares are the first to depreciate when the market crashes.


 ORDINARY SHARES (COMMON  PREFERRED SHARES

STOCKS) (PREFERRED STOCKS)
 Entitled to a share in the  Shareholders have priority in
company’s profits though the payment of dividends
dividends  Dividend rate is fixed
 Have voting rights (Hence considered as fixed
 Second in line to receive income securities)
dividends / no fixed dividend  When a company dissolves,
rate preferred shareholders are
 When a company dissolves, second in line to receive pay-
ordinary shareholders are last in out
line to receive pay-out  Without voting rights.

3. COMMON TRUST FUND:

 Is a pool of co-mingled funds contributed by many investors kept in trust by a Trustee and
managed by a Professional Fund Manager.

4. UNIT INVESTMENT TRUST FUND:

 Is an open ended pool trust fund
 However, instead of being held in trust by a single trustee a UITF is operated and administered
by a trust entity and made available by participation.
 The main difference between a UITF and a CTF is the manner in which the net asset value or
NAV is calculated
6
 DUTIES OF THE TRUSTEE
(CTF/UITF)

 Holds the pool of money and assets in trust

 Ensures that the fund managers adhere to the provisions of the trust deed
 To protect the unit-holders

5. MUTUAL FUNDS:
 Similar to UITF but much simpler, more accessible, and more cost effective
 Total fund is managed by specialist fund managers
 Medium term (not less than 3 years)
 Prices are recalculated every day and quoted daily in at least 2 national newspapers

6. REAL ESTATE:

3 TYPES OF REAL ESTATE INVESTMENTS

1. AGRICULTURAL PROPERTY
2. DOMESTIC PROPERTY
3. COMMERCIAL OR INDUSTRIAL PROPERTY

FACTORS THAT AFFECT PROPERTY PRICE

 Quality of land as reflected on the quality and profitability of the crops it grows
 The location of the land
 The value of the building on the land

ADVANTAGES AND DISADVANTAGES OF REAL ESTATE

ADVANTAGES
 Tangible
 Periodic income
 Can be used as a collateral
 A basic necessity of man

DISADVANTAGES
 It takes a while before profits are realized
 Immovable
 Not liquid
 Adversely affected in times of crises
 Subject to estate tax

7
 KEY CONSIDERATIONS IN INVESTMENT
 Accessibility of Funds
 How easily an asset can be turned into cash?
 Is there a cost or penalty for pre-maturity into cash?
 Will the initial cost or set-up cost be recovered?

 Level of Risk Tolerance

 Age
 Financial Condition
 Investment Objectives
 Personality

 Types of Investors:
 Conservative
 Moderate
 Aggressive

 Funds Available
 Locked in investment. Not for short term.
 Penalties
 Initial Cost

 Taxation
 Fixed Income
 Shares
 Common Trust Fund
 Unit Investment Trust Fund
 Mutual Fund
 Real Estate

 Investment Objectives
 Provide for dependents
 Provide funds for education and bringing up children
 Enhance or have a comfortable standard of living
 Improves one’s financial situation
 Provide income in retirement
 Provide a clean-up fund

 Performance of the Investment

 FACTORS AFFECTING INVESTMENT PERFORMANCE
 Economic Factors
 The competencies and capabilities of the management team
 The invested companies level of costs
 The past experience of company
 The life cycle of the investment

8
 Investment Horizon
 FACTORS AFFECTING THE INVESTMENT HORIZON
 Investment objectives
 Age
 Current financial condition
 Liquidity requirement

 Diversification
 Is a method that investors used to protect themselves from unnecessary risk
 Invent across different asset classes and across different market environments
 Reduce risk without sacrificing returns