IIQE Paper 5 Investment-linked Long Term Insurance Policies question: premium application method

Answer: B. (i) and (iii)

Answer: (i) and (iii). Statements (i) and (iii) are true; (ii) and (iv) are not.(i) True. Method two takes off the policy fee and charges first, then buys units with the balance.(ii) False. Cancelling units to meet charges is how method one works.(iii) True. The charges do not suffer the bid-offer spread, so slightly more units are attributable to the policyholder.(iv) False. For monthly premiums, Hong Kong insurers normally use method one.Why not the others:• (i) and (ii): includes (ii), which is false, and leaves out (iii), which is true.• (ii) and (iv): includes (ii) and (iv), which are false, and leaves out (i) and (iii), which are true.• (iii) and (iv): includes (iv), which is false, and leaves out (i), which is true.Watch out: Thinking method two gives fewer units; the charges escape the spread, so it gives slightly more.Rule: Method two: deduct charges first, buy units with the net premium at the offer price; slightly more units than method one. Hong Kong monthly premiums normally use method one.Source: IA Investment-linked Long Term Insurance Examination Study Notes, 2024 Edition (7th ed., Nov 2024; for exams from 17 Feb 2025), 4.6.8, p. 4/14