California Life

An insured receives an annual life insurance dividend check. What term best describes this arrangement?

Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?

$200,000 The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

The notice to senior consumers regarding their right to cancel a policy must be printed on the cover or policy jacket in at least what type of print?

12-point bold print Each individual life policy annuity contract delivered to a senior consumer must have the regarding their right to cancel either printed on the cover page or policy jacket in 12-point bold print with one inch of space on all sides, or printed on a sticker attached to the cover page or policy jacket.

Every policy of individual life insurance must include a notice of right to cancel the policy, stating the specific time frame for the free-look period. Once the insured has cancelled the policy, within how many days must the insurer refund all premiums and policy fees?

30 days All premiums and policy fees paid for the policy must be refunded by the insurer to the owner within 30 days from the date that the insurer is notified that the insured has cancelled the policy.

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?

A minor son of the insured Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.

What limits the amount that a policyowner may borrow from a whole life insurance policy?

Cash value The amount available to the policyowner for a loan is the policy's cash value. If there are any outstanding loans, that amount will be reduced by the amount of the unpaid loans and interest.

Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation?

Human life value approach (HLVA) Human life value approach is determined by the loss of income that would result with the death of the insured, after making adjustments for expenses, inflation, etc.

Which of the following is true regarding a policy with a face value less than $10.000?

If it's returned during the free look period, the agreement will be void. If the owner returns the policy within the free-look period, the agreement will be void from its beginning. All premiums and any policy fees that have already been paid must be refunded to the owner.

The type of term insurance that provides increasing death benefits as the insured ages is called

Increasing term. Increasing term insurance provides an increase in the death benefit each year. The coverage is usually structured to provide a death benefit equal to the amount of premium paid on a permanent life insurance policy, or to provide a death benefit equal to the cash value accumulation in a permanent policy; however, it can be written as a stand-alone policy for the individual that has a need for increasing amounts of insurance.

A life insurance policy has a legal purpose if both of which of the following elements exist?

Insurable interest and consent To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.

Which of the following best describes annually renewable term insurance?

It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

Which of the following statements best describes the effect the Accelerated Benefit provision would have on the benefits paid to the beneficiary?

It will decrease the benefits paid to the beneficiary. Accelerated Benefit provision allows the early payment of some portion of the death benefit if the insured becomes terminally ill or is confined to a long-term care facility. The face amount of insurance is therefore reduced, which will decrease the benefits paid to the beneficiary.

Which of the following is NOT true regarding the accumulation period of an annuity?

It would not occur in a deferred annuity. The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

Joint and survivor. A joint and survivor option pays while either beneficiary is still living.

An independent agent may have contracts with which of the following?

More than one insurer An independent agent may have contracts with more than one insurer.

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?

Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.

What describes a situation when poor risks are balanced with preferred risks, and average risks are in the middle?

Profitable distribution of exposures The profitable distribution of exposures is achieved when poor risks are balanced with preferred risks, and average risks are in the middle.

Under the Fair Credit Reporting Act, if a consumer challenges the accuracy of the information contained in a consumer or investigative report, the reporting agency must

Respond to the consumer's complaint. The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumer's complaint, and, if necessary, to reinvestigate the report.

A domestic insurer issuing variable contracts must establish one or more

Separate accounts. Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is this percentage called?

Surrender charge If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.

A fee charged to the insured when a policy or annuity is exchanged for its cash value is

Surrender charge. When a policy is surrendered in exchange for its cash value, a surrender fee is assessed.

During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal?

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½. When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a last in first out basis (LIFO). Therefore, all withdrawals will be taxable until the owner's cost basis is reached.

The interest earned on policy dividends is

Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

Which entity pursues liquidation of an insolvent insurer?

The state government Insurance companies are specifically exempted under federal bankruptcy laws, which means that any liquidation of an insolvent insurer is strictly a matter for the state to pursue.

Which of the following statements is TRUE concerning irrevocable beneficiaries?

They can be changed only with the written consent of that beneficiary. Once irrevocable beneficiaries are indicated for the policy, their written consent is required to change the beneficiary.

Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner?

Third-party ownership Contracts that are owned by someone other than the insured are known as third-party ownership. Most policies involving third-party ownership are written in business situations or for minors in which the parent owns the policy.

When an individual purchases insurance, what risk management technique is he or she practicing?

Transfer Insurance is a transfer of the risk of financial loss from a covered peril from the insured to the insurance company.

Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds?

Vacation travel expenses There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Vacation travel expenses are most likely to be considered a luxury and not a need.

An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy?

$100,000 In joint life policies, the death benefit is paid upon the first death only.

Which of the following statements is NOT true concerning insurable interest as it applies to life insurance?

A debtor has an insurable interest in the life of a lender. A lender has an insurable interest in the life of a debtor, but only to the extent of the debt. The debtor does not have an insurable interest in the life of the lender.

Which of the following is another term for an authorized insurer?

Admitted Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

Any form of life insurance Any form of Life insurance may be used to fund a buy-sell agreement.

Any insurance agent who engages in the insurance business and violates the Code with respect to insurance replacement shall on the first violation

Be fined a sum of $1,000. An agent who violates the replacement provision of the Code will be fined a $1,000 for the first offense.

A policy available to business owners that provides payment for normal business expenses in the event that the owner is disabled is called

Business Overhead Expense. Business Overhead insurance is often purchased by small employers to pay the ongoing business expenses (such as payroll) in the event the owner of the business becomes disabled. Premiums paid are tax deductible as a business expense, but proceeds paid are taxable as income.

Which of the following entities or individuals evaluates requests for pavment by insureds after a loss has occurred?

Claims department The claims department evaluates requests for payment by insureds after a loss has occurred.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

All of the following statements are true of a nonqualified retirement plan EXCEPT

Contributions are tax exempt. Nonqualified retirement plans do not meet the IRS' requirements for favorable tax treatment. Contributions to these plans grow tax deferred; however, they are not tax exempt. Increases of funds during the accumulation period are not taxed until they are actually received.

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?

Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?

Depreciation period The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.

The automatic premium loan provision is activated at the end of the

Grace period. Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.

Events or conditions that increase the chances of an insured loss occurring are referred to as

Hazards. Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring.

A contract which one party undertakes to indemnify another against loss is called

Insurance. Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.

Which statement regarding insurable risks is NOT correct?

Insureds cannot be randomly selected. Granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks. All other statements are true.

Which of the following best describes a misrepresentation?

Issuing sales material with exaggerated statements about policy benefits Misrepresentation is issuing, publishing or circulating any illustration or sales material that is false, misleading or deceptive as to policy benefits or terms, the payment of dividends, etc. This includes oral statements.

All of the following statements about equity index annuities are correct EXCEPT

The annuitant receives a fixed amount of return. Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

Which of the following is INCORRECT concerning a noncontributory group plan?

The employees receive individual policies. The employer receives a master policy, and employees receive a certificate of insurance.