CALIFORNIA LIFE ONLY LIFE INSURANCE STATE EXAM
At what age is a surviving spouse without dependents eligible for Social Security survivor benefits?
"60" Reduced widow or widower benefits can be received as early as age 60.
How is a life insurance policy dividend legally defined?
"A return of excess premium and not taxable". Life insurance policy dividends are a return of part of the premiums paid. As such, policy dividends are generally not taxable income.
If an insured dies because of an accident, which type of life insurance rider will provide additional coverage?
"Accidental death rider". An accidental death rider provides additional coverage in the event of accidental death.
Which of the following pieces of information is NOT gathered during the personal financial planning process?
"An individual's civic organization memberships" are NOT gathered. An individual's expenses, assets, and income. All of these pieces of information are normally gathered during the personal financial planning process
Life insurance surplus must be distributed to policyowners at what frequency?
"Annually". Life insurance surplus must be distributed to policyowners annually in a participating policy.
Which of the following is NOT a true description of non-medical life insurance? O Less cost involved with underwriting the application O Applicants are not required to answer medical questions on the application O Quicker processing of life insurance application O Demand on the medical profession reduced
"Applicants are not required to answer medical questions on the application". Medical questions can still be asked on an application of non-medical life insurance
An applicant has revealed conditions that require more information. Which of the following is needed next?
"Attending physician's statement". An attending physician's statement (APS) is needed in cases in which the individual application and/or medical reports reveal conditions of which more info is required. The applicant must sign a written release to enable a release of the APS
Tim was recently terminated from his employment and opted to change his existing group term life insurance to individual permanent life insurance. What is this process called?
"Conversion". Changing group term insurance into an equal amount of individual permanent coverage is called a conversion.
What area of group health insurance is regulated under the Employee Retirement Security Act of 1974 (ERISA)?
"Disclosure and reporting". The Employee Retirement Security Act of 1974 (ERISA) regulates group health insurance in the area of disclosure and reporting.
What does a policyowner NOT have a right to change?
"Dividend schedule". Benificiary Payment mode Dividend option are considered rights of a policyowner EXCEPT the right to change the dividend schedule.
Which of the following is NOT a component of determining policy premiums? O Dividends O Expenses O Mortality O Interest
"Dividends". Dividends are not a component when determining policy premiums.
Which of the following is NOT characteristic of the conversion privilęge?
"Employer pays the premium for the converted policy". Proof of insurance ability is not required, conversion must take place within 31 days of employment termination, ex-employee pays the premium for the converted policy all of these about the conversion privilege are true EXCEPT "Employer pays the premium for the converted policy".
A life insurance policy that pays the face amount if the insured survives to a specified period of time is called
"Endowment insurance". An endowment policy pays the face amount if the insured survives to a specified period of time.
Which of the following types of information is NOT required for a life insurance application? O Occupation O Health history O Ethnicity O Hobbies
"Ethnicity". Ethnicity is not required information needed for a life insurance policy.
An annuitant would like to determine the amount of an annuity distribution that is exempt from taxation. What is used to calculate this?
"Exclusion ratio". Annuity benefit payments are a combination of principal and interest. A formula called the exclusion ratio is used to determine the amount of annual annuity income that is exempt from federal income taxes.
Which of the following refers to a condition that may increase the chance of a loss? O Peril O Hazard O Adverse selection O Risk potential
"Hazard". A hazard is a condition or situation that creates or increases a chance of loss.
What prevents a life insurance policy from being rescinded by the insurer after being in force for two years?
"Incontestability clause". Insurers are prohibited from denying claims or rescinding a policy based on misstatements in a life, accident, or disability policy application after the policy has been in force for two years. The is called the incontestability clause.
Who does a life settlement broker represent?
"Individual wanting to sell their life policy to a third party". A life settlement broker represents the individual wanting to sell their life policy to a third party.
Who are the parties to the master contract in a group life insurance policy?
"Insurer and employer". The actual policy for group life insurance, which is called the master policy, is issued by the insurer to the employer.
Which of the following is NOT a primary objective of insurance regulation? O Insurance Code enforcemernt O Protect policyowners O Licensing agents O Interpret policy pravisions
"Interpret policy provisions". All of these are considered objectives of insurance regulation EXCEPT "interpret policy provisions".
Tom is shopping for a policy that covers two people and would pay the face amount ONLY when the first person dies. The type of life policy he is looking for is called a
"Joint life policy". A joint life policy covers two or more people and pays the face amount at the first insured's death.
What type of license is required for an individual who charges a fee to review an insured's existing life insurance policy?
"Life and disability analyst". A life and disability insurance analyst license is required to review an insured's existing life or disability policy for a fee.
The importance of a representation is demonstrated in what rule? O Law of adhesion O Consideration clause O Materiality of concealment O Insurable interest
"Materiality of concealment". The materiality of concealment is used to determine the importance of a representation.
Most U.S. life insurance companies belong to the
"Medical Information Bureau". Nearly every life insurer in the United States belongs to the Medical Information Bureau.
How does underwriting differ between group life and individual life insurance?
"Medical questions must be answered on individual life insurance". One difference between group and individual life insurance underwriting is that medical questions must be answered on
Which of the following does the California Department of Insurance (CDI1) have NO jurisdiction over? O Life and health insurance companies O Health Maintenance Organizations O Preferred Provider Organizations O Medicare
"Medicare". The California Department of Insurance (CDI) has no jurisdiction over Medicare.
Which of these is NOT a valid policy dividend option? O Paid-up additions O Monthly income payments O Reduce premium O One-year term
"Monthly income payments". is not a valid policy dividend option.
Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies? O Physical hazard O Morale hazard O Moral hazard O Speculative hazard
"Moral hazard". The increase in the probability of a loss resulting from an insured's dishonest tendencies is known as moral hazard.
The probability of death, listed by year, is demonstrated in
"Mortality tables". Mortality tables give a measure of the number of deaths in a given population over a certain period of time.
When calculating life insurance premium rates, which component is affected by an insured's age and gender?
"Mortality", Mortality is the component of a life insurance premium that age and gender affects.
A participating company is also referred to as which type of insurer?
"Mutual insurer". A mutual insurer is also referred to as a participating company.
How are Roth IRA's treated for tax purposes?
"Non-deductible contributions and tax-free distributions". The tax characteristics of a Roth IRA are non-deductible contributions and tax-free distributions.
Which of the following is a life insurance policy that does NOT require a physical exam? O Noncancelable O Substandard O Graded O Non-medical
"Non-medical". Non- medical life insurance policies are written without a physical exam.
How are acts of war and aviation treated under a group life insurance policy?
"Policy exclusions". Under a group life insurance policy, acts of war are considered a policy exclusion.
Which of the following is NOT an insurer policy expense?
"Premiums". Insurance companies are like any other business. They have operating expenses which need to be factored into the premiums. This includes expenses such as salaries, agent compensation, rent, legal fees, postage etc.
AAA Insurance Company has transferred a portion of its loss exposure to BBB Insurance Company. In this reinsurance transaction, what is AAA. Insurance Company called?
"Primary insurer". in a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer is called the primary insurer,
Which type of jurisdiction requires an insurer to have its rates accepted by the Insurance Department prior to using them?
"Prior approval". A prior approval state requires that an insurance company receives approval for a new insurance rate before it is sent to the public.
Which of the following is NOT considered to be a definition of the term "loss"? O Unintentional decrease in the value of an asset due to a peril O An insurable event that takes place which results in a payment made by the insurance company O The amount an insurance company must pay because of an insurable event O Probability that an event will occur
"Probability that an event will occur". The term "loss" can be defined as all of these.
What is NOT a requirement for a terminated employee that has exercised the conversion privilege?
"Provide proof of insurability". A terminating employee who wants to exercise the conversion privilege must meet all of these requirements: -premium must be paid -covert within 30 days -convert up to the previous amount of group coverage
What does the guaranteed insurability option allow an insured to do?
"Purchase additional coverage with no evidence of insurability required".
What the price of insurance for each exposure unit?
"Rate". The price of insurance for each exposure unit is called the rate.
After a policy has lapsed, which provision allows the insured to continue coverage?
"Reinstatement provision". The reinstatement provision allows an insured to continue coverage under a previously lapsed policy.
Which course of action is the insurer entitled to when deliberate concealment is committed by the insured?
"Rescinding the contract". Intentional concealment entitles the insurance company to void the policy.
Which of the following does NOT have to be included on life insurance policy illustrations? O Age of the insured O Name of the insurer O Name of the agent O Statement that all values and benefits are guaranteed
"Statement that all values and benefits are guaranteed". Not all benefits and values are guaranteed in life insurance policies. Some have non-guaranteed values which must be described in the illustration.
An insurer can be protected from adverse selection with which policy provision? O Reinstatement O Grace period O Insuring clause O Suicide clause
"Suicide clause". The sucide clause protects the insurer against possible adverse selection.
Which of the following is NOT considered a definition of risk? O The potential for loss O Uncertainty O Exposure to danger O The cause of a loss
"The cause of a loss". Something that can cause a loss, such as an earthquake or tornado, is referred to as a peril, not a risk,
Why is a life insurance policy's delivery date important?
"The free-look period begins on the policy delivery date". The California Insurance Code gives an individual between 10 and 30 days to return a life policy for cancellation. This free-look period begins on the policy delivery date
What distinguishes a deferred annuity from an immediate annuity?
"The time at which benefit payments start". The difference between deferred and immediate annuities is when annuity benefit payments begin.
The risk selection process is primarily given to which insurance company departments?
"Underwriting". An insurance company's underwriting department is primarily responsible for the risk selection process (which applications are accepted or rejected).
Which of the following types of life insurance combines a savings element along with a flexible premium option?
"Uníversal life". Universal life combines a savings element along with a flexible premium option.
A hazard can be best described as
"a condition that may increase the likelihood of a loss occurring". A condition or situation that creates or increases a chance of loss is called a hazard. Examples include icy roads, driving while intoxicated, and improperly
sa the systematic liquidation of a sum money is provided by a(n)
"annuity". An annuity contract provides for the systematic liquidation of a fund. mething
Insurance agents and brokers must make their insurance records available to the Commissioner
"at all times". Insurance records of insurance agents and brokers must be made available to the Insurance Commissioner at all times.
The objective of underwriting is to
"avoid selecting a disproportionate number of bad risks".
An agent's attempt to stop the replacement of an existing life insurance policy is known as
"conservation". An agent's attempt to stop the replacement of an existing life insurance policy is known as conservation.
The Human Life Value concept is based on
"income". The Human Life Value approach calculates the amount of money a person is expected to earn over his lifetime to determine the face amount of life insurance needed.
Employer contributions to qualified plans are
"tax-deductible by the employer", Emplayer contributions to qualified plans are tax-deductible by the employer.
Express power given to an agent in an agency agreement is
"the authority to represent the insurer". Express authority is granted by means of the agent's contract, which is the insurer's appointment of the agent to act on its behalf.
A life insurance policy'slimit of liabilitv would be
"the policy's face amount". The face amournt of the policy is the limit of liability in a life insurance policy.
When an applicant applies for insurance, the process by which the insurer determines whether to issue a policy is called
"underwriting". When an applicant applies for insurance, the process by which the insurer determines whether to issue a policy is called underwriting.
Life insurance creates an immediate estate. This phrase means:
"when the insured dies, a death benefit is paid". Life insurance creates an immediate estate by paying a death benefit whenever the insured dies.
According to the California Insurance Code, what is the maximum penalty per violation for anyone who unwillfully commits an unfair method of competition?
$5,000 Any person who unwillfully engages in an unfair method of competition is liable to the state for a fine of up to $5,000 per violation. If the act is determined to be willful, the fine will not exceed $10,000 per act.
The free-look period for life insurance policyowners age 60 or older is
30 days
What is an "insurance broker" according to California Insurance Code?
A person compensated for transacting insurance on behalf of another person with an insurer
When a mutual insurer becomes a stock company, the process is called
Demutualization
Key person insurance is intended to
cover business losses due to the death of a key employee
A representation may be altered or withdrawn O anytime with the applicant's initials O only before the insurance is in effect O only after the policy has been issued O anytime with the insurer's approval
only before the insurance is in effect
A terminated employee that has exercised the conversion privilege is able to convert
term insurance into permanent insurance. The conversion privilege allows a terminated employee to convert term insurance into permanent insurance.
Paul has an existing annuity and is sold a new one, in which the new policy holds no greater financial benefit to him than the existing contract. This is considered a(n)
unnecessary replacement This is an example of unnecessary replacement.
An annuity which is backed by a life insurer's separate account is called a(n)
variable annuity An annuity which is backed by a life insurer's separate account is called a variable annuity.
An annuitant would like to determine the current value of her annuity. To do this, she multiplies the number of "accumulation units" she owns times the unit value of the "separate account". What kind of annuity BEST matches this description?
variable annuity It holds its investments in an insurer's separate account, as opposed to the insurer's general account. These separate accounts usually hold non-guaranteed equity investments such as stocks and mutual funds. Variable annuities shift the investment risk from the insurer to the annuity owner.
All of these are reasons the Commissioner may disapprove a licensee's request to use a fictitious name EXCEPT O The use of the name may mislead the public in any respect O The name is the licensee's actual name O The name states, infers or implies that the licensee is an insurance company O The name is too similar to a name already filed and in use by another licensee
According to the California insurance code, the commissioner can disapprove a licensee's request to use a fictitious name for all of these reasons EXCEPT when The name is the licensee's actual name
An insurance company entitled to transact business in California is called a(n)
Admitted carrier An admitted California insurance carrier is one that submits to specific requirements set forth by the California Department of Insurance (CDI).
The California Insurance Code allows an individual how many days to cancel a life policy for a full-refund?
Between 10 and 30 days. Every policy of individual life insurance shall have a notice stating that after receipt of the policy by the owner, the policy may be returned by the owner for cancellation by delivering it or mailing it to the insurer or to the agent through whom it was purchased. This period shall not be less than 10 days nor more than 30 days.
A person who asserts a right of recovery under an insurance policy is called
Claimant. As defined by the California Code of Regulations, a person who asserts a right of recovery under an insurance policy is called the claimant.
Which statement is CORRECT when describing a contract of adhesion? O Contract involves negotiation between insurer and insured O Any confusing language in the contract would be interpreted in favor of the insurer O Contract may be accepted or rejected by the insured O Contract cannot be modified by the insurer
Contract may be accepted or rejected by the insured
What is an insurance solicitor authorized to do?
Help an agent or broker sell insurance An insurance solicitor is a person authorized to assist a broker or agent in selling insurance.
Which of the following contracts is defined as "one that restores an injured party to the condition that was present before the loss"? O Unilateral contract O Personal contract O Indemnity contract O Contract of adhesion
Indemnity contract A contract that restores an injured party to the condítion that was present before the loss.
According to the California Insurance Code, who is responsible for submitting a life agent's appointment?
Insurer The insurer is responsible for submitting a life agent's appointment.
Which of the following is NOT protected under the California Life and Health Guarantee Association? O Insureds O Insurers O Policyowners O Primary beneficiaries
Insurers All of these are provided protection through the California Life and Health Guarantee Association except for insurers.
The Medical Information Bureau consists of
Life and health insurers are members of the Medical Information Bureau.
Mike and Ike are 30 year old identical twins. Both are in excellent health. Each brother purchases a life policy that has a $750 annual premium. Mike buys a 10-year renewable term policy. Ike purchases a whole life policy. All of the following statements are true EXCEPT
Mike has the option of using his cash value to purchase a reduced amount or paid up whole life insurance. TRUE STATEMENTS: -Mike's policy will develop no cash value over the policy's term -Ike will have a level premium -Ike may eventually take out a policy loan Since a term policy provides for no cash value, there are no nonforfeiture
What is the proper order of initial life insurance premiums, from lowest to. highest?
Modified premium, ordinary life, single premium". The order of initial premiums for life insurance policies, from lowest to highest, is the following: modified premium, ordinary life, single premium.
Which statement is true regarding policy dividends?
O Dividends are always taxable O Dividends are always guaranteed O A dividend option is selected by the insured at the time of policy purchase O Nonparticipating policies issue dividends The correct answer is: "A dividend option is selected by the insured at the time of polícy purchase". Insureds elect a dividend option at the time of policy purchase.
Which of the following is NOT considered to be an act of insurance solicitation?
O Publishing a magazine where one of the advertisers is an insurer O Airing a television commercial recommending an insurance product O An agency sending out direct mail for a promotion O An agent giving a rate quotation The correct answer is: "Publishing a magazine where one of the advertisers is an insurer". Publishing a magazine where one of the advertisers is an insurer is not considered to
Which of the following is NOT true regarding a family policy that covers children?
O Term insurance is used for the children's rider O Conversion of child's coverage to permanent insurance requires evidence of insurability O Adopted children can be covered O Additional children can be added at no cost The correct answer is: "Conversion of child's coverage to permanent insurance requires evidence of insurability". Conversion of child's coverage to permanent
What is NOT a feature of equity-indexed annuities?
Offers a maximum interest rate that increases annually Equity indexed annuities offer: -a minimum guaranteed rate -protection during a decline -long term inflation protection
Which of these statements correctly describes risk? O Speculative risk is the only insurable risk O Pure and speculative risks are both insurable O Pure risk is the only insurable risk O An example of pure risk would be a legal wager
Only pure risks are insurable.
Which of the following describes a contributory group insurance plan? O All of the premium is paid by the employer O Federal government contributes a portion of the employee's premium O Part of the premium is paid by the employee O Employees are eligible for policy dividends roma
Part of the premium is paid by the employee A contributory group insurance plan is one in which employees share the cost of the premiums with the employer.
According to the California Insurance Code, how is the word "may" interpreted?
Permissive When used in the California Insurance Code, the word "may" is intended to be permissive.
When an accidental death benefit is added to a whole life policy, how does this affect the policy's cash value?
Policy's cash value is not affected When an accidental death benefit is added to a whole fife policy, the policy's cash value is not affected.
If a material warranty violation on the part of the insured is found, what recourse does an insurer have?
Rescind the policy A warranty in insurance is a statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract.
The Çalifornia Life and Health Insurance Guarantee Association covers all of these types of policies, EXCEPT O Immediate annuities OWhole life O Disability OSelf-funded plans
Self-insured/funded plans are not covered under the California Life and Health Insurance Guarantee Association.
When a life insurance policy is surrendered, how does the cost recovery rule apply? O The insurer withholds the cost basis O The entire cash value is taxable O The policy's cost basis is exempt from taxation O The policy's cost basis is taxable
The cost basis of the policy is exempt from taxation as it pertains to the cost recovery rule.
An insurer having a large number of similar exposure units is considered important because O the greater the number insured, the more premiums it collects O its financial rating will improve O the insurer can decrease its reserves O the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums
The greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums.
What is the insurance term the State of California uses for an insurer that is eligible to transact business in this state?
The insurance term for an insurer which has met the conditions required to transact business in the State of California is "admitted".
Who is issued a certificate of insurance with a group insurance policy?
The participant is issued a certificate of insurance with a group insurance policy.
A life insurance policy where the insured can choose where the cash value can be invested is called
Variable life allows the insured to choose where the assets backing the cash value are invested.
Which of the following is NOT a common life insurance policy rider?
accidental death waiver of premium automatic premium loan extended term ANSWER "Extended term" is not considered a life insurance rider.
When an insurer has met the qualifications necessary to transact business in California, it is said to be
admitted An admitted carrier has met the conditions required to transact business in the State of California.