insurance practice exam part II

An applicant for Life insurance is told that his coverage will cost $5.00 per unit per year based upon his present age, health and hobbies. If he buys a policy with a face amount of $75,000, his annual premium will be:

One unit of life insurance is $1,000 of coverage. To find the annual premium, multiply the cost per unit (or 'rate' per unit) X the number of units purchased. The cost per unit is $5.00 multiplied by 75 units equals an annual premium of $375.00. While rates are based primarily on age, an applicants gender, health, dangerous hobby or occupation are also rating factors. Remember, on Whole Life, the rate is determined based on the applicant's original age and will never change.

Under Social Security, in order to be eligible to receive retirement benefits, covered workers must have: A. partially insured status B. currently insured status C. fully insured status D. totally insured status

Only fully insured individuals are eligible for retirement benefits from Social Security. To be fully insured a person must have paid in 40 quarters of coverage, which is about 10 years. Full retirement benefits are available at age 65-67, depending upon date of birth, with reduced benefits available at age 62.

All of the following are types of Ordinary life insurance EXCEPT: types of ordinary life insurance: 20 pay life life paid up at 65 endowment not ordinary life: -->group life

Ordinary life insurance includes Whole life, Term and Endowment, all of which base their rates and benefits upon the Commissioner's Standard Ordinary Mortality Table, which predicts how long individuals will live on the average. Group life is not considered to be Ordinary life, since rates and benefits are based upon the characteristics of the group rather than the population in general.

Which of the following is not a Life insurance non-forfeiture option: *life insurance non-forfeiture option" cash surrender, reduced paid-up, extended term

Paid-up additions is a dividend option, not a non-forfeiture option. If a mutual insurer pays a dividend, the policy owner may use that dividend as a single premium to buy additional Whole Life insurance, which is paid-up until the insured's age 100 or prior death. Dividends may never be guaranteed.

Concerning the 'mode' of insurance premium payment:

Policy owners may choose various 'modes' (or methods) of premium payment, and may change their mode any time they want. Of course, due to service charges, the more frequent the mode of payment, the higher the total annual cost of the policy. The annual mode would be the cheapest, since there would be no service charges. Monthly would be the most expensive.

All of the following are true about 'stock' insurance companies EXCEPT: false: they issue participating policies *true: they may pay dividends to share holders out of divisible surplus *the stockholders own the company *dividends are taxable

Policyholders of a 'stock' company do not participate in company profits, since dividends paid go to the shareholders, not the policyholders, which means that stock insurers issue 'non-participating' policies. It is 'mutual' insurers that issue participating policies, since dividends paid go to the policyholders. Remember, dividends may never be guaranteed.

An insurer who transfers part of its loss exposure to another insurer in a reinsurance transaction is known as the: *primary insurer

Primary (also known as 'ceding') insurers who elect to offer insurance coverage for high risk exposures, such as earthquake, often buy reinsurance from larger reinsurance companies (reinsurers) in an effort to lower their exposure to catastrophic risk. If a claim occurs, the primary insurer pays claims up to certain limits, with the reinsurer paying claims on an excess basis. Reinsurance is not Surplus Lines, which is usually written on a primary basis without reinsurance by non-admitted Surplus Lines insurers, such as Lloyds of London.

The Rehabilitation Benefit under Disability Income insurance is designed to:

Rehabilitation benefits are an optional rider that can be added to a Disability Income policy for an additional premium. They are designed to pay for vocational training to help the insured resume his normal job or prepare for a new one.

Under the California Insurance Code, when replacing a Life insurance policy, the Agent must send all of the following to the replacing insurer EXCEPT: required: **Statement signed by applicant indicating whether replacement is involved ** a statement signed by the agent indicating whether or not the agent knows that replacement is involved **a copy of the notice regarding replacement signed by agent/applicant

Replacement of Life insurance is not unlawful as long as the rules are followed. Although Agents involved in replacement must leave a copy of all printed communications or sales literature used in their presentation with the applicant, they need not send it to the replacing insurer.

Retirement benefits under Social Security are based primarily upon: *average monthly wages

Retirement benefits under Social Security are equal to the Primary Insurance Amount (PIA), which is based upon an individual's 'average monthly wage'. However, eligibility for retirement benefits is based upon an individual attaining 'fully insured' status by paying in 40 quarters of coverage and attaining the minimum retirement age of 65-67 (depending on date of birth), with reduced benefits available at age 62.

Which of the following is not a Life insurance rider: *paid up additions is not a life insurance rider life insurance rider includes: *waiver of premium *accidental death benefit *cost of living

Riders may be added to a policy at issue for an additional premium charge. Waiver of Premium will pay the premium on behalf of an insured who becomes disabled due to sickness or accident after a period of time. Accidental Death benefit will pay double indemnity if the insured dies as a result of an accident within a specified period of time after the accident. The Cost of Living rider automatically increases the policy death benefit based upon the rate of inflation. However, Paid-up Additions is a dividend option, not a rider, and is available only on policies issued by Mutual insurers.

Large employers may elect to self-fund (or self insure) their employee Group Medical Expense risk exposure. However, self-funding won't work unless:

Risk managers won't recommend self-funding or self-insuring unless future losses can be predicted with some accuracy by using the law of large numbers, which in health insurance is known as a 'morbidity' table. Catastrophic losses (such as war) are usually not covered. Future losses must also be uncertain and calculable.

Which of the following is least likely to elect to self insure their medical or disability income risk exposures: *individuals most likely to self insure medical/disability income risk exposures: labor unions fraternals co-ops

Since self insurance in the areas of Medical Expenses and Disability Income is risky and can be very expensive, most individuals would rather transfer their risk to an insurance company than self insure.

Some Disability Income insurance policies provide coverage for 'partial disability', which is defined as:

Some Disability Income policies pay partial disability benefits, which is defined as the inability of the insured to perform one or more of the regular duties of his occupation. A person who is partially disabled is able to go back to work and perform some duties and earn some income.

A Health insurance policy that is designed to cover only one stipulated illness is known as a:

Specified Disease policies (sometimes called Dread Disease or Limited policies) cover only one specific sickness, such as cancer. Such policies do not follow the Principle of Indemnity, meaning that they pay in addition to any other Health insurance the insured may have, including Medical Expense. AD&D covers accident only, not sickness. Hospital Confinement policies pay a specified dollar amount (such as $200 a day) if the insured is hospitalized for any reason.

Which of the following is true regarding 'speculative' risk:

Speculative risk has the chance for gain or loss and is not insurable. For example, if you buy a lottery ticket you might gain, but you will probably lose. It is 'pure' risk that is insurable, which has the chance for loss only, with no chance for gain. On Life insurance, you might die. On Health insurance, your might become sick or injured. On Fire insurance, your house could burn down. These are 'pure' risks.

Standard levels of care provided by Long Term Care (LTC) insurance include all EXCEPT: *medical expenses includes: *skilled nursing *custodial care *home health care

Standard levels of care provided by LTC policies in California include skilled nursing care, intermediate nursing care, custodial care, home health care and home care and community based care. Every LTC policy that includes coverage for home care or community care must include benefits for adult day care, hospice care and respite care in addition to home care. Medical expenses are not covered.

Which type of qualified retirement plan is designed for public school teachers: *TSA

Tax Sheltered Annuities (also known as 403b plans) are tax qualified plans that allow employees of public educational institutions and certain other employees of non-profit, religious or charitable organizations to contribute before tax dollars up to certain limits on a payroll deduction basis. Since account earnings are tax deferred, upon withdrawal both the contributions and the earnings are taxable as ordinary income. TSA's are similar to 40lk plans in that employers may make matching contributions.

Mary and Kate are 22 year old identical twins in good health who each have $250 a year to spend on life insurance. Mary elects to buy 10 year level term while Kate buys traditional whole life insurance. All of the following are true EXCEPT: *Kate's policy will have a higher death benefit true: ** Mary's premium will increase in 10 years ** Mary's policy will not develop any cash value ** Kate's premium will remain level

Term insurance is less expensive than whole life at issue because it is pure protection and has no cash value. On level term, both the face amount (death benefit) and the premium remain level for the term of the policy, which may be 5, 10, 15 or even 20 years. However, since the premium is based upon the insured's average age during the term, it will increase upon renewal. Whole life is more expensive since it based upon the 'level premium concept', which states that since the level premiums paid are higher than needed to provide pure protection, a cash value (a savings account that belongs to the policy owner) will develop over a period of time. Since whole life premiums are higher than term insurance premiums, for the same amount of premium, less coverage could be purchased.

A movie production company is concerned about the possibility that their star might become disabled due to illness and become incapable of completing the picture. What type of insurance should they buy: *miscellaneous

The California Insurance Code (CIC) identifies 20 different 'classes' of insurance, including Miscellaneous insurance, which includes insurance written to indemnify the producer of any motion picture, television, theatrical, sporting event or exhibition against loss by reason of interruption, postponement, or cancellation due to death, accidental injury, or sickness that prevents a performer from commencing or continuing their performance or duties.

The Commissioner may deny an application for a Life agent's license, without a hearing, under which of the following circumstances: A. The applicant has been charged with a felony. B. The applicant has no insurance experience C. The applicant has had a previously issued license revoked with the past 5 years D. The applicant is not of good business reputation

The Commissioner may deny an application for a license without holding a hearing if the applicant has been convicted (not just charged) of a felony, convicted of a misdemeanor, or had a previous license suspended or revoked for cause within the 5 years prior to filing the application.

Which of the following is true if the Cost of Living rider is attached to a Life insurance policy: *the rider causes the policy limit to increase, but the premium increases as well

The Cost of Living rider is designed to make sure that the insured's policy limit keeps pace with inflation. The rider costs extra as do future increases in coverage, although increases are not subject to insurability, meaning no physical exam is required.

When the parties to a contract depend upon the statements made by one another, the contract is based upon the Doctrine of:

The Doctrine of Utmost Good Faith presumes that all parties, including the insurer, the agent and the insured, are honest and acting in good faith. The Doctrine of Adhesion states that since the insurer wrote the contract, any vague language will be construed in favor of the insured, since they had no choice when the bought it. The Doctrine of Reasonable Expectations reinforces the Doctrine of Adhesion. Waiver and Estoppel are legal doctrines that state that once an insurer gives up to the right to deny a claim (a waiver), they can no longer deny it (estoppel).

The Incontestability Clause in a Life insurance policy:

The Incontestability Clause in a Life insurance policy protects the insurer from those who are guilty of fraud or material misrepresentation on their application, but only for the first 2 years. After that, as required by state law, the insured is protected since the policy is 'incontestable', and claims are covered regardless.

Medical Information Bureau (MIB) members must report which of the following: **health conditions discovered during the underwriting process

The MIB is a non-profit information agency formed to assist health insurers uncover misrepresentations or fraudulent actions by applicants for insurance. MIB members that find an impairment in underwriting report such findings, as well as situations which applicants have previously been involved in and information received from physicians or other persons commenting on the status of a proposed insured.

Medical Information Bureau (MIB) members consist of:

The MIB is a nonprofit information agency supported by Life & Health insurance companies, in order to help insurers uncover misrepresentations or fraudulent actions by applicants. MIB member companies that find health impairments in underwriting report their findings to the MIB in the form of a code number. The MIB discloses to underwriters the applicants prior health history, including information received from doctors. However, insurance company underwriting actions are not recorded anywhere in MIB files.

A client invests $50,000 in after-tax dollars into a deferred annuity over a period of time. When he annuitizes, he will receive $4,000 a year over his projected life span. If his total return is expected to be $100,000, how much of the client's $4,000 annual annuity pay-out will be taxable each year for the first 10 years: *$2,000

The client has $100,000 in his account, of which $50,000 is his own money, which was contributed with after-tax dollars. Since his contributions will be returned tax free and since they make up half of his account value, only half of his annual pay-out (the earnings portion) will be taxable as ordinary income. Further, you can find his projected life span by dividing the $100,000 total by his $4,000 annual pay-out, which would be 25 years. After 25 years, he will have recovered all of his own contributions, so the entire $4,000 would be taxable. Remember, annuity payouts are for life.

A Life insurance policy that will always provide enough protection to pay off your mortgage is known as: *mortgage redemption

The difference between Decreasing term life and Mortgage Protection life is that Decreasing term decreases straight line and Mortgage Protection is set up to decrease at exactly the same rate as your mortgage amortizes. Mortgage guarantee insurance protects banks if they foreclose on your house and you owe more than the house is worth. A Homeowners policy is a type of Fire insurance, not Life insurance.

All of the following are true about 'fraud' EXCEPT: fraud: *claims forms must contain a warning that false representations are subject to a penalty of perjury *every admitted insurer must maintain a fraud unit to investigate possible fraudulent claims *it requires the intent to deceive

The failure to disclose a material fact that a party knows and ought to communicate is defined as 'concealment', not fraud. Concealment, whether intentional or not, entitles the injured party to rescind (void) the contract. A 'material' fact is one that is important to the underwriter.

If a Defined Benefit qualified pension plan has a 7 year 'vesting' schedule, after 7 years all employer contributions plus earnings are: *100% vested

The word 'vesting' means ownership. ERISA requires that qualified Defined Benefit pension plans have a vesting schedule, which requires that employer contributions and earnings be gradually vested over a period time. Upon termination of employment, employees may take the vested monies as a taxable distribution or roll them over to another qualified plan, such as an IRA. Voluntary employee contributions are vested immediately.

A $100,000 Whole life insurance policy with a cash value of $10,500 lapses and the insured selects the extended term non-forfeiture option. What is the face amount of the new policy:

There are 3 non-forfeiture options on cash value Life insurance, including cash surrender, reduced paid-up and extended term, which is the automatic option. If the insured selects extended term, the cash value in the policy is used to buy the insured a new Term life policy without a physical exam at the insured's current age. The face amount of the new policy will be the same as the face amount of the lapsed policy, for as long as long a term (time) that $10,500 will buy. When that term runs out, the new policy expires. Remember, there is no coverage on Term life unless you die in the term.

Which of the following is true about Medicare Supplement insurance policies: **insurers may offer plans that contain only the 'core' benefits

They are 12 'standardized' Medicare Supplement policies, identified as Plans A through L. Although coverage is standardized, premiums will vary substantially, depending upon the insurer. In other words, if a customer buys Plan C, it really does not matter where he buys it, since the coverage is the same. Although insurers may offer all 12 plans, they may elect to offer only Plan A, which is the most basic and most inexpensive, since it only provides the 'core' benefits. Medicare Supplements are sold by private insurers to supplement Medicare, which is generally only available to those who are at least age 65.

On Medical Expense insurance, co-insurance, deductibles and co-payments are considered to be forms of:

To hold down the cost of insurance, insurers often require their customers to share part of every claim, whether it is in the form of a co-payment, a deductible or a co-insurance requirement. Cost utilization or utilization management is a process used by HMOs to contain costs, such as the requirement to obtain a second opinion prior to having elective surgery.

Which of the following contains a definition of total disability that is the most difficult to meet: [social security]

To qualify for Social Security disability income benefits, the claimant must have 'fully insured' status, which means that he or she must have contributed to Social Security for at least 40 quarters, satisfy a 5 month waiting period, be unable to perform any job and have a disability that will last at least 12 months or result in death.

When does a 'contingent beneficiary' receive the proceeds of a Life insurance policy: **when the primary beneficiary has died before the insured dies and now new primary beneficiary has been appointed

Under Common Disaster, the proceeds of a Life insurance policy will still go to the primary beneficiary if they outlive the insured by a specified number of days, often 30. However, if there is no primary beneficiary designated on a Life insurance policy at the time of an insured's death, the proceeds will go to the contingent beneficiary. Underage children may be designated as primary beneficiaries, although they cannot sign a release.

Which Life insurance rider will pay the premium if the insured becomes disabled for a specific period of time:

Waiver of premium is a type of disability insurance added to a Life insurance policy by means of a rider, which modifies the policy. The rider states that if the insured/policy holder becomes disabled for at least 6 months, the insurer will pay the premium until the insured/policy holder either recovers or dies.

Insurance contracts are considered to be 'aleatory', which means that they: aleatory--> have an unequal exchange

While all of the above are true about insurance contracts, an 'aleatory' contract is one that has an unequal exchange due to its uncertain outcome. For example, your client buys medical expense insurance, but never has a claim, while another client buys a policy today and has a large claim tomorrow. The outcome depends on chance. Remember, consideration is defined as the exchange of value, and need not be equal.

The 'black-out' period under Social Security starts when the youngest child is age:

Widows or Widowers of any age who have dependent children in their care are entitled to a monthly benefit after their spouse dies until their youngest child reaches age 16. At that time, the widow/widower receives no benefit from Social Security until they are eligible for retirement, which may be as early as age 60. This is referred to as the 'black-out' period.

The Social Security 'black-out' period ends when a surviving spouse reaches age:

Widows or Widowers of any age who have dependent children in their care are entitled to a monthly benefit after their spouse dies until their youngest child reaches age 16. At that time, the widow/widower's benefits are 'blacked-out' until they become eligible for Social Security retirement benefits, which may be as early as age 60 for surviving spouses. For example, a woman whose youngest child is age 6 becomes a widow at age 40. The widow will receive monthly benefits from Social Security until that child reaches age 16. At that time, the woman's Social Security benefits will stop (she is now age 50) and she won't receive anything further from Social Security until she reaches her earliest retirement age of 60. So, in this case, her benefits are 'blacked-out' for 10 years. It is during this time she needs to utilize the proceeds of her late husband's life insurance policy.

Who does the Social Security 'black-out' period affect: *surviving spouse

Widows or Widowers will receive Social Security Benefits until their youngest child turns age 16, at which time benefits will stop until the widow or widow becomes eligible for Social Security retirement benefits, which may start as early as age 60 for surviving spouses. This period of time during which no Social Security benefits are paid is known as the 'black-out' period.

Which of the following is the least important underwriting consideration in the process of underwriting Health insurance risks:

address

If the policy holder does not select a settlement option prior to the his death, which of the following is considered to be the automatic settlement option for the beneficiary:

cash

All of the following are underwriting risk classifications EXCEPT: * standard, preferred, sub-standard--risk classification

except for adverse Underwriters protect insurers by selecting business that will be profitable at the premium rate charged. A standard risk is presented by the average person with no health problem, dangerous hobby or occupation. A sub-standard risk presents more risk than average and will pay a higher premium. A preferred risk presents less risk than average and will receive a discount. If an applicant presents too much risk, the underwriter may surcharge (rate-up) the policy, add an exclusion or reject the applicant entirely. Most people are insurable as standard risks.

All of the following are characteristic of a Major Medical Expense policy EXCEPT: characteristic of major medical expense policy: * deductible *high limits *co-insurance

except: first dollar coverage Major Medical Expense policies are designed to protect the insured from the consequences of a catastrophic illness, such as transplant surgery. Major Medical policies have high lifetime benefits, often $1,000,000 or more, a calendar year deductible and a co-insurance requirements that usually requires the insured to pay 20% of every claim. It is 'basic' Medical Expense policies that have first dollar coverage, with no deductible.

A Comprehensive Long Term Care (LTC) insurance policy covers all of the following EXCEPT: covers: hospice, respite care, adult day care

excludes skilled nursing facility Comprehensive LTC policies cover both institutional and home care. Home care includes coverage for home health care, including skilled nursing or other professional services in the residence, adult day care and respite care, which is short-term care provided by other caregivers in order to provide relief for a primary caregiver. However, skilled nursing in a long term care facility (nursing home) is not covered.

Concerning Defined Benefit qualified retirement plans, all are true EXCEPT: true: **employer contributions are not taxed to the employee until they are distributed **employer contributions are tax deductible for the employer *plan earnings are tax deferred until distribution

false: employer contributions are not vested until the employee reaches retirement age Qualified Defined Benefit retirement plans are subject to ERISA, a federal law that requires that all such plans contain 'vesting' schedules. Vesting means ownership of employer contributions and account earnings over a period of time. For example, if an employee is 60% vested, they could quit their job and rollover 60% of their money to a rollover IRA. However, in this example, 40% would be forfeited.

All of the following are true about the State Guarantee Fund EXCEPT: true: *up to certain limits, it protects the customers of insolvent insurers *it is funded by assessments on member insurers *all admitted insurers are required to participate

not true: it covers the insolvency of all insurers Up to certain limits, the State Guarantee Fund protects the customers of insolvent (bankrupt) insurers. However, Surplus Lines insurers are not required to participate since they are non-admitted. Further, the Life Insurance Guarantee Fund does not cover the insolvency of insurers selling only variable life or variable annuities, since these products are considered to be securities and are sold without any guarantees.

Which of the following Life insurance conversions are permitted:

term life to whole life Most Term Life is convertible to Whole Life without a physical exam at the option of the insured at their current or attained age. The new Whole Life policy will have the same face amount as the Term Life policy that was converted. Coverage cannot be increased upon conversion. Of course, the premium will increase upon conversion since Whole Life costs more than Term due to its cash value accumulation. Without the conversion feature, most people would be reluctant to buy Term. Remember, the word "Term" means time, and Term Life insurance is designed for temporary needs.

If a $100,000 Whole Life insurance policy with a cash value of $10,500 lapsed and the insured selected the reduced paid-up non-forfeiture option, all of the following would be true EXCEPT: *the new policy would have a face policy of 100,000

true: the new policy would provide coverage up to age 100 *the new policy would have a cash value *the new policy would not require proof insurability If the insured selects the reduced-paid up non-forfeiture option, the insurer will use the cash value in the lapsed policy to buy the insured a new Whole life policy at the insured's current age without evidence of insurability. The new policy will be paid-up until age 100 or the insured's death, whichever comes first, and will have an immediate cash value. However, $10,500 would not be enough to buy the insured a $100,000 policy, so coverage will be reduced.

A Comprehensive Major Medical Expense policy generally includes all of the following EXCEPT: includes: *first dollar coverage with lifetime limits *co-insurance *deductible

'Capitation' fees are a characteristic of HMOs, not policies written by insurance companies. A 'capitation' fee is a per person fee that an HMO pays a doctor based upon the number of patients they see during a specified period of time. Comprehensive Major Medical Expense insurance is a combination of a Basic plan and a Major Medical plan, which is generally the best coverage you can obtain from an insurance company.

Under the California Insurance Code, anyone who diverts or appropriates customer funds while acting in a fiduciary capacity to their own use is guilty of: *theft

'Fiduciary' refers to the trust that is placed in an agent with regard to the handling of funds in a capable, responsible and honest manner. All funds received by an agent are received and held in a fiduciary capacity and anyone who diverts or appropriates those fiduciary funds to their own use is guilty of theft.

An agent is acting in a 'fiduciary' capacity when: *submitting premiums on behalf of an insured

'Fiduciary' refers to the trust that is placed in an agent with regards to handling funds in a capable, responsible and honest manner. All funds received by a licensee are received and held in a fiduciary capacity. Anyone who diverts or appropriates fiduciary funds to his own use is guilty of theft.

Agents who sell Long Term Care (LTC) must meet which of the following LTC continuing education requirements in California:

8 hours every year for first 4 years, 8 hrs each licensing period Individuals who sell long-term care products must obtain eight hours every year for the first four years, then eight hours in every two-year license period. The courses must be California-approved long-term care courses. These are not additional hours since they also count toward the completion of the basic CE requirement.

All of the following are true about a Family Life insurance policy EXCEPT: *coverage for children is convertible to whole life based upon original age true: it will cover all children in your family for one flat premium charge *coverage on children is written as level term insurance *newborn and adopted children are covered automatically w/o additional premium

A Family Life policy is the cheapest way to provide coverage for yourself, your spouse and all of your children. The policy is written as Whole life on you, with level, convertible term on your spouse and children. Although the Whole life coverage on you is permanent and will cover you until you die, the term coverage on your spouse will only cover for a specific period of time (such as 10 years) and the term coverage on your children (natural or adopted) ends when they reach a certain age, usually age 18. However, the term coverage on your spouse and children is convertible to Whole life without a physical exam based upon their current or 'attained' age.

A policy that will pay the insured a flat daily rate for each day they are hospitalized is known as: *hospital confinement indemnity

A Hospital Confinement Indemnity policy will pay the insured a flat daily rate, such as $200 a day, for each day they are hospitalized, regardless of cause. This type of policy pays in addition to any other type of health insurance the insured may have, including Medical Expense. Since Hospital Confinement polices do not follow the Principle of Indemnity, it is possible for the insured to collect more than they actually lost.

An applicant for Life insurance who has a history of driving too fast is: *morale hazard

A hazard is defined as something that increases the risk. A morale hazard is presented by a careless or reckless person, such as one who drives too fast. A moral hazard is presented by a dishonest person, such as one who turns in a fraudulent claim. An example of a physical hazard would be smoking. A driver cannot be negligent unless they injure someone or damage someone's property.

If an Agent wants to surrender their insurance license to the Commissioner, but it is in the possession of their employer, what is the procedure: *send written notice to the commissioner requesting cancellation

A licensee may surrender a license for cancellation at any time. If the license is in the licensee's possession, surrender may be accomplished by delivery of the license itself to the Commissioner. If the license is in the possession of the insurer or the licensee's employer, the licensee may still make such surrender by sending written notice to the Commissioner.

When an Agent pleads 'nolo contendere' to a violation of the insurance code, it means:

A plea of 'nolo contendere' means that the agent neither admits or disputes the charges against him, and is an alternative to pleading guilty or not guilty. It is also called a plea of 'no contest'. The Commissioner can use his or her own judgment as to whether or not a violation has occurred, and if so, what the penalties should be.

A qualified Employee Benefit plan that gives employees part ownership in the company for which they work is known as a:

A qualified Retirement plan where employee benefits are paid out in the stock of the employer is known as an Employee Stock Ownership plan. Stock in the company is issued and held in trust for the benefit of eligible employees.

All of the following are true regarding 'representations' EXCEPT: *once made, a representation may never be altered or withdrawn true: a representation is defined as the truth to the best of your knowledge and belief *it is considered to be false when the facts fails to correspond with its assertions or stipulations *a representation may be oral/written and may be made at the time of, or before, the issuance of the policy

A representation may be altered or withdrawn before the insurance policy takes effect, but not afterward. If a representation is false in a material point, the injured party is entitled to rescind (void) the contract.

Which of the following requires an absolute assignment of Life insurance policy ownership:

A viatical settlement occurs when a terminally ill insured sells his Life insurance policy to an investor at a discount. The policy ownership is absolutely assigned to the investor, who must pay future premiums, but names themselves as beneficiary.

What type of policy has both a Capital and Principal sum:

AD&D is a limited type of Health insurance in that if covers accident only. The policy has two parts: The Principal Sum, which pays a lump sum for accidental death; and the Capital Sum, which pays a lump sum for accidental dismemberment. AD&D policies do not follow the Principle of Indemnity, in that if an insured buys more than one policy, each policy pays in addition to the others. AD&D is not Life insurance.

Upon termination of all appointments, a licensee's permanent license will become inactive. It may be renewed in the same manner as an active license and may be reactivated at any time prior to its expiration by the filing of a new appointment. An inactive license does not permit its holder to transact any insurance for which a valid, active license is required.

According to the California Insurance Code, when an Agent's last appointment expires, his license:

Twelve months ago, a 39 year tourist broke his neck in a swimming pool accident while on vacation and suffered paralysis, from which he is not expected to recover. He may be eligible to receive disability income benefits from: {social security}

After a 5 month waiting period, Social Security provides disability income benefits for those whose disability is expected to last at least 12 months or result in their death and are incapable of performing the duties of any occupation. Medicare covers medical expenses, not disability income. LTC covers custodial care in a nursing home. Workers Compensation only covers occupational, job-related injury or sickness.

Life agents are prohibited from engaging in any of the following activities EXCEPT *having appointments to represent more than one insurer *forbidden to : *advertising on behalf of a non-admitted insurer *offering free insurance as an inducement to purchase or sale *using a business name that implies that they are an insurer

Agent may be either captive (exclusive) or independent. Captive agents are agents who agree by contract to represent only one insurer in the sale of insurance. However, independent agents are usually self-employed and often represent several insurance companies. Under state law, an agent can have as many appointments as they want, although they must have at least one in order to keep their license active.

If authorized, a California Life agent may transact all of the following classes of insurance EXCEPT:

Agents seeking to transact insurance in the area of Fire and Casualty must take and pass a separate exam. Life agents may transact Life, Disability (Health) and 24-hour care coverage, which combines occupational Workers Compensation insurance coverage along with non-occupational Medical Expense insurance to provide 'seamless' coverage both on or off the job 24 hours a day.

All of the following are true about the California Life and Health Insurance Guarantee Association EXCEPT: true: * All admitted life and health insurers must participate as a condition of their certificate of authority *It protects the customers of insolvent insurers * variable contracts and self-funded plans are not covered

All admitted (authorized) Life and Health insurers must become members of the California Life and Health Insurance Guarantee Association, whose primary purpose is to protect the customers of insolvent (bankrupt) insurers up to certain specified limits. However, the Association does not cover customers of Surplus Lines insurers, customers who purchased variable products or persons covered by self-funded plans. answer: claims are paid without limit --false

An insurance company 'admitted' to do business in California is also known as an:

All insurers, except for Surplus Lines insurers, must be 'admitted' or 'authorized' by the Insurance Commissioner before they can transact business in this state, whether they are domiciled in this state (domestic), another state (foreign) or in another country (alien).

All are required duties regarding the organizational license of a co-partnership whose membership has changed EXCEPT: **return the old license with the signatures of all of the original members to the co-partnership to the commissioner required: *it must file within 30 days an application for registering the change in membership signed by a general partner *pay the required fees *at least one person authorized to exercise the agency powers of the original partnership must continue with the surviving partnership

All of these are true when the character of an insurance agency organized as a co-partnership changes EXCEPT that the old license with the signatures of the original members of the co-partnership is not required to be returned to the Commissioner....

Which of the following is an optional Health coverage that is generally available only to persons age 65 or more:

Although Medicare Part A (Hospitals) is available only to those over 65, it is not optional, since persons turning age 65 who are eligible for Social Security are automatically enrolled without premium charge. However, Medicare Part B (Doctors) is optional and requires a monthly premium. Long Term Care is a type of Health insurance that may be sold to persons of any age to cover care in custodial nursing homes. Medi-Cal is a government sponsored Health insurance plan for the medically needy at any age.

On a Universal Life (UL) insurance policy, when the insured pays a premium the insurer will do all EXCEPT: *apply it towards future surrender charges will--> *add it to the cash value account *credit interest to the account *subtract expenses

Although UL is a type of Whole Life insurance, the protection features of the policy are separate from the cash value account. Premiums paid are credited to the cash value where they earn tax deferred interest at the current rate. From this, the insurer subtracts their expenses, such as administrative expenses and the cost of mortality or death. While UL policies may contain surrender charges that apply in the early years of the policy, they cannot be offset by premium payments.

When does an application for Life insurance become part of the Entire Contract: *when attached to the policy at issue

Although applications don't have to be attached to the policy at issue, they usually are, because if the insurer does not attach it they may be giving up their right to contest a claim during the 2 year Incontestability period. In other words, if the application is not attached, it is not admissible in court under the rules of evidence, and the insurer would have to pay a claim even though the insured had lied about a material fact. Only the Entire Contract, which consists of the policy and the application, if attached, are admissible in court. Of course, after 2 years it doesn't matter, since a life policy is totally incontestable by law, even for fraud.

All of the following are true about Life insurance policy settlement options EXCEPT: *settlement options pre-selected by the policy owner may be change by the beneficiary at any time true: *they may be pre-selected by policy owner at the time of application **if not pre-selected by the only owner at time of application, the beneficiary may select one when the insured dies **if none is selected, the insurer will pay the proceeds in cash

Although most Life insurance policy owners do not pre-select the way the proceeds are to be paid out upon their death, they could. If pre-selected by the policy owner, the settlement option may not be changed by the beneficiary. Remember, the policy contract is between the insurer and the policy owner. The beneficiary is not a party to the contract.

All of the following are true about HMOs EXCEPT: true: *referrals to a specialist must come from a primary care physician *dependents must see their gatekeeper first *office visits are subject to small co-payment

Although subscribers to HMOs may see a specialist, they must first be referred there by their Primary Care Physician, or Gatekeeper. A specialist cannot act as a Gatekeeper.

All of the following are examples of risk reduction or elimination EXCEPT:

Although there are certain steps that may be undertaken in order to reduce, avoid or even eliminate risk, buying insurance is actually the transfer of risk to the insurance company in consideration of a premium. Risk is defined as the chance or uncertainty of loss.

Which of the following is true if a Life agent submits an application for Life insurance to a Life insurer for which he holds no appointment and the insurer issues the policy:

Although there is no such things as a 'brokers' license in Life insurance, a licensed Life agent may transmit an application to an insurer for which he holds no appointment. Although an insurer is not required to accept such an application, if they do and issue a policy, the policy is valid but the insurer must forward to the Commissioner a Notice of Appointment appointing the agent as their representative within 14 days.

When underwriting Life or Disability insurance, before obtaining an Attending Physicians Statement, the insurer must submit:

An Attending Physicians Statement may be ordered by the underwriter in lieu of ordering a physical exam on the applicant. On policies written for relatively low limits where the applicant is relatively young, a physical exam may not be required. Instead, the insurer, at its own expense, can request an Attending Physicians Statement by submitting a signed Authorization Form to the applicant's personal doctor requesting information regarding the proposed insured's health.

An insurer who provides for all of its liabilities and purchases reinsurance on all of its outstanding risks is considered to be: *insolvent

An insurer can not escape insolvency by being able to provide for all of its liabilities and by purchasing reinsurance on all of its outstanding risks. An insurer must also possess additional assets equivalent to their 'paid-in' capital as required by the insurance code after making provisions for all their liabilities and for reinsurance. Paid-in capital represents monies that the insurer's original stockholders paid for their stock, over and above the stock's par value. Paid-in capital belongs to the stockholders if the insurer is liquidated.

Which of the following is the most correct about Life agent license renewal procedures:

Applications for license renewal, accompanied by the applicable renewal fee, must be filed with the Commissioner on or before the last day of the period for which the license was issued, which would allow the licensee to continue to sell for up to 60 days while the state processes the renewal. If the renewal application and fees are not received by the Commissioner on or before the last day of the current license period, then the current license will expire.

All of the following are true regarding insurance licenses issued to natural persons EXCEPT: *true: they automatically terminate upon the death of that person **a licensee may at any time voluntarily surrender a license for cancellation **if the license is in the possession of the licensee, surrender may be accomplished by delivery to the commissioner

At least 60 days before a permanent license is due to expire, the Commissioner will mail an application to renew the license to the licensee. The application to renew may be filed up to one year from the expiration date, at which time the license will be renewed as long as the licensee has satisfied all continuing education requirements and paid all delinquent fees. However, no sales may be made during the time a license is expired.

In which of the following cases would Life insurance usually take effect immediately, assuming that the applicant had completed the application and paid the first premium: *the agent issued a binding receipt

Binding Receipts are used to start coverage immediately, although for less than the applicant had applied for. If the applicant passes his physical exam and is otherwise acceptable to the underwriter, the balance of the requested coverage takes effect. Conditional Receipts provide no coverage whatsoever until the applicant satisfies all the required conditions and the underwriter approves the application.

Jim has a Whole life policy with a face amount of $50,000 and a cash value of $10,000. If the policy lapses and goes into the automatic Non-Forfeiture option, Jim will receive:

By law, all cash value policy must contain Non-Forfeiture options or provisions, which are Cash, Reduced Paid-Up and Extended Term, which is the automatic option. After a policy lapses, the policy owner may select whichever option they want. If they don't select an option with a certain period of time, the insurer must automatically give them the Extended Term option, where the cash value is used to buy a new term life policy for the same face amount as the prior policy for a specified period of time, which depends upon the insured's age, the amount of cash value available and the face amount.

Medicare Supplement (Medi-Gap) insurers selling policies in this state must offer at least: *the plan A core benefits

By law, there are only 12 standardized versions (Plans A through L) of a Medicare Supplement (Medi-Gap) policy that are allowed to be sold in this state. Each of the 12 standard plans includes 'basic' coverage, which is known as the 'core' benefits, or Plan A. Generally speaking, Plan B is better and more expensive than Plan A, Plan C is better than Plan B, etc. Although insurers may offer any or all of the allowable plans, they cannot do so unless they also make Plan A available without any other added benefits to those who want it. In other words, insurers may offer to sell just the Plan A 'core' benefits if they want to. They are not required to offer the other eleven 'plans', although most do.

The federal COBRA regulations apply to Group Medical Expense coverage:

COBRA is a federal law that applies to Group Medical Expense insurance coverage offered by employers who have a plan and 20 or more employees. In the event of a 'qualifying event', such as termination of employment, employees may continue their group coverage for a specified period of time (either 18 or 36 months) by paying the group premium themselves, including that portion that was previously paid by the employer.

Under federal COBRA regulations, which of the following is not considered to be a 'qualifying event': *qualifying event: death of covered employee divorce from a covered employee retirement of a covered employee

COBRA regulations allow both covered employees and their dependents to continue their Group Medical Expense coverage by paying their own premiums for a specified period of time upon the occurrence of a 'qualifying event', which includes all of these except being terminated due to gross misconduct.

All of the following are true about Workers Compensation EXCEPT: [coverage must be obtained through the state compensation insurance fund] true about workers compensation: --it requires employers to be responsible for their employees --there are no time or dollar limits on covered expenses --it covers occupational injury or sickness

California is considered to be a 'competitive' state for Workers Compensation. Employers may obtain the statutory coverage from any insurer admitted to sell it, buy coverage from the competitive State Compensation Fund, or elect to self-insure. Workers Compensation is considered to be 'no-fault' type coverage, meaning that the employer is responsible for their employees regardless.

Reduced paid-up is a Whole Life non-forfeiture option that uses the cash value in the policy to purchase: *paid up whole life insurance for less than the full face amount of the original policy

Cash value Life insurance policies allow the policy owner to select their choice of 3 non-forfeiture options any time the policy lapses: Cash surrender, reduced paid-up or extended term. If reduced paid-up is selected, the cash value in the lapsed Whole life policy will be used to buy the insured a new Whole life policy that will provide coverage until the insured dies or reaches age 100, but the face amount of the new policy will be reduced, meaning it will be less than the original policy.

Which type of Life insurance utilizes the 'level premium concept': *traditional whole life

Cash value life insurance utilizes the 'level premium concept', which means that the initial premium is calculated based upon the insured's original age and will never change, even as the client gets older. Since the client is over charged in the early years of the policy, the excess premium paid is credited to the policy's cash value, which belongs to the insured while they are alive. However, upon death, the insurer keeps the cash value and uses it offset their risk. In other words, as the cash value goes up, the insurers risk goes down, which allow them charge a level premium.

Jim has a Whole life policy with a face amount of $50,000 and a cash value of $10,000. If the policy lapses and goes into the automatic Non-Forfeiture option, Jim will receive: *buy-sell agreement

Closed corporations, where all the stock is still in the hands of the founding shareholders, often enter into buy-sell agreements stating that the heirs of deceased shareholders promise to sell the stock they inherit back to the corporation at a pre-determined price. The stock is then cancelled and the surviving shareholders would then each own a larger percentage of the company. Such agreements are often funded by Life insurance purchased by the corporation on the shareholders, with proceeds payable to the corporation upon their death. The proceeds are then used to buy the stock back.

When a corporation enters into an agreement with their shareholders to buy their shares back in the event of their death, it is known as a(n): *buy sell agreement

Closed corporations, where all the stock is still in the hands of the founding shareholders, often enter into buy-sell agreements stating that the heirs of deceased shareholders promise to sell the stock they inherit back to the corporation at a pre-determined price. The stock is then cancelled and the surviving shareholders would then each own a larger percentage of the company. Such agreements are often funded by Life insurance purchased by the corporation on the shareholders, with proceeds payable to the corporation upon their death. The proceeds are then used to buy the stock back.

On a Comprehensive Major Medical Expense policy, the gap in coverage between the 'Basic' plan and the Major Medical portion of the plan is known as: *corridor deductible

Comprehensive Major Medical Expense policies combine the features of a Basic plan, which has first dollar coverage with no deductible, and a Major Medical plan, which has high limits, co-insurance and a 'corridor' deductible which separates the two parts of the policy. When a claim arises, the first dollar coverage of the Basic plan applies first. What is not covered on the Basic plan goes into the corridor, where the deductible applies. After application of the deductible, the Major Medical plan will usually pay 80% of the claim.

All of the following are true about convertible Term Life insurance EXCEPT: true: *convertible w/o a physical exam *it is convertible to whole life *convertible based upon the insured's attained current age

Convertible term may be converted to Whole Life insurance without a physical exam based upon the insured's current or attained age. However, the premium will increase because Whole Life costs more due to its cash value accumulation over a period of time. Most Term Life is convertible, but not all.

A person who has contributed to Social Security 6 out of the last 13 quarters has what status: *currently insured

Currently insured under Social Security means that a worker must have at least 6 quarters of coverage paid in out of the last 13-quarter period ending with the quarter resulting in their death, disability or retirement. Fully insured status means that a person has paid in 40 quarters of coverage. If a person is fully insured, they are eligible for all Social Security benefits. If a person has only currently insured status, they are eligible for only certain reduced benefits.

Which type of qualified retirement plan is tied to length of service and salary level *defined benefit

Defined benefits plans are qualified corporate pension plans usually set up by large employers. Participants in such plans are promised a definite (or defined) amount of pension benefits depending upon their length of service and salary level. Defined contribution plans (sometimes called 'money purchase' plans), such as 401k plans, do not guarantee a defined pension benefit. Instead, the amount of benefits available at retirement depends upon the amount of money contributed over a period of time and the earnings in the employees account.

On Disability Income insurance, the period of time between the onset of a disability and the time benefits start is known as the:

Disability Income policies have a time deductible, instead of a dollar deductible. The period of time between the onset of a disability due to sickness or accident is the Waiting period, which is also known as the Elimination period, which is selected by the insured when they buy the policy. The longer it is, the lower the premium, and vice-versa. The probationary period limits coverage on new policies for pre-existing conditions.

The Employee Retirement Income Security Act (ERISA) of 1974 was passed to protect: *plan participants and beneficiaries

ERISA is a federal law that protects the participants and beneficiaries of tax qualified defined benefit pension plans. It requires 'vesting' (ownership) of employer contributions over a period of time, sets eligibility requirements and prohibits discrimination. If an employer complies with ERISA, they can tax deduct their contributions. ERISA is enforced by the U.S. Department of Labor.

A qualified retirement plan that is set up to allow the employer to share their financial success with their employees is known as a: *profit sharing plan

Employers may elect to establish a qualified profit sharing plan, under which contributions are made by the employer when profits are realized. The maximum contribution per employee is expressed as a percentage of compensation. Contributions are made in before tax dollars and are not taxable to the employee until they are distributed. Earnings in the plan are tax deferred as well.

Although Scott has an agency contract with Able Insurance Company that spells out his duties under the contract, he also has the authority to do other things necessary to carry out his obligations to both the insured and the insurer under the Doctrine of: *implied authority

Express authority is that which is written down (or 'expressed') in an agent's contract with the insurer(s) they represent. Implied authority is the authority an agent needs to carry out his duties, even though they are not expressed in the contract. Apparent authority is the authority that a customer believes that an agent has, whether they actually have it or not. There is no such thing as residual authority.

Unfair Discrimination is prohibited by the state Insurance Code, including discrimination based upon which of the following: *religion

For insurance purposes, it is important to make a distinction between 'fair' and 'unfair' discrimination. For example, Life insurers use verifiable statistics to justify rate differentials between young and old, sick and healthy and males and females. Such discrimination is considered to be 'fair' since it is based upon sound actuarial principles and is related to actual or reasonably anticipated loss experience. However, it is considered to 'unfair' to discriminate based upon race, religion, national origin, etc.

Group insurance is generally less expensive than individual policies primarily because: *insurer expenses are lower

Group coverage is less expensive due to lower expenses. Instead of issuing individual policies to each covered person, only one Master Policy is issued, with covered persons receiving Certificates of Insurance that summarize their coverage. Group coverage is usually better than individual, and although there is no individual underwriting, the entire group may be underwritten. Persons insured are generally younger, not older.

All of the following are true about contributory Employer Group Life insurance EXCEPT: true: *coverage is usually level term *coverage is convertible to whole life for 31 days after termination of employment *the employer is the master policyholder and employees receive certificates of insurance

Group premiums may be contributory or non-contributory. If they are contributory, the employees pay all or part of the cost. If they are non-contributory, the employer pays 100%.

A flat fee per office visit charged to subscribers of an HMO is known as a:

HMOs stress preventative care, which means that subscribers can visit their service provider and just pay a small co-payment (such as $25) per office visit. It is insurance companies writing Major Medical Expense policies that usually have a co-insurance requirement, often 80/20, where the insured pays 20% of the every claim after paying the deductible, which discourages over-utilization of the policy.

Although rates can be changed by class, a Health insurance policy whose terms cannot be otherwise changed and must be continued is known as:

Health insurers sometimes add special features in order to make their policies easier to sell. On a Guaranteed Renewable policy, the insurer must offer renewal and neither the coverage nor the policy terms may be changed by the insurer, although they can change rates by 'class'. Classes, such as men vs. women, must be identified in the policy.

The person upon whose life a Life insurance policy is based is the: [insured]

If a person buys a Life insurance policy upon themselves, they would be considered to be both the policyholder/owner and the insured. However, if you buy a policy on someone else, such as your spouse, you are the policyholder/owner and your spouse is the insured person. The policyholder/owner of the policy has all the rights of ownership, such as the right to take a loan, take cash surrender and to name the beneficiary. Of course, you can't buy a policy on another person unless you have an 'insurable interest' in that person at the time of application.

The purpose of a 75% participation requirement on a contributory Group Health insurance plan is to: *prevent adverse selection

If employees have to contribute part of the premium for Group Health insurance, they might 'opt' out of coverage, leaving the insurer covering only the employees who have health problems, which is called 'adverse selection'. To solve this problem, insurers require that when writing contributory group coverage, at least 75% of those eligible enroll. If the premium is non-contributory, meaning that the employer pays it all, then 100% of those eligible must enroll in the group insurance plan.

If an annuitant buys an immediate Life annuity with a 10 year period certain, the insurer will pay monthly payments for: [minimum of 10 years, maximum life]

Immediate annuities have no accumulation period and are usually purchased by clients with money they have been saving for retirement. If the annuitant selects a life payout with a 10 year period certain, payments are guaranteed to be made for at least 10 years, either to the annuitant or to a beneficiary if the client dies within the 10 year period. However, after 10 years there is no beneficiary, but payments will continue to the annuitant until they die. The period certain eliminates some of the risk.

An Agent holding both California Life-Only and Fire licenses needs how many hours of continuing education each license period for the first 4 years:

Individuals holding a Life only, Health only, Property only and/or Casualty only License must earn 24 hour each licensing period (two years). The 24 hour per licensing period requirement is the same regardless of the number of licenses held.

All of the following are true about representations made by an applicant on an application for insurance EXCEPT: representations made by applicant/-->true: *representation is defined as a fact that is true to the best of the applicant's knowledge *representation may be oral/written and may be made at the time of , or before the issuance of the policy *if representation is false in a material point, the injured party is entitled to void the contract

Insurance contracts are based upon the Doctrine of Utmost Good Faith, which assumes that all parties to the contract are honest. A representation may be altered or withdrawn before the insurance contract is issued, but not afterward.

All insurance contracts must specify all of the following EXCEPT: *the financial rating of the insurer insurance contracts must have: *the premium *the property or life insured *the risks insured against

Insurance contracts must identify 6 required specifications, including: 1) the parties between whom the contract is made; 2) the property or life insured; 3) the interest of the insured in the property insured; 4) the risks (perils) insured against; 5) the policy period; and 6) the premium. The financial rating of the insurer is not required to be stated.

The primary purposes of state insurance regulation include all of the following EXCEPT state regulation includes: *determine insurer solvency rate regulation *prevent unfair discrimination excludes--interpreting policy provisions

Insurance policies are legal contracts and their provisions are subject to interpretation by the courts, not the state Insurance Department.

An insurance company domiciled in another state but transacting business in California is known as a:

Insurers are identified based upon their state of incorporation, or domicile. An insurer domiciled in Nevada, but transacting insurance in California would be considered to be domestic in Nevada, but foreign in California. A foreign insurer cannot transact insurance in California unless they first obtain a Certificate of Authority here.

An insurance company that is organized in Montreal, Canada, but who does business in California is considered to be:

Insurers may be domestic, foreign or alien. A domestic insurer is one that is domiciled (organized) in this state, a foreign insurer is organized in another state and an alien insurer is organized in another country. All insurers need to obtain a Certificate of Authority from the Commissioner in order to be admitted to transact insurance in this state except for Surplus Lines insurers, which are non-admitted companies that insure risks that authorized insurers won't, most often in the areas of aviation and ocean marine.

All of the following are true about Managing General Agents (MGA) EXCEPT: true: *An mga can be any person, firm, association, partnership, or corporation that manages all or part of an insurer's business in a specified territory *mga acts as an agent/produces and underwrites gross direct written premium equal to or more than 5% of the insurer's policyholder surplus *an mga may adjust or pay claims in excess of an amount determined by the commissioner or may negotiate and bind ceding reinsurance on behalf of the insurer they reprsent

It is a Surplus Lines Broker that is a person licensed by the Commissioner to solicit and place insurance with non-admitted insurers when the insurance cannot be procured from admitted insurers, not an MGA. An MGA is a Fire and Casualty broker/agent or a Life agent who represents one or more admitted insurers and manages the transaction of insurance by those insurers in a specific territory.

An agent must report a change of address to the state Department of Insurance:

It is the licensee's responsibility to keep their address up to date. Change of addresses must be reported immediately.

All of the following are characteristics of an 'ideally insurable' risk EXCEPT: [loss must be certain] characteristics: loss must create economic hardship loss must not be catastrophic in nature loss must be definable

It is the purpose of insurance to reduce uncertainty, so insurance may only be used to cover losses which may or may not occur. Generally, losses are not insurable if they are caused by intentional acts or are certain to occur. Life insurance is the exception in that although death is certain, the time of death isn't.

All of the following are true about Survivorship Life insurance EXCEPT: *true: premiums are lower when compared to those that would be charged for 2 separate policies *it is usually purchased to meet the need to cover estate taxes *it usually written with face amounts in excess of 1,000,000

Joint Life insurance can be purchased on a 'first to die' or on a 'second to die' basis. The name 'Survivorship Life' insurance implies that the policy only pays when the second party dies, meaning nothing is paid when the first party dies. This type of policy is often written to cover estate taxes, since they are due when the second spouse dies. **although two persons are insured, proceeds are paid only upon death of the first party--false

which of the following is true about Long Term Care (LTC) insurance: *it is not needed by the very rich or the very poor

LTC insurance covers custodial nursing, which is not covered by either Medicare or a Medicare Supplement insurance policy. However, low income Californians may obtain custodial care through Medi-Cal if they fail an income/asset test. Wealthy Californians might not need to purchase LTC insurance, since they can afford to pay for their own custodial care if need be. Medi-Cal is California's version of Medicaid. Medi-Cal is a taxpayer funded public assistance program. It does not sell insurance.

In every LTC policy that provides home care benefits, eligibility for home care benefits require that the insured be unable to perform at least ____ Activities of Daily Living (ADLs) or have an impairment of cognitive ability: *two

LTC policies written to provide home care benefits must provide those benefits if the insured cannot perform at least two ADLs, which include such things as dressing, bathing, feeding, walking and the general ability to care for oneself.

In California, a Life Agent represents the:

Life Agents represent the insurer, not the client. Agents are appointed by insurers and under the Doctrine of Agency, insurers are responsible for the acts of their agents. For all practical purposes, the acts of an agent are considered to be the acts of the company they represent. Agents may represent more than one insurer.

Which Life insurance settlement option should a beneficiary select if they want to conserve the proceeds payable upon the insured's death:

Life insurance may be used to create an immediate estate. If you are the beneficiary of a $1,000,000 Life insurance policy and the policy owner/insured did not pre-select the settlement option, upon his death you could take the proceeds any way you want. However, if you would like to conserve the $1,000,000 estate that was just created, you might select the Interest Option, where the insurer will keep the money for you and pay you annual interest. Although the $1,000,000 proceeds are not taxable to you, the interest is. 5% of $1,000,000 is $50,000 a year, plus you are still a millionaire!

On a Major Medical Expense policy, the purpose of co-insurance is to: *require that the insured/insurer share the claim after the deductible has been paid]

Major Medical Expense policies require that the insured pay a percentage of a claim (usually 20%) after the deductible has been paid, which discourages preventative care and over utilization of medical services. It is HMOs that encourage preventative care by charging only small co-payments per office visit.

With regard to the ethical behavior of a Life agent, which of the following makes it easier for agents to conduct themselves in an ethical manner:

Many ethical considerations go beyond the strict requirements of insurance law and regulation. While violating insurance laws is unethical, there is much more to being ethical than simply staying within the law. Remember, an agent should always place their customer's best interests above their own.

Part A of Medicare provides basic hospital benefits including coverage for the care and counseling of the terminally ill, which is known as: *hospice care

Medicare is a federal health insurance program for people 65 or older who qualify for Social Security, people of any age with permanent kidney failure, and those who are permanently and totally disabled. An individual is automatically eligible for Medicare Part A with no monthly premium at age 65, which includes coverage for hospitalization, skilled nursing, home health care and hospice care.

Medicare Part B covers all of the following EXCEPT: *covers: *physicians services *clinical laboratory services *home health care excludes hospitalization

Medicare is part of Social Security and beneficiaries are eligible for enrollment in Part A Hospital Insurance at age 65 at no premium charge. However, Part B of Medicare is designed to cover Physicians and related services for an additional premium charge.

If Medicare denies a claim, the beneficiary may: *file an appeal with Medicare provider or administrator

Medicare provides a procedure for individuals to appeal decisions about their Medicare coverage. To request an appeal, beneficiaries should circle the items on the Medicare Summary Notice (MSN) they received that they disagree with, explain why they disagree and send the signed MSN to the address shown in the Appeals Information section of the MSN within 120 days of the date the MSN was received.

On a Life insurance policy, under the Misstatement of Age provision, even if the policy has been in effect for a number of years: benefits may be adjusted upon the death of the insured at any time to reflect the face amount the premium paid would have purchased at the insured's correct age.

Misstatement of Age is not limited by the 2 year Incontestability clause. It goes for the life of the policy. Although coverage cannot be voided for misstatement of age, the benefits may be adjusted, up or down, at the death of the insured to reflect the amount of insurance that the premium paid would have purchased if his correct age was known.

On Health insurance, the actuarial table used by insurers to determine product benefits and pricing is known as the:

Morbidity tables are to Health insurance, as mortality tables are to Life insurance. Morbidity tables measure the frequency of illness, sickness and disease at each age, and the actual number of individuals who incurred an illness, sickness or disease at each age. Morbidity tables are based upon the Law of Large numbers.

Avery has Employer Group Medical Expense insurance with Able Insurance Company that also covers his spouse Beverly as a dependent. Beverly has Employer Group Medical Expense insurance with Best Insurance Company that also covers Avery as a dependent. Both group policies contain a Coordination of Benefits (COB) provision. If Avery has a claim:

Most Group Medical Expense policies contain a Coordination of Benefits provision that protects against over insurance. COB states that if you are covered by more than one Group Medical Expense policies, the one that covers you as an employee is primary and the one that covers you as a dependent is excess.

If one Group Medical Expense policy has a Coordination of Benefits (COB) provision and one doesn't: *the policy w.o the cob provision is primary

Most Group Medical Expense policies have a COB provision, which is designed to keep an insured who is covered by two policies from collecting in full from both. In other words, if both policies have COB, the one covering the insured as an employee is primary and the one covering the insured as a dependent is excess. However, if one of the policies does not contain COB and the other one does, the one without COB is considered to be primary.

To make an insured 'whole' again after a loss is referring to: A. indemnification B. reasonable expectations C. doctrine of adhesion D. waiver of estoppel

Most Health insurance is based upon the Principle of Indemnity, which states that the purpose of insurance is to restore the insured to the same financial position they were in prior to a loss, but not to allow the insured to profit. Auto and fire policies also follow this same principle, but Life insurance is considered to be 'valued', in that the insurer will pay the face amount of the policy upon death, which is why it is said that Life insurance creates an immediate estate upon the death of the insured.

Carol is injured driving a company car at work. Her Health insurance coverage:

Most Health insurance provides 'non-occupational' (off the job) coverage for sickness or injury, meaning that occupational coverage is excluded. However, if a person is not required to be covered by Workers Compensation, some Health policies will cover both on and off the job, which is known as 'occupational' coverage.

On a Major Medical Expense policy, the feature that limits the insured's out-of-pocket expenses is known as a: stop-loss feature

Most Major Medical Expense policies put a 'cap' on the insured's share of the co-insurance, which is known as a stop-loss feature. For example, an insured has 80/20 co-insurance, which means that after the deductible he has to pay 20% of the claim. On a large claim this could be a substantial amount, which is why many Major Medical policies have a stop-loss of $5,000, which means after the insured's share of the co-insurance reaches $5,000 on a particular claim, the insurer will pay 100%.

When reading his new Medical Expense policy, an insured discovers that he has no coverage for pre-existing sicknesses that reoccur during a specified period of time after his new policy was issued. He is reading the: *probationary period

Most new Medical Expense policies contain a probationary period that states that there is no coverage if a pre-existing sickness that the insured was treated for during a specified time prior to the new policy's effective date reoccurs within a specified time after the new policy was issued. Also known as the pre-existing condition clause, the probationary period protects the insurer against adverse selection.

Which of the following is an incorrect list of Life insurance policy provisions: **answer: incontestability, misstatement of age, insurable interest true: **grace period, reinstatement, suicide ** ownership, assignment, entire contract *modification, free look, mode of premium payment

Most standard provisions in a Life insurance policy are required by law and are designed to protect the customer. However, insurable interest is not a policy provision. It is an underwriting requirement that states that you cannot buy Life insurance on anyone other than yourself unless you have an insurable interest in that person at the time of application. Insurable interest is usually based upon immediate family or economics, such as Key Person Life insurance. It is designed to prevent gambling. Insurable interest need not exist at time of death.

An insurance company owned by policyholders is a:

Mutual insurers do not issue stock, since they are owned by their policyholders, who may participate in company profits in the form of dividends. Dividends may never be guaranteed and if paid, are not taxable. Mutual policies are also known as 'participating' policies, since the policyholders may participate in company profits.

Non-occupational Medical Expense insurance:

Non-occupational Medical Expense insurance excludes on the job injury or sickness, which is covered by Workers Compensation instead. However, if an individual is not required to be covered by Workers Compensation, they may be able to buy Medical Expense insurance that provides 'occupational' coverage, which covers both on and off the job.

All of the following are false about Long Term Care (LTC) insurance EXCEPT: true: it is required to have a 30 day free look false: it may be sold to individuals who are age 50 or more *it is not needed if an individual has medicare part A *ltc coverage is included as 'core' benefit in a medi-gap policy

Note that the question is looking for the true answer, which is 'D'. All other answers are false. Be sure to read the questions carefully! LTC insurance may be sold by private Health insurers to persons of any age, although most persons who buy it are age 50 or more. LTC is not covered by Medicare or a Med-Gap (Medicare Supplement) policy. However, applicants for LTC shall have the right to return the policy within 30 days of its delivery and to have the premium refunded if they are not satisfied for any reason.

On what type of Life insurance is the beneficiary also the policyholder: *credit life

On Group Credit Life, the bank (creditor) enrolls the insured (debtor) in a Group Credit Life plan with policy limits that are sufficient to pay off the debtor's loan upon death. Most Credit Life is written on a decreasing term basis and the policy limit cannot exceed the amount of the loan. The bank is the Master Policyholder and the insured debtor receives a Certificate of Insurance. So, the policyholder is also the beneficiary of the policy. Most Credit Life is written on a non-contributory basis with the insured paying all of the premium, which is added to the amount of their loan balance.

Which of the following is correct regarding the tax implications of Disability Income insurance: *on group coverage, premiums are deductible and benefits are taxed

On Group Disability income insurance, the employer can tax deduct the premiums paid as a business expense, but benefits paid to disabled employees are taxable, so employees need to insure their gross income. On Individual Disability income insurance, the individual insured cannot deduct the premiums paid, but benefits are not taxable, so individuals need only insure their net (after tax) income.

In Group Health insurance, the period of time that starts when a new employee is hired and ends on the date they become eligible for the employer's Group Health plan is the:

On Group Health, don't confuse the 'probationary' period with the 'pre-existing condition' clause. The probationary period in a group Health policy applies to people who enroll in the group after the policy's effective date, such as newly hired employees. In other words, the employer may be concerned that a new employee took the job just to obtain insurance, so they are on 'probation' for a period of time before they can enroll in the Group plan. A 'pre-existing condition' clause is a period of time that starts after enrollment, which states that pre-existing conditions may not be covered for a specified period of time. Although Group Health plans may or may not have a pre-existing condition clause, individual plans usually do.

Which of the following is true regarding Group Certificates of Insurance:

On employee Group Life insurance, the employer is the Master Policy holder since the contract is between the insurer and the employer. Employees are issued Certificate of Insurance which summarizes their coverage, including the amount of protection and the beneficiary. Only one Certificate is issued per employee, listing covered dependents, if any.

Non-contributory employee group insurance premiums paid by employers on behalf of their employees are: *tax deductible for the employer and tax free to employee

On non-contributory group, the employer pays and tax deducts 100% of the premiums as a business expense. Premiums paid by employers for group insurance to cover employees are not taxable as income to employees either.