Life Insurance Practice Test

What is the minimum free-look period for newly issued life insurance policies in this state?

10 days

An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?

50% tax on the amount not distributed as required

A Straight Life policy has what type of premium?

A level annual premium for the life of the insured

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

A minor son of the insured

A tornado that destroys property would be an example of which of the following?

A peril

The term "illustration" in a life insurance policy refers to

A presentation of nonguaranteed elements of a policy

Who is eligible to purchase IRA

Anyone who has earned income

Which of the following is TRUE about a class designation?

Beneficiaries are not identified by name

According to the entire contract provision, what document must be made part of the insurance policy?

Copy of the original application

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

Cost of living rider

All of the following are features and requirements of the Living Needs Rider EXCEPT

Diagnosis must indicate that the death is expected within 3 years

Which of the following is considered to be a morale hazard?

Driving recklessly

Which of the following terms is defined by the California Insurance Code as unassigned funds that must be reported on a stock insurer's annual statement?

Earned surplus

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT

Erase the incorrect answer and record the correct answer

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family term rider

Intentionally misrepresenting or concealing a material fact to induce an insurance company to make a contract is known as

Fraud

An insured has the right to return the new insurance policy for a full refund during the

Free-look period

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income

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

Human Life Value Approach

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

Insurance

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity?

Insurer's guaranteed minimum rate of interest

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become

Larger

A set of legal or regulatory conditions that affect an insurer's ability to collect premiums commensurate with the level of risk incurred would be considered a(n):

Legal hazard

When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value?

Outstanding loans and interest

Which of the following individuals must have insurable interest in the insured?

Policyowner

Profitable distribution of exposures serves the purpose of

Protecting the insurer against adverse selection

Hazard is best defined as

Something that increases the risk of loss

Which of the following is NOT true regarding the annuitant?

The annuitant cannot be the same person as the annuity owner

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?

The balance of the loan will be taken out of the death benefit

Which of the following is an example of liquidity in a life insurance contract?

The cash value available to the policyowner

Which of the following would NOT fall into the category of costs associated with death?

The expense of a vacation for surviving family members

All of the following are true of an annuity owner EXCEPT

The owner must be the party to receive benefits

If an insured continually uses the automatic premium loan option to pay the policy premium,

The policy will terminate once the cash value is reduced to nothing

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?

The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy?

They can convert their coverage to permanent life insurance without evidence of insurability

The main difference between immediate and deferred annuities is

When the income payments begin

The Department of Insurance contacts an agent about a claim that was settled two months ago. Within what timeframe must the agent issue a complete response?

21 days

Adjustable Life At age 30, an applicant wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs

Adjustable Life

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory

What does "liquidity" refer to in a life insurance policy?

Cash values can be borrowed at any time

Which of the following must an insurer obtain in order to transact insurance within a given state?

Certificate of authority

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?

Conditional

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

Conditional

Stranger-originated life insurance policies are in direct opposition to the principle of

Insurable interest

Which of the following is NOT a license in the state of California?

Life broker

What is the term used when a person sells his assets as a way to gain money?

Liquidation

The premium of a survivorship life policy compared with that of a joint life policy would be

Lower

Which of the following information about the applicant is NOT included in the General Information section of the application for insurance?

Medical background

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

More than one insurer

What other term is used to refer to unintentional torts?

Negligence

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value?

Predicted needs of the family after the insured's death

In a group life insurance policy, the employer may select all of the following EXCEPT

The beneficiary

An agent has completed 30 hours of continuing education by the end of a license period instead of the required 24 hours. What will happen to the 6 hours in excess?

They will be carried over into the next licensing period

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

Third party ownership

What type of account will most likely be established for a minor?

Trust

To which of the following products does the Replacement Regulation apply?

Whole life insurance

A property and casualty agent has been licensed for 7 years. How many continuing education hours must the agent complete this licensing period?

24

All insurance policies and annuity contracts delivered to senior citizens in the State of California are subject to a cancellation period of at least

30 days

The minimum interest rate on an equity indexed annuity is often based on

An index Standard and Poor's 500

Which of the following is TRUE of a qualified plan?

It has a tax benefit for both the employer and employee

If an agent wishes to sell variable life policies, what license must the agent obtain?

Securities

The premiums paid by the employer in a business life insurance policy are

Tax deductible to the employer

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

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 1/2

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

The insured's premium will be waived until she is 21

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called

Cost of living rider

According to the California Insurance Code, any agent violating the regulations relating to misrepresentation will be charged with a

Misdemeanor, a fine not to exceed $25,000, and/or a possible 1-year imprisonment.

Which of the following is authorized to transact insurance on human lives?

Life agent

Which of the following is called a "second-to-die" policy?

Survivorship

The annuity owner dies during the accumulation period without naming a beneficiary. Annuity's cash value exceeds premiums paid. Which of the following is TRUE?

The cash value will be paid to the annuitants estate

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

200,000

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to

The contingent beneficiary

Which of the following is TRUE regarding the insurance amount in a credit life policy?

The creditor can only insure the debtor for the amount owed.