Life Practice Exam B

Variable insurance and variable annuity products are regulated by:

SEC, FINRA and DOI.

The person who will receive the benefit of an annuity and whose life the payout is based upon when the contract is purchased is the:

annuitant

Situations where the risk is increased by slippery floors, a habit of lying, or reckless drunk driving are best described by which of the following?

hazard A hazard is any factor that increases the likelihood that a loss may occur. This statement contains examples of physical hazard, moral hazard and morale hazard.

For an insurance contract, utmost good faith means:

Each party relies upon the truthfulness of the other.

All of the following statements about agents are true, except:

Exclusive agents work for themselves.

In insurance, the agents have authorization to represent the company. The producers may exercise this relationship through:

Express authority, implied authority and apparent authority.

A forty-five year old investor has been laid off from his job. In order to pay bills he takes a premature distribution from his traditional IRA account. What tax penalties, if any, will he face?

He will be required to pay a 10% tax penalty on the amount withdrawn.

Under which life settlement option does the insurer retain the death benefit but pays the beneficiary the earnings on the death benefit?

Interest only option

A policyowner who cannot borrow the equity, change beneficiaries, assign a policy or stop paying premiums without the beneficiary's written consent has designated the beneficiary as a(n):

Irrevocable beneficiary.

Which of the following is considered ordinary insurance?

Mortgage redemption

All of the following describe differences between binding receipts and conditional receipts, except:

No claim is paid with either receipt until a policy is issued

. All of the following statements are true about participating and nonparticipating policies, except:

Non-participating policies issue dividends to policyowners.

Which statement best describes "agreement" as it relates to contracts?

One party accepts the exact terms of the other party's offer.

To authorize the release of an attending physician's report, the applicant must:

sign a consent form

In which type of policy does the insurer apply flexible premium to pay for the cost of insurance and expenses and then uses the remaining balance plus interest to build the cash value account?

universal life

According to the CIC, life-only agents must keep records of their transactions for:

5 years

At what age does Social Security Medicare program Part B start providing benefits?

65

Which of the following is not a personal use of life insurance?

A client buys insurance to fund a buy-sell agreement.

What nonforfeiture option allows a policyowner to use the existing cash value to purchase a policy of the same face amount as the original policy but for a reduced amount of time?

. Extended term insurance

What is the minimum number of members required for group life insurance?

10 is the minimum per the CIC.

How many hours of continuing education are required per renewal for a lifeonly agent?

24 hours, 4 of the hours must be in ethics

All of the following statements about policy provisions are true, except:

Death during the grace period results in a full death benefit being paid.

All of the following are true about key person insurance, except:

The death benefit is taxable to the business.

An applicant has the right to know that the insurance company will collect certain personal information about their credit, character and reputation. The insurer may gain such information from:

A consumer report. It includes information about a potential client's credit, character and reputation. This report may be obtained by the insurer during the underwriting process.

Which of the following is not a qualified 1035 exchange?

A variable annuity exchanged for a variable universal life policy.

The Roth and Traditional IRAs have some similarities. Which of the following is not true?

Both are tax deductible to the investor

Which statement is not true about insurance sales?

Brokers represent insurers in negotiating coverage with various insureds.

Which of the following is an incorrect statement about a client's privacy rights?

Consent is required before an insurer may access an insured's credit history. Any entry may be disputed if in error.

In life insurance beneficiary succession is the method used to determine who will receive the death proceeds. If the primary beneficiary is not living upon the death of the insured, who will receiver the payment?

Contingent beneficiary (Contingent/secondary beneficiary)

Which statement below is least correct regarding the type of insurance that fits best with the applicant's needs?

Convertible term can be purchased by applicants who may require a larger death benefit in the future. Convertible term converts to a cash value policy with the same death benefit but at a higher premium.

All of the following statements about a policy grace period are false, except:

Grace periods are typically 31 days.

In comparing the purchase of individual life insurance to acquiring group life, which statement is not true?

Group insurance has a non-deductible premium while individual insurance has a tax deductible premium to the payor.

Which of the following riders would provide for an insured to increase the face amount of their life insurance policy without proof of insurability?

Guaranteed insurability/future purchase option

While collecting underwriting information, certain rules must be followed. Which of the following is incorrect?

Post-claims underwriting is a valid and necessary means of determining the insurability of a potential applicant.

In a group life policy with a death benefit of more than $50,000:

Premium cost for insurance above $50,000 is taxable as income to the employee.

Term insurance is best described by which of the following?

Provides temporary protection, builds no cash value, is less expensive, and may be renewed.

Which of the following is not excluded from the California Life and Annuity Replacement Law?

Purchasing a new policy that will take the place of an existing policy. Any transaction in which a client purchases a new policy with the intention of cancelling an existing policy is considered to be a replacement transaction.

. A client has purchased an annuity with an annual bonus she received at the end of last year. She has requested annual benefit payments to start at the end of this year. What type of annuity did she purchase?

Single Premium Immediate Annuity. The client has purchased an annuity with one payment (single premium) and has requested that the benefit payments begin within 12 months or less of the contract date (immediate annuity).

The provision that protects the proceeds of a life insurance policy from attachment by the beneficiary's creditors after the insured's death is known as the:

Spendthrift (Trust) Clause.

Who submits a request for life insurance to a company?

The applicant. While the agent often handles the paperwork; it's the applicant who is technically requesting life insurance coverage.

Brian purchased a variable life policy and died 25 months after the issue date. It is then discovered that Brian understated his age on the application. What will the insurer do in regard to the payment of the death benefit to the beneficiary?

The death benefit will be reduced to reflect the age discrepancy. The misstatement of age provision states that the insurer will "make it right" by adjusting the death benefit accordingly. This provision is not subject to the incontestable clause.

All of the following statements about life insurance policy illustrations and the senior market are correct, except:

The illustration will note that both guaranteed and non-guaranteed elements will remain unchanged for the years illustrated.

. Which of the following statements is not included in the Entire Contract clause?

The insurer agrees to provide life insurance protection for the named insured which will be paid to a designated beneficiary when proof of death is received by the insurer.

Which of the following statements is false in regard to a Life Paid-up at-65 whole life policy?

The policy will endow at age 65. Limited pay policies limit the length of time for premium payment, all other features remain the same, such as length of coverage, maturity, and endowment. Because the number of premium payments is reduced in a limited pay policy, the premium must be higher than straight life.

Which statement about reinstatement is false?

The reinstated policy is incontestable if the first time it was in force it already passed the two year mark.

Which of the following cannot be used in a policy illustration if nonguaranteed elements are intended to pay future premiums?

Vanishing premiums

. For a flexible premium deferred annuity, the time during which the owner makes premium payments and the time before benefit payments begin is known as the:

accumulation period

Premiums paid into a variable annuity purchase which of the following?

accumulation unitscumulation units

Which action by an insurer, or its representatives, is not considered an unfair claims violation?

an agent advises a claimant to obtain the services of an attorney.

Which of the following is not an acceptable underwriting classification?

declined

All of the following needs to be included on an application for life insurance except:

disability income insurance

A partial payment of proceeds to cover final expenses is paid to someone not designated as a beneficiary but acting in a legal or fiduciary capacity. This is provided in which provision?

faculity of payment

An insurer invests the cash value of a fixed annuity in which of the following assets?

general account

A client has a history of DUIs. To his insurer, they see him as a ________ hazard.

morale

An agent who knowingly misrepresents material information for the purpose of inducing a client to lapse, forfeit, change or surrender a life insurance policy or annuity has committed an illegal practice known as:

twisting: unfair trade practice

Which of the following becomes part of the contract, is guaranteed to be true, and if untrue, may be grounds for rescinding the policy?

warranty

Which insurance is known for having a level premium with a fixed rate of return resulting in guaranteed cash value?

whole life

A client has missed her premium payment on her cash value policy, and the grace period has also lapsed. The policy is still in force because her insurer has been deducting the cost of the premium from her cash value. What provision allows this?

Automatic Premium Loan

All of these statements about life insurance settlement options are false, except:

Life income with 10 years certain provides at least 120 months of payments.

Which is most likely to have TSA?

School district employee Tax Sheltered Accounts (TSA) are retirement programs for not-for- profit institutions such as school districts, churches, charities, etc.

. Which party has the legal authority to name or change the beneficiary?

policyowner

Which statement is false concerning insurance company regulations?

An insurer suffering from an impairment of their minimum required paid-in capital is labeled solvent.

Ashley, the policy owner and insured, named Wendell as primary beneficiary and Barbara as contingent beneficiary. Just six (6) weeks prior to Ashley's death, Wendell and Barbara are killed in a common disaster.

Ashley's estate. If both the primary and the contingent beneficiaries predecease the insured and no other beneficiaries are named, the face amount distribution will be paid to the insured's estate.

All of the following statements about assignments are not false, except:

Assignments need not be filed with the insurer if notarized and filed in county records.

Which type of insurer requires an attorney-in-fact overseen by an advisory committee of subscribers?

Reciprocal insurer

When an applicant makes a material statement believed to be true to the best of their knowledge, the statement is considered to be a/an

Representation.

Any person to whom the commissioner has issued a seizure order and who refuses to deliver any books, records, or assets of an insurer faces:

A misdemeanor punishable by a fine up to $1,000, a year in jail, or both.

At age 72, Mrs. Smith is considering applying for Medi-Cal so she can afford her medical bills. Today Agent Charles is visiting her home and wanting to sell her an annuity product. Which of the following is true?

Agent Charles cannot allow Mrs. Smith to purchase an annuity if after the purchase, Mrs. Smith wouldn't qualify for Medi-Cal. Agents must be mindful of the effects of an annuity purchase on Medi-Cal eligibility.

profit sharing plans

Allow for a contribution of a specified proportion of company profits.

Which of the following are characteristics of renewable term?

Allows the policyowner the opportunity to renew the policy at the end of term, without evidence of insurability. The premium will increase

According to the California DOI, an insurer whose articles of incorporation are registered in Oslo, Norway, is considered:

An alien insurer

Which of the following transactions would most likely be declined due to lack of insurable interest?

An employee insures their employer in the fear of losing their job

A policy pays the face amount if the insured dies before a specified date, or lives to that specified date. This best describes:

An endowment policy

The Commissioner can deny an applicant for a license after a hearing:

If the applicant has permitted someone in their employment to violate the California insurance code.

The insured dies 6 months after the policy issue date. Upon death of the insured, it is determined that the applicant made a material misstatement on the application. What is the most likely course of action for the insurer?

Rescind the policy