Practice test Cali life insurance Part 1

What do individuals use to transfer their risk of loss to a larger group?

Insurance

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

Insurance.

Which statement regarding insurable risks is NOT correct?

Insureds cannot be randomly selected.

Which of the following best defines earned surplus?

Insurer's unassigned funds

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the

One-year term option.

What is the waiting period on a Waiver of Premium rider in life insurance policies?

6 months

What is the penalty for excessive contributions to an IRA?

6%

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

A debtor has an insurable interest in the life of a lender.

A Straight Life policy has what type of premium?

A level annual premium for the life of the insured

Which of the following statements concerning buy-sell agreements is true?

Buy-sell agreements are normally funded with a life insurance policy.

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated.

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

Diagnosis must indicate that death is expected within 3 years.

What is the term for a sales campaign conducted through the mail?

Direct-response

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

Driving recklessly

What qualifies an individual to contribute to an IRA?

Earned income

Which of the following types of insurance covers the whole family in a single contract?

Family Policy

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

Free-look period.

In the state of California, who selects the Insurance Commissioner and for how long?

General election, for no more than two four-year terms

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?

Guaranteed insurability option

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

Hazards

Units with the same or similar exposure to loss are referred to as

Homogeneous

The key factor of representation that allows the injured party to rescind the contract is

If the representation is false in a material point.

Representations in insurance contracts qualify as

Implied warranties.

Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be?

Installments for a fixed period

Which of the following is TRUE regarding the annuity period?

It may last for the lifetime of the annuitant.

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

It would not occur in a deferred annuity.

A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy?

Joint Life

A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select?

Joint and survivor

Variable Whole Life insurance is based on what type of premium?

Level fixed

Which two terms are associated directly with the premium?

Level or flexible

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

Liquidation

Which of the following can surrender a deferred annuity contract?

Only the annuity owner

Which of the following riders would NOT cause the Death Benefit to increase?

Payor Benefit Rider

Which of the following is NOT a typical characteristic of an ERRORS & OMISSIONS policy?

Policies have numerous exclusions to limit or avoid fraudulent claims.

All of the following are true regarding insurance policy loans EXCEPT

Policy loans can be made on policies that do not accumulate cash value.

The Claims Department would be responsible for investigating which of the following?

Possible fraudulent claims by an insured

To achieve the profitable distribution of exposures,

Preferred risks and poor risks are balanced, with average risks in the middle.

In the event of a loss, business overhead insurance will pay for

Rent

To sell variable life insurance policies, an agent must receive all of the following EXCEPT

SEC registration.

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

Securities

Equity indexed annuities

Seek higher returns

All of the following employees may use a 403(b) plan for their retirement EXCEPT

The CEO of a private corporation

Which of the following information will be stated in the consideration clause of a life insurance policy?

The amount of premium payment

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true?

The annuitant must be a natural person.

Which of the following would qualify as a competent party in an insurance contract?

The applicant has a prior felony conviction.

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

The cash value available to the policyowner

Peril is most easily defined as

The cause of loss insured against.

Which of the following determines the cash value of a variable life policy?

The performance of the policy portfolio

In terms of parties to a contract, which of the following does NOT describe a competent party?

The person must have at least completed secondary education.

All of the following are true of key person insurance EXCEPT

The plan is funded by permanent insurance only.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

The policy is owned by the company.

All of the following are true about variable products EXCEPT

The premiums are invested in the insurer's general account.

When a replacement carrier has a question regarding the prior carrier's coverage, from which of the following can they demand a clarification?

The prior carrier

A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why?

The purpose of the group was to purchase life insurance.

Which of the following statements regarding deferred compensation funds is INCORRECT?

They are usually qualified plans.

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.

All of the following are requirements for life insurance illustrations EXCEPT

They must be part of the contract.

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

All of the following are true regarding the guaranteed insurability rider EXCEPT

This rider is available to all insureds with no additional premium.

Which of the following is the best reason to purchase life insurance rather than annuities?

To create an estate

What is the purpose of key person insurance?

To lessen the risk of financial loss because of the death of a key employee

California law requires an insurance company's dividends be credited

To participating policies on the anniversary date of the policy provided all premiums are current.

What is the purpose of the California Life and Health Guarantee Association?

To protect life and health policyholders and/or insureds should a member insurer become insolvent

What is the purpose of a fixed-period settlement option?

To provide a guaranteed income for a certain amount of time

In a survivorship life policy, when does the insurer pay the death benefit?

Upon the first death

Which of the following is a key distinction between variable whole life and variable universal life products?

Variable whole life has a guaranteed death benefit.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called

Waiver of premium.

When can earned surplus be returned to the policyholder?

Whenever it exists and is not needed for other expenses

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

Whole life insurance

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than

With the policy.

Insurance is a contract by which one seeks to protect another from

loss

An agent is a legal person who acts on behalf of

principal

Insurance is the transfer of

risk

An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of

A STOLI policy.

Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT?

100% participation of members is required in noncontributory plans.

An applicant for insurance is requesting more information from her agent about a claim that is currently being settled. Within what time period must the agent respond?

15 days

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

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

3,000

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

30 days

All 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.

All records relating to insurance application and delivery must be maintained by the insurer for a period of

5 years after policy delivery or initial application if no policy was issued.

What is the penalty for IRA distributions that are below the required minimum for the year?

50%

Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years?

A policy summary

Who is a third-party owner?

A policyowner who is not the insured

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

A presentation of nonguaranteed elements of a policy.

The protection of the insurer from adverse selection is provided in part by

A profitable distribution of exposures.

For variable products, underlying assets must be kept in

A separate account.

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

Who can make a fully deductible contribution to a traditional IRA?

An individual who has earned income

In an annuity, the accumulated money is converted into a stream of income during which time period?

Annuitization period

Employer contributions made to a qualified plan

Are subject to vesting requirements

An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an

Authorized insurer.

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?

Automatic premium loan

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?

Buyer's Guide

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

Cash option

To legally transact insurance in this state, an insurer must obtain which of the following?

Certificate of Authority

When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of

Concealment

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

Consideration

Which of the following best describes what policy dividends are?

Distribution of excess funds

All of the following statements concerning dividends are true EXCEPT

Dividend amounts are guaranteed in the policy.

The insurer may suspect that a moral hazard exists if the policyholder

Is not honest about his health on an application for insurance.

Which of the following best describes a misrepresentation?

Issuing sales material with exaggerated statements about policy benefits

Which of the following is true regarding the spendthrift clause in life insurance policies?

It can protect the policy proceeds from creditors of the beneficiary.

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection.

After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive

Monthly premium waiver and monthly income

Attempting to determine how much insurance a family would require based upon their financial objectives is known as

Needs approach.

Which of the following will be included in a policy summary?

Premium amounts and surrender values

All of the following are examples of risk retention EXCEPT

Premiums.

A life insurance policy can be delivered by all of the following means, EXCEPT

Priority mail.

Pertaining to insurance, what is the definition of a fiduciary responsibility?

Promptly forwarding premiums to the insurance company

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to

Purchase a single premium policy for a reduced face amount.

Which of the following is the most common way to transfer risk?

Purchase insurance

Which of the following insurance options would be considered a risk-sharing arrangement?

Reciprocal

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of premium

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy

Required a premium increase each renewal.

A domestic insurer issuing variable contracts must establish one or more

Separate accounts.

Which two terms are associated directly with the way an annuity is funded?

Single payment or periodic payments

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called

Single premium whole life.

The California Insurance Code is

Statutes established by the State Legislature.

Signing and dating a delivery receipt for a life insurance policy helps to establish all of the following timeframes EXCEPT

The Grace Period.

The annuitant dies while the annuity is still in the accumulation stage. Which of the following is TRUE?

The beneficiary will receive the greater of the money paid into the annuity or the cash value.

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

The beneficiary will receive the greater of the money paid into the annuity or the cash value.

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

The death benefit can be increased by providing evidence of insurability.

What method is used to determine the taxable portion of each annuity payment?

The exclusion ratio

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT

The interest is not taxable since it remains inside the insurance policy.

Which of the following is NOT a characteristic of pure risk?

The loss must be catastrophic.

In a life settlement contract, whom does the life settlement broker represent?

The owner

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves coverage

Which of the following insureds have a right to cancel an individual life policy for a full refund within 30 days of policy delivery?

insureds who are 60 years of age or older