Xcel
What is a common reason people purchase an annuity?
To protect against the risk of outliving their financial resources
An individual that has 40 quarters of coverage, for Social Security purposes, is considered to be
fully insured
An insurer enters into a contract with a third party to insure itself against losses from insurance policies it issues. What is this agreement called?
Reinsurance
Which of the following is a type of insurance where an insurer transfers loss exposures from policies written for its insureds?
Reinsurance
Lynn owns a life policy that guarantees the right to renew the policy each year, regardless of health, but at an increased premium. What kind of policy is this?
Renewable term
When a life insurance policy is surrendered, how does the cost recovery rule apply?
The policy's cost basis is exempt from taxation
Anyone employed in California to assist an insurance agent in transacting insurance is called an insurance
solicitor
Which of the following is NOT a characteristic of reinsurance?
Increases the unearned premium reserve
How are Roth IRA's treated for tax purposes?
Non-deductible contributions and tax-free distributions
Jerry is an insured who understated his age on his life insurance application, paying $12 per $1,000 of insurance instead of $15 per $1,000. If he dies, how will the adjusted death benefit be calculated?
12/15th of the policy's face amount
What are collateral assignments normally associated with?
Bank loans
An annuitant would like to determine the amount of an annuity distribution that is exempt from taxation. What is used to calculate this?
Exclusion ratio
Which of the following contracts is defined as "one that restores an injured party to the condition that was present before the loss"?
Indemnity contract
A life insurance policy's limit of liability would be
the policy's face amount
Mark, age 45, has a Modified Endowment Contract (MEC). What is the tax penalty for taking a loan against this policy prior to age 59 1/2?
10%
Under a 10-year vesting schedule, what percentage of employer contributions must be vested after 10 years of service?
100%
How long is a person expected to be disabled in order to receive Social Security disability benefits?
12 months
According to the California Insurance Code, what is the maximum penalty per violation for anyone who unwillfully commits an unfair method of competition?
5,000
Employer-provided group term life insurance is exempt from income taxation up to
50,000
In order to be considered "currently insured" under Social Security, an individual must be credited with:
6 quarters of coverage during the last 13-quarter period
At what age is a surviving spouse without dependents eligible for Social Security survivor benefits?
60
Cindy buys a 10-year certain annuity with an installment refund. After receiving monthly payments for 5 years, Cindy dies. How many remaining payments will the insurer make to her beneficiary?
60 payments
Who is NOT eligible for Social Security survivor benefits?
A deceased worker's dependent parents of any age
Which of the following pieces of information is NOT gathered during the personal financial planning process?
An individual's civic organization memberships
Insurance agents and brokers must make their insurance records available to the Commissioner
At all times
Which statement is NOT true regarding Social Security benefits?
Benefits are designed to replace the entire amount of the worker's earnings
Bob and Tom are partners in a business. If one of them were to die, which of the following would guarantee a market for each of their share of the business?
Buy-Sell agreement
A report which is based on creditworthiness and personal characteristics that influences an insurance applicant's eligibility for life and health insurance is called a(n)
Consumer report
Which statement is CORRECT when describing a contract of adhesion?
Contract may be accepted or rejected by the insured
What is a participating life insurance policy?
Contract that allows the policyowner to receive a share of surplus in the form of policy dividends
Tim was recently terminated from his employment and opted to change his existing group term life insurance to individual permanent life insurance. What is this process called?
Conversion
Which of the following is NOT true regarding a family policy that covers children?
Conversion of child's coverage to permanent insurance requires evidence of insurability
Which Social Security status does a worker with 6 quarters of coverage during the last 13-quarter period have?
Currently insured
Which of the following is NOT a requirement of a contract?
Equal consideration is required between the involved parties
Which of the following types of information is NOT required for a life insurance application?
Ethnicity
How are death benefits that are received by a beneficiary normally treated for tax purposes?
Exempt from federal income taxes
Which of the following is NOT a common life insurance policy rider?
Extended term
Which type of worker has Social Security benefits available to them?
Fully insured
Who is eligible for retirement benefits under Social Security?
Fully insured workers
All of these are common personal uses of life insurance EXCEPT
Fund a Buy-Sell agreement
What is an insurance solicitor authorized to do?
Help an agent or broker sell insurance
Reasonably necessary acts that an agent must perform for carrying out his/her expressly authorized duties are covered by an agent's
Implied authority
The Human Life Value concept is based on
Income
Who are the parties to the master contract in a group life insurance policy?
Insurer and employer
When calculating life insurance premium rates, which component would an agent's commission fall under?
Insurer's expenses
Pam is the primary beneficiary of a life insurance policy and wants to let the death benefit accumulate and receive only the monthly investment proceeds. Which settlement option should she choose?
Interest Option
A beneficiary receives only the death benefit earnings in which settlement option?
Interest option
Which of the following statements regarding a life insurance policy dividend is TRUE?
It is the distribution of excess of funds accumulated by the insurer on participating policies
What type of license is required for an individual who charges a fee to review an insured's existing life insurance policy?
Life and disability analyst
Buy-sell agreements are typically funded by which two insurance products?
Life insurance and disability insurance
Which of the following is considered to be any situation that has the potential for loss?
Loss exposure
Which of the following is NOT an element of an insurable risk?
Loss must be catastrophic
According to the California Insurance Code, what term is used to describe a fact so important it could affect the policy premium?
Materiality
Which of the following is a life insurance policy that does NOT require a physical exam?
Non-medical
Retirement plans cannot favor highly compensated employs. The government regulation that prevents this from happening is called
Nondiscrimination
Which of the following risk classifications charges the lowest premium?
Preferred
Which of the following is NOT an insurer policy expense?
Premiums
AAA Insurance Company has transferred a portion of its loss exposure to BBB Insurance Company. In this reinsurance transaction, what is AAA Insurance Company called?
Primary insurer
Which of these statements correctly describes risk?
Pure risk is the only insurable risk
What is the price of insurance for each exposure unit?
Rate
After a policy has lapsed, which provision allows the insured to continue coverage?
Reinstatement provision
Which course of action is the insurer entitled to when deliberate concealment is committed by the insured?
Rescinding the contract
When intentional concealment is involved, what course of action is the injured party entitled to?
Rescission of the contract
The California Life and Health Insurance Guarantee Association covers all of these types of policies, EXCEPT
Self-funded plans
Which of the following is NOT considered a definition of risk?
The cause of a loss
Why is a life insurance policy's delivery date important?
The free-look period begins on the policy delivery date
Which of the following statements about aleatory contracts is NOT true?
The insured and the insurer contribute equally to the contract
What distinguishes a deferred annuity from an immediate annuity?
The time at which benefit payments start
Pete is a life agent who has misappropriated fiduciary funds to his own use. What is Pete guilty of?
Theft
What is considered to be the definition of disability, according to Social Security?
Unable to engage in any substantial gainful activity
An annuitant would like to determine the current value of her annuity. To do this, she multiplies the number of "accumulation units" she owns times the unit value of the "separate account". What kind of annuity BEST matches this description?
Variable annuity
A life insurance policy where the insured can choose where the cash value can be invested is called
Variable life
A contract requires
an offer and acceptance of the contract terms
According to Social Security, an individual with 6 credits of coverage during the previous 13-quarter period is considered to be:
currently insured
A savings vehicle designed to first accumulate funds and then systematically liquidates the funds is called a(n)
deferred annuity
The probability of death, listed by year, is demonstrated in
mortality tables
In a life insurance policy, the entire contract consists of
policy and attached application
A situation in which there is ONLY a chance of loss or no loss is a
pure risk
Premiums are best described as
the amount an insured pays per unit of coverage
Express power given to an agent in an agency agreement is
the authority to represent the insurer
An annuity which is backed by a life insurer's separate account is called a(n)
variable annuity
Any changes in background information that occur after a producer application has been submitted or a license has been issued MUST be reported to the Insurance Commissioner within
30 days
The free-look period for life insurance policyowners age 60 or older is
30 days
How long must life agents keep their transaction records?
5 years
Which statement is true regarding policy dividends?
A dividend option is selected by the insured at the time of policy purchase
What is an "insurance broker" according to California Insurance Code?
A person compensated for transacting insurance on behalf of another person with an insurer
How is a life insurance policy dividend legally defined?
A return of excess premium and not taxable
Which provision will pay a portion of the death benefit prior to the insured's death due to a serious illness?
Accelerated death benefit
Which of the following is NOT considered to be an unfair claims settlement practice?
Advising a claimant to hire an attorney
Failure to report background changes within 30 days as required under section 1729.2 of the California insurance code could subject a license or applicant to
All of these
According to the California Insurance Code, which of the following is NOT an example of an insurable event?
An insured suffers a financial loss in the state lottery
Life insurance surplus must be distributed to policyowners at what frequency?
Annually
Which of the following is NOT a true description of non-medical life insurance?
Applicants are not required to answer medical questions on the application
An applicant has revealed conditions that require more information. Which of the following is needed next?
Attending physician's statement
The California Insurance Code allows an individual how many days to cancel a life policy for a full-refund?
Between 10 and 30 days
How does a conditional receipt differ from a binding receipt?
Binding receipts always provide insurance which starts from the date of receipt
Which of the following is an insurer established by a parent company for the purpose of insuring the parent company's loss exposures?
Captive insurer
Before an insurer is allowed to test an individual for HIV, what must be completed?
Consent form
Which of the following types of life insurance is normally associated with a mortgage loan?
Decreasing term
When a mutual insurer becomes a stock company, the process is called
Demutualization
According to the California code governing claim settlement practices, which of the following is NOT considered to be an act of unfair discrimination?
Denial of a claim based on reckless behavior
What area of group health insurance is regulated under the Employee Retirement Security Act of 1974 (ERISA)?
Disclosure and reporting
Which of the following does a policyowner NOT have a right to change?
Dividend schedule
What does ESOP stand for?
Employee Stock Ownership Plan
Which of the following is NOT a characteristic of the conversion privilege?
Employer pays the premium for the converted policy
Which of the following is NOT a life insurance settlement option?
Extended term option
When handling premiums for an insured, an agent is acting in which capacity?
Fiduciary
What time period allows an insured's life insurance policy to remain in force even if the premium was not paid on the due date?
Grace period
Which policy provision protects the policyowner from unintentional lapse of the contract?
Grace period
What prevents a life insurance policy from being rescinded by the insurer after being in force for two years?
Incontestability clause
Which principle is accurately described with the statement "Insureds are entitled to recover an amount NOT greater than the amount of their loss"?
Indemnity
Who does a life settlement broker represent?
Individual wanting to sell their life policy to a third party
Which of the following is a contract that involves one party which indemnifies another when a loss arises from an unknown event?
Insurance policy
When does a life insurance policy's waiver of premium take effect?
Insured becomes totally disabled
According to the California Insurance Code, who is responsible for submitting a life agent's appointment?
Insurer
Which of the following does the California Insurance Code NOT require an insurance policy to specify?
Insurer's financial rating
Which of the following is NOT protected under the California Life and Health Guarantee Association?
Insurers
Which of the following is NOT a primary objective of insurance regulation?
Interpret policy provisions
The California Insurance Code requires that an insurer must have enough assets to cover its liabilities and for reinsurance of all outstanding risks. To remain solvent, it must also possess additional assets equal to what amount?
Its paid-in capital
Jim is applying to become an insurance agent and has a past misdemeanor conviction that was later expunged due to California Penal Code 1203.4. Which of the following statements is correct?
Jim must still disclose the conviction on his insurance license application
What kind of annuity pays income to two annuitants until their deaths?
Joint and survivor annuity
Tom is shopping for a policy that covers two people and would pay the face amount ONLY when the first person dies. The type of life policy he is looking for is called a
Joint life policy
The California Insurance Code has authorized standards for names used by life insurance agents. Which of the following, if any, are automatically acceptable for Lance Manyon, a holder of the CLU designation?
Lance Manyon Insurance Services
Which of the following best describes the statement "The more times an event is repeated, the more predictable the outcome becomes"?
Law of large numbers
Which of the following is NOT a benefit of insurance?
Losses due to fraud are eliminated
Which of these is the automatic mode of settlement for life insurance policy proceeds?
Lump-sum
One important function of an insurance company is to identify and sell to potential customers. Which of these BEST describes this function?
Marketing
The importance of a representation is demonstrated in what rule?
Materiality of concealment
Which word implies permissiveness according to the California Insurance Code?
May
Most U.S. life insurance companies belong to the
Medical Information Bureau
What are members of the Medical Information Bureau (MIB) required to report?
Medical ailments discovered during the underwriting process
How does underwriting differ between group life and individual life insurance
Medical questions must be answered on individual life insurance
Which of the following does the California Department of Insurance (CDI) have NO jurisdiction over?
Medicare
According to section 1729.2 of the California Insurance Code, which of these does NOT qualify as "background information"?
Misdemeanor charges filed, not resulting in a conviction
Which of the following acts is NOT a Federal offense committed by an insurance agent?
Misrepresentation on an insurance application
What is the proper order of initial life insurance premiums, from lowest to highest?
Modified premium, ordinary life, single premium
Which of these is NOT a valid policy dividend option?
Monthly income payments
When calculating life insurance premium rates, which component is affected by an insured's age and gender?
Mortality
Scott has just purchased a new house. He is now shopping for a life insurance policy that provides a death benefit that matches the projected outstanding debt of his mortgage. Which life policy would best suit his needs?
Mortgage redemption
A participating company is also referred to as which type of insurer?
Mutual insurer
An insurer owned by its policyholders is called a
Mutual insurer
A life insurance policy can be surrendered for its cash value under which policy provision?
Nonforfeiture options
What is required after a life agent sells an insurance policy to an applicant without being appointed by the insurer?
Notice of appointment must be submitted to the Commissioner
Which of the following is NOT a feature of equity-indexed annuities?
Offers a maximum interest rate that increases annually
Which of the following statements correctly describes a contract of indemnity?
One party is restored to the same financial position the party was in before the loss occurred
Which of the following describes a contributory group insurance plan?
Part of the premium is paid by the employee
Who is issued a certificate of insurance with a group insurance policy?
Participant
John owns an insurance policy that gives him the right to share in the insurer's surplus. What kind of policy is this?
Participating
According to the California Insurance Code, how is the word "may" interpreted?
Permissive
When an accidental death benefit is added to a whole life policy, how does this affect the policy's cash value?
Policy's cash value is not affected
What does the term "illustration" mean when used in the phrase "life insurance policy illustration", according to the California Insurance Code?
Presentation of policy features that includes non-guaranteed elements
Restoring an insured to the same condition as before a loss is known as
Principle of indemnity
Which type of jurisdiction requires an insurer to have its rates accepted by the Insurance Department prior to using them?
Prior approval
Which of the following is NOT required in the content of a policy?
Probability of loss
All of the following circumstances must be met for loss retention to be an effective risk management technique, EXCEPT
Probability of loss is unknown
Which of the following is NOT considered to be a definition of the term "loss"?
Probability that an event will occur
Which of the following is NOT a requirement for a terminated employee that has exercised the conversion privilege?
Provide proof of insurability
Which of the following is NOT considered to be an act of insurance solicitation?
Publishing a magazine where one of the advertisers is an insurer
What does the guaranteed insurability option allow an insured to do?
Purchase additional coverage with no evidence of insurability
What does the guaranteed insurability option allow an insured to do?
Purchase additional coverage with no evidence of insurability required
Which of the following would NOT be accomplished with the purchase of an insurance policy?
Risk is eliminated
Non-deductible contributions are typically associated with a
Roth IRA
John and Mary have a handicapped child that is financially dependent upon them. The death of one of the parents would not be financially disastrous, however the death of both likely would be. Which policy would be best suited for them?
Second-to-die policy
Which type of risk is gambling?
Speculative risk
Which of the following risk classifications charges the highest premium?
Substandard
An insurer can be protected from adverse selection with which policy provision?
Suicide clause
The "blackout period" affects whose benefits?
Surviving spouse
How is the cost of employer-provided group life insurance with coverage amounts above $50,000 treated for tax purposes?
Taxable income to the employee
Which of the following is NOT an important reason for a life insurance application?
The beneficiary must sign the application before the insurer will issue the policy
A creditor would be allowed rights to life insurance policy proceeds if which of the following beneficiaries is chosen?
The insured's estate
All of these are reasons the Commissioner may disapprove a licensee's request to use a fictitious name EXCEPT
The name is the licensee's actual name
Under the California Insurance Code, a licensee's license number must be printed at what size on all price quotes, business cards, and printed material?
The same size print as the licensee's phone number, fax number or address
What does the term "indemnity" mean as it pertains to insurance?
To make whole
The risk selection process is primarily given to which insurance company department?
Underwriting
Bruce is involved in an accident and becomes totally and permanently disabled. His insurance policy continues in force without payment of further premiums. Which policy provision is responsible for this?
Waiver of premium provision
The California Life and Health Insurance Guarantee Association covers all of these types of policies, EXCEPT
Whole life
What determines the Social Security normal retirement age?
Year in which worker was born
A hazard can be best described as
a condition that may increase the likelihood of a loss occuring
An insurance policy written after 1988 that fails to pass the seven-pay test is known as
a modified endowment contract
When an insurer has met the qualifications necessary to transact business in California, it is said to be
admitted
The systematic liquidation of a sum of money is provided by a(n)
annuity
The objective of underwriting is to
avoid selecting a disproportionate number of bad risks
A person who asserts a right of recovery under an insurance policy is called
claimant
An agent's attempt to stop the replacement of an existing life insurance policy is known as
conservation
When an insurance company requests an attending physician's report, the request must be accompanied by a
copy of the signed authorization
Key person insurance is intended to
cover business losses due to the death of a key employee
Which of the following is NOT a component of determining policy premiums?
dividends
ESOPs are typically invested in
employer stock
A life insurance policy that pays the face amount if the insured survives to a specified period of time is called
endowment insurance
Victoria owns a life annuity and elects to receive annuity payments monthly for the remainder of her life with "ten years certain". Her annuity will make payments
for a minimum of 120 months and a maximum of the remainder of her life
In California, an insurer organized under the state laws of Oregon is called a(n)
foreign insurer
All of the following are considered characteristics of group life insurance, EXCEPT
individual policies
An individual who transacts life, disability, or life and accident and health insurance on behalf of an insurer is called a(n):
life agent
A representation may be altered or withdrawn
only before the insurance is in effect
A unilateral contract is one in which
only one party (the insurer) makes any kind of legally enforceable promise
The reason for social insurance is to
protect certain vulnerable segments of the population
A spendthrift clause in a life insurance policy
restricts the ability of the beneficiary to assign benefits
Employer contributions to qualified plans are
tax-deductible by the employer
A terminated employee that has exercised the conversion privilege is able to convert
term insurance into permanent insurance
An insurer having a large number of similar exposure units is considered important because
the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums
When an applicant applies for insurance, the process by which the insurer determines whether to issue a policy is called
underwriting
An insurer that has been found using higher rates based on race, religion, or ethnicity is said to be engaging in
unfair discrimination
An agent has advertised that the insurer to which the agent is appointed with is a member of the Insurance Guarantee Association. This agent has committed a(n)
unfair method of competition
Paul has an existing annuity and is sold a new one, in which the new policy holds no greater financial benefit to him than the existing contract. This is considered a(n)
unnecessary replacement
"Life insurance creates an immediate estate". This phrase means:
when the insured dies, a death benefit is paid
A worker is entitled to Social Security disability benefits if all of the following are true, EXCEPT for:
worker cannot perform his or her current job, but is actively seeking other employment
The California Insurance Code defines "policy" as a(n)
written contract