CA Life Insurance Comprehensive Exam 2

Which Settlement Option pays a specified dollar amount until benefits are exhausted?

Fixed Amount The Fixed Amount option pays benefits at a specified dollar amount (such as $1,000/month) until the benefits are exhausted.

A partnership has 3 partners who each have an equal ownership interest in their $3,000,000 business. How many policies would have to be purchased under a traditional cross purchase buy-sell agreement plan?

6 There would need to be 6 policies purchased in a traditional cross purchase buy-sell agreement plan (3x2). Each partner would be acquiring a policy on the other two partners.

Persons who transact insurance without being appropriately licensed may be issued a cease and desist order, carrying administrative penalties of up to how much per day?

$5,000 Persons who transact insurance without being appropriately licensed may be issued a cease and desist order, carrying administrative penalties of up to $5,000 per day for each day a violation occurred.

A license which has been revoked may not be reinstated within:

1 year Under the California Insurance Code, a license which has been revoked may not be reinstated within 1 year of revocation.

Insurers must reply to a notice of loss within how many days of receiving it?

15 Insurers (and other licensees) must respond in writing to an insured's or claimant's notice of loss within 15 days of receiving that notice orally or in writing.

Which of the following riders is used to increase the death benefit if death is the result of an unintended fatal injury, paying a multiple of the face amount?

Accidental Death If death is ruled to be accidental, the Accidental Death Rider pays a multiple (usually double) of the death benefit of the underlying policy.

The California Financial Information Privacy Act is sometimes known as:

Cal-GLBA The California Financial Information Privacy Act is sometimes known as 'Cal-GLBA.'

Under the California Senior Market and Policy Illustrations rules, all preprinted illustrations containing non-guaranteed values must show the:

Columns of any guaranteed values in bold print Under the California Senior Market and Policy Illustrations rules, all preprinted illustrations containing non-guaranteed values must show the columns of any guaranteed values in bold print.

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies and Alice names Dale as the new primary beneficiary. Alice dies, so who receives the policy proceeds?

Dale Dale is the living primary beneficiary when Alice dies. Alice has the right to name, change, and re-name beneficiaries at any time.

Failure to repay a loan or loan interest will void a life insurance policy

If the total amount due equals or exceeds the policy's cash values Failing to repay a loan or loan interest will not void a policy until the total amount due becomes greater than the policy's cash value.

Under an Entity Purchase Plan form of a Buy-Sell Agreement, the business is all of the following, except:

Insured Under an Entity Purchase Plan form of a Buy-Sell Agreement, the business is the owner, premium payor, and beneficiary of a policy written upon each of the partners or shareholders who are the insureds.

What happens to the overall policy premium when most riders on a life insurance policy expire?

It goes down Most life insurance policy riders have a premium associated with it. Once the rider expires so too does the obligation to continue paying its premium.

Buy-sell agreement life insurance premiums are:

Not deductible and proceeds are income tax free Premiums are not deductible, and policy proceeds are received income tax-free.

The individual who has the ownership rights of a policy is called the:

Policyowner Typically, the owner, insured and applicant would be the same person, but not always, as in the case of third-party ownership (e.g. juvenile policies, key person policies, etc.) In this case, even though the owner is not the insured, he or she still controls every right that the policy affords.

The factors necessary for an insurer to calculate a Net Premium are:

Rate of interest assumed and mortality rate Mortality Rate - Rate of Interest Assumed = Net Premium.

As a disciplinary measure when a violation of the Insurance Code would justify suspension, revocation or denial of license, the Commissioner may revoke the permanent license and issue a:

Restricted license Under the California Insurance Code, as a disciplinary measure when a violation of the Insurance Code would justify suspension, revocation or denial of license, the Commissioner may revoke the permanent license and issue a restricted license.

Benefits that may be received monthly under Social Security include all of the following, except:

Survivor's benefits for widows and widowers no earlier than age 62 Benefits that may be received monthly under Social Security include retirement benefits as early as age 62 for workers and their spouses, and survivor's benefits for children up to age 18 (19 if still in school) and for widows and widowers as early as age 60.

Death benefits are paid to the estate of the policyowner/insured in which of the following situations?

The beneficiary is the estate If the beneficiary is listed as the estate, then upon death of the insured that is where the funds will end up.

A universal life policy has a death benefit of $125,000 and a cash accumulation value of $15,000. Generally, what will happen to the policy if there is a $5,000 partial withdrawal?

The death benefit or cash accumulation will be reduced by the partial withdrawal A partial withdrawal also known as a partial surrender will cause the policy to have either the face amount or cash accumulation reduced by the amount of the withdrawal.

Which of the following is a type of rating that does not involve an extra premium being assessed?

The lien plan With the lien plan, initially, only the premium would be refunded in case of death. The death benefit increases over time with the full face amount eventually payable. This is generally used with Senior Life Insurance plans to provide minimal benefits without a medical examination.

All of the following are true of the Law of Large Numbers, except: A The prediction of group loss is based upon past experience B There is a decreased degree of error in predicting losses of large groups C It relates to the determination of the probability of loss D The prediction of individual losses is based upon past experience

The prediction of individual losses is based upon past experience The Law of Large Numbers cannot predict individual losses.

Through the purchase of insurance, a person is essentially:

Transferring risk Insurance is often times defined as a tool or measure for the transfer of risk.

Which insurance company department is responsible for risk selection:

Underwriting The Underwriting Department is responsible for risk selection.

Insurers must respond in writing to an insured's or claimant's notice of loss within how many days?

15 Insurers (and other licensees) must respond in writing to an insured's or claimant's notice of loss within 15 days of receiving that notice orally or in writing.

Which Term Life insurance policy would have the highest initial premium, all else being equal?

20-year Term The longer the term period, the higher the initial term premium

Insurers and Agents must provide books and records within how many days of request?

30 Upon receiving a request for records, insurers and/or agents must deliver the records to the Commissioner within 30 days.

There is a conversion period of how many days in which the employee may, upon termination of eligibility and without evidence of insurability, convert his/her group life insurance benefit to an individual permanent policy?

31 There is a conversion period of 31 days in which the employee may, upon termination of eligibility and without evidence of insurability, convert his/her group life insurance benefit to an individual permanent policy.

When the death of an insured occurs within a specified period, causing the policy to pay double or triple benefits, this policy must have which of the following riders?

Accidental Death Rider Also known as the Double Indemnity Rider, the policy pays the stated multiple of the face amount should the insured die as the result of an accident.

What is a way to provide additional life insurance protection for a temporary period of time without having to acquire an additional life insurance policy?

Add a term rider to a new or existing policy Term riders may be attached to virtually any permanent policy, interest sensitive, or term policy to provide an amount of temporary extra insurance protection for a fixed period of time. These riders are useful when an insured needs more insurance or a decreasing amount of coverage for a limited time.

Which of the following is not an example of an unfair trade practice?

Advertising on the internet Advertising on the Internet is not an unfair trade practice.

In an insurance transaction, a(n) ______ represents the insurance company.

Agent Under the California Insurance Code, in an insurance transaction, an agent represents the insurance company.

All of the following are true regarding an Attending Physician's Statement (APS), except:

An MIB report can be used in place of an APS An Attending Physician's Statement (APS) is used in cases in which the individual application and/or medical reports reveal conditions for which more information is required. An applicant must sign a written release to enable a release of the APS. The insurer pays for this.

In an insurance contract the value that each party gives the other is said to be the:

Consideration Consideration can take the form of money, goods, a promise to do something, or anything else that changes the legal position of the party. A contract cannot exist without consideration being given by both sides.

What is the term for a contract written by one party on a "take it or leave it" basis?

Contract of Adhesion A Contract of Adhesion is a contract between two parties that does not allow for negotiation. Any ambiguity in the contract is construed against the party who drew it up.

Which of the following is false in regards to a variable whole life's death benefit?

Death benefits are recalculated monthly Death benefits are recalculated annually.

X is 57 years old, and planning for their retirement. They do not know what their cash flow will look like over the next 10 years, but wants to fund an annuity to provide retirement income. Which of the following premium funding methods would be best for X to consider?

Flexible With a flexible premium, contributions may be made as often and in whatever amount the contract owner desires. However, most insurers do set a minimum and a maximum dollar amount they will accept.

Which of the following is a requirement in order for a third-party ownership policy to be issued by a life insurance company?

Insurable interest must exist between the policyowner and the insured Insurable interest must exist at the time of policy issuance in order for the insurer to issue the policy.

Taxation applies to any ________ on the cash value paid out as a withdrawal of a Universal Life policy.

Interest Taxation applies to any interest on the cash value paid out as a withdrawal. In other words, any amount paid in excess of the premium is subject to taxation.

Which of the following would be considered a good result from an underwriter's action when an individual Life Insurance Policy is issued as applied for?

Issued standard To be issued standard is the most favorable action listed, as the coverage requested is issued at the rate that was quoted.

With a life insurance policy, in the event of the premature death of the insured, who has first claim to the policy benefits?

Primary beneficiary The purpose of designating a beneficiary is to bypass the probate process. Assets pass directly to the beneficiary per the terms of the policy (i.e. contract).

Which of the following term life insurance policies would be the most expensive, everything else being equal at the time of issuance?

Renewable and Convertible To have a term policy with both features would mean that the term policy would be the most expensive of the ones listed.

Linda wants her husband to be the beneficiary of her life policy but also wants to retain all rights of ownership. Which of the following types of beneficiary designations should she use?

Revocable beneficiary By naming her husband as a revocable beneficiary, Linda would retain all rights of ownership. To name her husband irrevocably would give her husband a vested interest in policy benefits.

If the entire cost of the policy is paid in a lump sum at the time of purchase, what premium paying method was used?

Single

Y just received an inheritance and instead of spending the money right now, decides to put it away for the future. What annuity premium funding would be best in this situation?

Single A single premium would allow Y to have the peace of mind of knowing that the inheritance is earning tax-deferred interest toward a future goal.

Which of the following scenarios will cause the value of a life insurance policy death benefit to be included in the insured's estate?

The insured is also the policyowner If the policyowner and the insured are the same person, the death benefit will be included in the insured's estate.

An individual committing a tort may be referred to as a:

Tortfeasor An individual committing a tort may be referred to as a tortfeasor.

Which of the following is a physical hazard?

Uneven pavement in a sidewalk A physical hazard is a physical condition that increases the probability of loss to the property.

The insurance contract is a(n) ___________ contract because only the insurance company makes a promise to pay a future covered claim.

Unilateral A unilateral contract is one in which one party (the insurer) makes a promise of performance.

How much time does a licensee have to respond to the Department of Insurance after receiving an inquiry concerning a claim?

21 calendar days If the licensee is initially unable to provide the requested information within 21 calendar days, an extension of time must be requested within 21 days, which indicates the amount of additional time that will be needed.

Which of the following statements would be interpreted the same as if the word 'shall' were used?

An unlicensed producer may not transact insurance with the public The word 'may' is normally permissive, but can be considered mandatory by the context in which it is used. Here 'may not' is equivalent to 'shall not'.

The person offering him/herself or another person to be insured by the contract best defines the:

Applicant The applicant is the party making the application, offering him/herself or another to be insured. The applicant may possibly also be the insured and/or policyowner, but not necessarily.

Alice finds she no longer is able to pay premiums on her $50,000 Whole Life Policy but needs that amount of protection for her family. Which Nonforfeiture Option provides this protection?

Extended Term Extended Term would allow the present cash value of the policy to buy a single premium term policy of the same face amount for the time period stated in the policy's nonforfeiture table. Fixed Amount is a Settlement Option, and Paid-Up Option is a Dividend Option.

Ed purchased policies on behalf of his grandchildren. He wanted to be certain they could purchase additional policies at specified ages. He was able to do this by adding which rider?

Guaranteed Insurability Rider The Guaranteed Insurability Rider would allow his grandchildren at future specified dates, ages, or events to purchase additional amounts of insurance without evidence of insurability.

Under the California insurance code, any notice required to be given to an insured may be provided to the policyowner, insured, claimant, or beneficiary to be notified by electronic transmission if each party:

Has agreed Under the California insurance code any notice required to be given to an insured may be provided to the policyowner, insured, claimant, or beneficiary to be notified by electronic transmission if each party has agreed.

There are no brokers for which line of insurance in California?

Life There are no brokers for life or disability insurance in California. All life licensees are agents when transacting life or disability insurance, regardless of the language the insurance company may use in its agency agreements, advertising, or other communication.

James is nearing retirement and has accumulated $175,000 in an annuity. He wants the largest possible monthly benefit for as long as he lives. Which option should he choose?

Life Income The Life (Life Only or Straight Life) Income option provides the largest possible payment to the annuitant because the insurance company offers no residual values upon his death.

A(n)________ is an added benefit attached to a life insurance policy for which an additional premium is generally paid.

Rider Generally, for an additional premium, a rider can be added to a life insurance policy, such as a child rider, spouse rider, or waiver of premium rider.

An insurer considers all of the following when determining the fixed annuity payments, except:

Stock market value The accumulation amount, interest rate, expenses, gender, and age of the annuitant are the important factors when computing any of the available annuitization options benefit payments.

As adopted into California law, the NAIC's '2010 Model Suitability in Annuity Transactions Model Regulations' require all producers to document that an annuity sold to a senior is:

Suitable for that person's needs and objectives As adopted into California law, the NAIC's '2010 Model Suitability in Annuity Transactions Model Regulations' require all producers to document that an annuity sold to a senior is suitable for that person's needs and objectives.

In California, all of the following are required to be specified in all insurance policies, except: A The property or life to be insured B The financial rating of the insurer C A statement of premium or a statement of the basis and rates upon which the final premium is to be determined and paid D The parties between which the contract is made and the period during which the insurance is to continue

The financial rating of the insurer All are policy specifications, except the financial rating of the insurer.

Who has a right to rescind a life settlement contract?

The owner of the life insurance policy The owner has a right to rescind a life settlement contract within 30 days of the date it is executed by all parties and the owner has received all required disclosures, or 15 days from receipt by the owner of the proceeds of the settlement, whichever is sooner.

Martin is age 30 when he applies for life insurance. The underwriter classifies him the same as a person age 40 and his policy is issued with a premium for a person age 40. What substandard rating has been applied to Martin's policy?

Rated-up Age As the name implies, Rated-up Age is a substandard rating assigned to the insured whose insurable characteristics appear to be the same as those for someone much older, resulting in a higher premium than anticipated.

Every insurer and life agent offering for sale individual life insurance policies, or individual annuity contracts that are issued for delivery to senior citizens in California with the use of non-preprinted illustrations of non-guaranteed values must disclose on those illustrations, or on an attached cover sheet, which one of the following statements?

This is an illustration only which is not intended to predict actual performance, therefore interest rates, dividends, or values that are contained herein are not guaranteed, except for those items clearly labeled as guaranteed Every insurer and life agent offering for sale individual life insurance policies, or individual annuity contracts that are issued for delivery to senior citizens in California with the use of non-preprinted illustrations of non-guaranteed values must disclose on those illustrations, or on an attached cover sheet, the following statement: 'This is an illustration only. An illustration is not intended to predict actual performance. Interest rates, dividends, or values that are set forth in the illustration are not guaranteed, except for those items clearly labeled as guaranteed.'

Life Settlement proceeds will be sent to the owner within how many business days after the life settlement provider has received acknowledgement that ownership of the life insurance policy has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract?

3 Life Settlement proceeds will be sent to the owner within 3 business days after the life settlement provider has received acknowledgement that ownership of the life insurance policy has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract.

A senior citizen is defined as an individual who is how many years of age or older on the date of purchase of a life insurance policy or an annuity?

60 A senior citizen is defined as an individual who is 60 years of age or older on the date of purchase of a life insurance policy or an annuity.

The Double Indemnity Rider requires that the insured die within _____ days of the accident.

90 Death must occur within 90 days of the accident for the Accidental Death (Double Indemnity) Rider benefit to be paid.

All of the following are ways in which an annuity can be classified based on its premium funding method, except:

Reinvestment Single, Flexible, and Periodic are the ways in which an annuity is classified based on premium payment.

The owner of a Variable Life Policy may allocate the premium into a sub-account which is owned by the insurer, this sub-account is a part of what is also known as the:

Separate Account Owners of Variable insurance products may allocate their cash value into the insurer's separate account, with sub-accounts that work like mutual funds, or into a guaranteed interest fund, which is held in the insurer's general account.

If an annuity is purchased in December and monthly benefits begin in January of the following year, what type of annuity is it?

Single Premium Immediate Annuity The question addresses when the actual receipt of benefits from an annuity begins. When benefits begin within a year of the issue date, this is referred to as 'immediate'.

If a lump sum from a lawsuit, a lottery winning, or inheritance, is used to purchase a guaranteed lifetime income. It is referred to as a ___________.

Structured settlement Lump sum structured settlements come from lawsuits, lottery winnings, or an inheritance which can be used to purchase a structured settlement in the form of an annuity. The annuity can then be used to provide guaranteed lifetime income to the annuitant.

In California, in a replacement situation, it is recommended that an existing policy not be terminated until:

The replacing policy is issued and delivered In a replacement transaction it would be wise not to terminate an existing policy until the replacing policy is issued and delivered just in case that there are issues with insurability with the replacing insurer.

How is the funding for Social Security provided?

Through FICA taxes that are paid by both employers and employees Both the employer and employee fund Social Security through paying FICA taxes. Self-employed persons pay the entire amount.

By what means is a transfer for value made?

Through an absolute assignment To effect a transfer for value, an absolute assignment needs to take place.

Which of the following is not a natural person?

Tom Thumb Tailors, a business operated by Tom Thumb, a sole proprietor A natural person is a living (or formerly living) human being. A business entity is not a natural person, even when operated as a sole proprietorship.

What is the purpose of nonforfeiture values?

Without them, any cash values would be retained by the insurer when the policy lapses due to non-payment of premium Nonforfeiture Options (Guaranteed Values) are found in policies that accumulate cash values and protect the policyowner against total loss of benefits if the policy should lapse due to nonpayment of premium.