C/E Prep #3

According to the California Insurance Code (CIC) which of the following would be considered an alien insurer? A. An unauthorized company that issues insurance to illegal aliens B. A company located in England doing business in California C. A company organized in Nevada and has branch offices in this state D. An insurer authorized to transact in California

B Rationale: An alien insurer is formed, organized, or located in another country. Doing business in California would mean the insurer is admitted.

If an agent performs acts that are not specifically named in the written contract with the insurer they represent this is an example of exercising which type of authority? A. Apparent B. Implied C. Express D. All of these are incorrect

B Rationale: This is the type of authority an agent has with the insurer that is not expressly granted in writing but implied that the agent can do so in establishing agency.

An insurance producer who by contract is bound to write insurance for only one insurer or a group of insurers with common ownership, is classified as: A. Independent agent B. An insurance solicitor C. Captive or exclusive D. A general agent

C Rationale: Captive or exclusive

Which of the following would not be considered an unethical practice? A. Not staying abreast of current issues in the industry and economy that effect insurance B. Using the sales strategy of requesting that prospects hold their questions until the end of the presentation theorizing that if the prospect has forgotten the question it was not important in the first place C. Divulging that a person or entity is a client of the agent or broker D. Not using insurance terminology instead use simply language that a layman can understand

D Rationale: It is an ethical practice to use simple language that a layman can understand whenever possible.

Which is not prohibited under the Code? A. Making an oral recommendation that the insured use a particular agent or insurer as a condition to obtain financing for real or personal property B. Inducing a client make you trustee, give you power of attorney, or make you beneficiary C. Using race, color, religion, ancestry to determine insurance premiums D. Use of age and sex in determining insurance premium

D Rationale: This is ALLOWE Insurers' do discriminate due to age and sex based on sex distinct mortality and morbidity tables. Remember recommendations must be in writing.

A Direct writing insurance company sells its policies through: A. Employees of the company B. Licensed insurance brokers C. Independent insurance agents D. Captive or exclusive agents

A Rational Rationale: Direct writers are employees of an insurance company (insurer)

An approved insurer on the LESLI list can be represented in this state only by which of the following? A. Surplus lines broker B. Domestic insurer C. Licensed producer D. Mutual insurer

A Rationale: A surplus lines broker is the only licensee that can transact/represent a non-admitted. California requires the non-admitted be on the LESLI list

Besides having enough assets to provide for the liabilities and for reinsurance an insurer must also meet minimum requirements equal to what amount to remain solvent according to the Code? A. Paid-in capital B. Amount equivalent to insurer surplus C. 75% of policy holders deposits D. There are no minimum requirements

A Rationale: For an insurer to be solvent they must have enough assets to cover 3 things: liabilities, reinsurance and paid-in-capital.

All of the occurrences listed below are examples of an insurable event as defined by the CA Insurance Code, except: A. An insured suffers a financial loss in the state lottery B. A guest is injured by a fall from the insure's deck C. An insured is sued for unintentional slander of another person D. An insured is admitted to the hospital for a delivery of a newborn

A Rationale: This is not an insurable event. It is a speculative risk and insurers do not insure speculative risk (chance of loss or gain) especially gambling and the lottery.

An insurer that is not entitled to transact as a insurance business in California is known as: A. Non-soliciting insurer B. Unauthorized insurer C. Surplus lines broker D. Admitted insurer

B Rationale: An insurer not entitled to transact is a non-admitted which in an unauthorized insurer

What action would the Insurance Commissioner most likely take if the violation dealt with loans on the security of real or personal property (Code 770)? A. Issue a fine per violation to be determined by the Commissioner B. Issue a cease and desist order C. Charge the violator with a felony with a six month maximum jail sentence per violation and/or suspension of license D. Require the violator to complete an approved ethics course before soliciting in the state of California again

B Rationale: Issue a cease and desist order

A fraternal would be: A. A corporation organized for the benefit and owned by the policyholders who elect the Board of Directors B. Organized on the basis of a lodge, society or order and sells to members only C. Organized as a Corporation owned by shareholders D. Unincorporated organization that members exchange insurance on one another and is managed by an attorney-in-fact

B Rationale: Organized on the basis of a lodge, society or order and sells to members only

In the process of applying for insurance, an applicant is asked questions that do not relate to underwriting but are clearly meant for attaining marketing information. Under the code, this practice is: A. Allowable, assuming the person is applying for coverage, and the questions will also be used for underwriting B. Allowable if the person is informed that the questions are for marketing purposes only, they will not be used for underwriting C. Both are correct statements D. Neither are correct statements

B Rationale: The Code states that questions must be for underwriting purposes. If questions are for marketing only the person must be informed that the questions are for marketing only.

An insurance company doing business in this state must operate under: A. An advisory board B. A resident board of directors C. Certificate of authority D. Articles of incorporation filed with the Secretary of State

C Rationale: An insurer must receive a Certificate of Authority for each class/line of insurance they are transacting.

How would insurance regulators view a statement made by an agent to a prospective insured that their company issue dividends every year and the other insurer has does not because they have made poor investment choices? A. They would consider it to be twisting B. This is considered a felony C. This is considered a misdemeanor D. This is an acceptable statement

C Rationale: It is a misdemeanor. The violation would be misrepresentation for leading the prospective insured to believe they would get a dividend and defamation for what was said about the other insurer.

According the Code which of the following is not a legal activity in this state? A. Refusing to apply the practice of twisting sales B. Disregarding age in the determination of insurance rates C. Participating in a plan to offer free insurance if a person buys some form of service D. It is not legal to get a senior to co-sign a loan for the licensee

C Rationale: It is illegal (not legal) to offer free insurance or a free annuity as an inducement to complete a sale.

When determining rates for life and disability products which is not legal to use? A. Gender B. Age C. Nationality D. All of these are acceptable

C Rationale: It is illegal to use nationality, race, religion, ancestry, or sexual orientation in determining insurance rates

An agent license or any other insurance license (broker/agent) becomes inactive when: A. When the licensee no longer transacts (quoting, taking applications, servicing) insurance B. When the licensee does not renew their license upon its expiration C. When the licensee has no appointments with any insurer on file and renewal fees and continuing education credits are current D. The license is considered inactive under any of these circumstances

C Rationale: Not having an appointment on file makes the license inactive; however fees and education must be current. Not renewing your licenses means its expired, not inactive.

In the California Insurance Code any person who for a fee, offers to advise any insured having any interest in a life or disability insurance contracts would be classified as: A. An insurance broker paid on a fee for service basis? B. A solicitor C. A life and disability analyst D. A life or A&H agent

C Rationale: An Analyst is someone who charges for giving advice to anyone with an interest in a life or disability contract. An analyst license is required to charge fees for advice.

Any person engaged in the business of acting as an insurance agent or broker who receives compensation for arranging or directing sales in connection with a premium financing agreement must: A. Provide records of interest payments to the broker or agent. B. Provide a list of the potential complaints lodged against the broker or agent to the DOI. C. Maintain a list of accounts in the connection with the compensation received, for arranging of the premium financing payments for three years. D. Provide a list of current accounts for all clients who considered premium financing.

C Rationale: The licensee must also disclose the amount of compensation/commission received from the premium financier for making the arrangement.

What size print must be used for the licensee's license number on all price quotes, business cards, and printed material? A. According to the code there is no requirement for the license number to be printed on any printed material B. Larger print than any other printed information on the material C. The same size as the licensee's phone, fax, or address D. Small print at the bottom of material is sufficient

C Rationale: The same size as the licensee's phone, fax, or address whichever is the largest

A licensed fire and casualty broker/agent may be appointed to transact both fire (property) and liability insurance as well as: A. Ocean marine insurance B. Health insurance C. Auto insurance You choose this answer D. Ocean marine insurance and auto insurance can be transacted by a licensee with a Fire/property & Casualty broker/agent license

D Rationale: Ocean marine insurance and auto insurance can be transacted by a licensee with a Fire/property & Casualty broker/agent license

Where would an insured in the unique business of importing exotic animals most likely go to obtain insurance coverage? A. State Competitive Fund B. Foreign insurer C. Alien insurer D. Excess and surplus lines insurer

D Rationale: Risk that is unique or difficult to place is likely to obtain insurance from an excess or surplus lines insurer through a surplus lines broker.

To act as a producer for a non-admitted is a violation of the California Insurance Code (CIC) unless: A. The producer is acting in the capacity of a solicitor B. The producer is dually licensed C. It's prohibited and always a violation D. The producer is a surplus lines broker

D Rationale: Surplus lines brokers are the only licensees that are authorized to transact for a non-admitted insurer.

In the state of California: A. Twisting is an acceptable practice B. Life and health ratings may not be related to the age or sex of the insured C. A Life or A&H solicitor's license has the same licensing requirements as the Agent's license has D. Providing free insurance coverage in connection with the sale of services as an inducement for completing the transaction is not legal

D Rationale: The Code forbids offering free life insurance or annuity as an inducement to complete transaction of a sale. Note: There are no life solicitors.