Practice Exam #5

The purpose of the California Life and Health Guarantee Association is:

D) (subject to certain limitations) to protect life and health policy holders and/or insureds when member insurers become insolvent.

Any attempt by an existing insurer or their agent to dissuade a policy owner from replacing an existing life insurance or annuity contract is known as:

D) Conservation

The Federal Act that is designed to protect group plan participants, establish pension equality, and mandates strict reporting and disclosure requirements is:

D) ERISA

According to the CA Insurance Code, in which of the following classes of insurance can a binder NOT be issued?

D) Life Insurance

A variable annuity applicant requests that the premium be immediately invested in a stock portfolio. The policy is returned to the insurer within the cancellation period. What is the applicant entitled to receive?

A) The policy amount value on the date the policy was received by the insurer.

Why should a contingent beneficiary be named in a life insurance policy?

A) To determine who receives the policy benefits if the primary beneficiary is deceased.

The clause that protects the proceeds of a life insurance policy from attachment by creditors after the death of the insured is:

B) Spendthrift trust clause

An agent who replaces an existing life insurance contract, must do all of the following, except:

B) Submitting a copy of the replacement notice to the existing insurer.

An organization will cease to exist as an entity eligible to hold a licence for all of the following reasons, except:

B) Termination of a key employee

Which of the following are common insurance policy provisions?

C) Entire contract, grace period, re-instatement

The person whose life is the object of a life insurance policy is:

C) Insured

All of the following is required on a life insurance application, except:

D) The amount of disability income insurance in force

Which statement best describes a life insurance policy dividend?

It is a distribution of excess funds accumulated by the insurer on participating policies

Subject to the restrictions of the CA Insurance Code, any person capable of making a contract may be considered:

A) An insurer

An insurer organized under the laws of the State of California is a:

A) Domestic insurer

Which of the following is not one of the common personal uses of life insurance?

A) Funding a buy/sell agreement

An insured and beneficiary die in a car accident and it is impossible to determine who died first. Who will receive the life insurance proceeds?

A) The insured's estate

An insured bought an annuity ten years ago. He will retire in five years. To determine the value of the annuity, the number of accumulation units is multiplied by the value of the separate account. What type of annuity was purchased?

A) Variable annuity

When a family policy covers children, all of the following are true, except:

B) Evidence of insurability is required if coverage for children is permanent insurance

Which party has rights in a life insurance policy only after the death of the insured?

B) The beneficiary

Which of the following gives individuals the right to purchase additional life insurance regardless of their insurability?

C) Guaranteed insurability

Which of the following must 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 do?

C) Maintain a list of accounts in connection with compensation exempted in premium financing payments for three years.

As an employer, the sudden death of an employee is considered a:

C) Personnel loss

According to the Code, all insurers must maintain a department to investigate:

C) Possible fraudulent claims from insureds

In order for an entity to be eligible to hold a license, a co-partnership whose membership has changed must do all of the following, except:

C) Return the old license with signatures of the original partners to the Commissioner with an explanation

What does the Insurance Commissioner have the right to do if an agent lacks authority from an insurer named on a binder for coverage?

C) Suspend or revoke the license of the agent

Which of the following would be considered a morale risk?

C) The insured drives too fast

The mathematical rule that says that as the number of individual but similar exposure units increases the easier it is to predict losses is which of the following?

C) The law of large numbers

Who has the right to change life insurance policy beneficiaries?

C) The policy holder

The SEC is involved in the regulation of:

C) Variable life policies

A probationary period in a group policy is intended for people:

C) With a pre-existing condition when they joined the group.

A policy is returned to the insurer within 10 days of the date the policy is delivered. How much of the premium is returned to the applicant?

D) %100

According to the CA Insurance Code, a judgement against an applicant who entered a plea of "nolo contendere" is considered to be:

D) Convicted

What must an insurer do who accepts an application from an agent who is not specifically appointed by that insurer and then issues a policy from that application?

D) Forward to the Insurance Commissioner a Notice of Appointment within 14 days of receipt of application

Tony Brown has a CLU certification. Which of the following names would be automatically approved for his agency's use?

D) None of these would be automatically approved

The guaranteed insurability rider provides that the policy holder can purchase more insurance:

D) On his own life at certain specified ages without proof of insurability

What does it mean if an agent's licence is inactive?

D) The agent cannot transact any insurance business for which a license is required.

Any person who diverts or misappropriates fiduciary funds is guilty of:

D) Theft

A failure to communicate information which a party to an insurance contract knows and should communicate, is called an act of:

A) Concealment

Which of the following applies to the social insurance program known as Social Security?

A) Contributions are compulsory for most workers

The main master policy owner of a group insurance contract is the:

A) Employer

Which of the following is considered ordinary life insurance?

A) Mortgage insurance

A person who acts in a capacity that requires an active license without having a valid license, is guilty of a:

B) Misdemeanor

A person has paid $50,000 into a fixed annuity over 20 years. When he decides to begin income payments the insurer calculates that he will receive $4,000 per year for life, which means that he will receive a total of $100,000. In the first 10 years of payments how much is taxable each year?

C) $2,000

If the commissioner issues a notice of seizure for documents and the individual fails to send those documents what is the penalty?

C) 1 year on jail and/or $1,000 fine

Which of the following is NOT ordinary life insurance?

C) A group life insurance policy

Which of the following is a description of a Life and Disability Analyst?

C) A person licensed to advise clients about life and disability insurance for a fee

All of the following are valid reasons for the Insurance Commissioner to deny the applicant for an insurance license, except:

C) Applicant does not have a California business address.

All of the following would be considered unfair claim practices, except:

C) Directly advising a claimant to obtain the services of an attorney

An insurer owned by policy holders is:

C) Mutual insurer

An individual license is considered terminated:

C) On the death of the licensee

How is the Insurance Commissioner selected?

D) An election by the people

All of the following statements regarding survivorship life insurance are true, except:

D) The policy face amount is made out based only on the death of the first to die.

A beneficiary wants to receive $2,000 per month until the principal and interest are exhausted. Which settlement option should be chosen?

A) Fixed amount option

Unless the applicant indicates otherwise during the right-to-return period in an individual annuity, the premium for a variable annuity would be invest only in:

A) Fixed income investments and money market funds.

Which of the following is not an option for the use of the policy dividends?

A) Fund the distribution of monthly income payment.

The policy provision which prevents an insurer from voiding a policy for misstatements after two years is:

A) Incontestability

All of the following would be considered unfair trade practices, except:

B) Committing an act of discrimination whether it be fair or unfair.

If an insurance agent or broker receives a commission for arranging a premium finance agreement they must do which of the following?

B) Disclose to the client the amount of commission received for arranging the financing agreement.

Which is NOT part of transacting insurance?

B) Establishing a list of clients

If a person gives an erroneous statement on an application unintentionally, this is:

B) False.

All of the following would be considered one of the three major types of loss exposures, except:

B) Financial loss exposure

Listed below are descriptions of four types of policies. Which is term policy?

D) The policy has a face amount of $100,000. Every five years, the premium paid increases. After ten years, the policy holder stops paying premiums and the coverage stops. The policy has no cash value.

What information can a party to a contract of insurance be allowed NOT to communicate according to California law?

A) Information which the other party already knows

What happens to a license after the death of a natural person who holds a valid insurance license?

A) It always terminates.

Along with having enough assets to provide for its liabilities and for reinsurance for all outstanding risks, in order to remain solvent, the insurer must also meet minimum requirements equal to what amount required by the California Code?

A) Paid-in capital

Any transaction that involves purchasing a life insurance policy and terminating an existing policy is known as...

A) Replacement

A movie company concerned about their financial losses in case of the illness of one of their actors would purchase:

A) Surety insurance

The purpose of laws regarding the replacement of life and annuity contracts includes all of the following, except:

C) To protect the interests of life insurers and their agent

With the cost of living rider, the life insurance policy holder:

B) Gets the automatic increase in the face value if there is an increase in the cost living index. There is an additional premium for the additional coverage.

The class beneficiary designation which means that the beneficiaries will receive equal shares of the death benefit divided among the surviving members of the class is:

B) Per capita

A person who spends $10,000 in a single premium annuity, and another $10,000 in a Certificate of Deposit (CD). Both pay 10% interest annually. The person is in a 31% income tax bracket. For 40 years, this person does not touch his annuity, and reinvests all income from the CD at 10%. Which of the following statements is true?

B) The annuity would be worth several hundred thousand more because of the tax deferral of the earnings

Regarding an organizational license, what happens when a corporation is dissolved?

B) The license is terminated

Senior citizens are given a 30 day right to return a life insurance policy:

C) At age 60 or older

Which of the following is a true statement regarding the social security (OASDHI) program?

C) The program provides a minimum floor of income, and is meant to supplement a retirees own personal program.