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