CA Life & Health Chapter Quizzes

If the father is disabled for more than 6 months Payor benefit only pays in the owner, the father in this example, is disabled for at least 6 months.

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment pf premium?

Priority mail TRUTH: Acceptable methods of delivery include Registered or Certified Mail, Personal Delivery with a signed, written delivery receipt, 1st Class Mail with a signed written Delivery Receipt, or any reasonable means determined by the Commissioner. Priority mail does not establish an exact date of delivery or to whom it was delivered, and personally delivering the policy needs to be done by a property licensed representative who can answer questions.

A life insurance policy can be delivered by all of the following means, EXCEPT

Cost of Living Rider The Cost of Living rider annually adjusts to policy's face value in accordance with the national rate of inflation of deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?

Accelerated Benefit provision The accelerated payment can be made in a lump sum or in monthly installments over a special period of time. This provision is given without an increase in premium. Some companies, however, deduct an interest charge from the proceeds paid out to make up for their loss earnings.

A provision in a life insurance policy that provides for the early payment of some portions of the policy face amount should the insured suffer from a terminal illness or injury in called...

Cost of living rider A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called...

Certain groups of employees only A tax-sheltered annuity is special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3)o organizations, including all employees in public education)

A tax-sheltered annuity is a special tax-favored retirement plan available to...

Pure risks Any event, whether past or future, which may damnify a person having an insurable interest, or creating a liability against him/her, may be insured against. The more predictable a loss, the more insurable it becomes. Only pure risks are insurable. Speculative losses are uninsurable.

According to California Insurance Code, which of the following can be classified as an insurable event?

Copy of the original application An insurance contract must contain a copy of the original application.

According to the entire contract provision, what document must be made part of the insurance policy?

Premiums Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.

All of the following are examples of risk retention EXECEPT

Diagnosis must indicate that death is expected within 3 years TRUTH: The Living Needs Rider provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness will result in death within 2 years.

All of the following are features and requirements of the Living Need Rider EXCEPT

Provide enough business to solicit long-term care insurance TRUTH: Long-term care insurers must maintain strict requirements. These include establishing marketing procedures to assure that comparison is fair and accurate and to assure that excessive insurance is not sold. In addition, insurers must semiannually submit to the Commissioner a list of agents authorized to solicit for the sale of long-term care insurance.

All of the following are the responsibilities of every long-term care insurer in California EXCEPT

Policy loans can be made on policies that do not accumulate cash value TRUTH: The policy loan option is only found in policies that contain cash value.

All of the following are true regarding insurance policy loans EXCEPT

This rider is available to all insured with no additional premium TRUTH: The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

All of the following are true regarding the guaranteed insurability rider EXCEPT

Member cannot be excluded from coverage on the basis of insurability TRUTH: Insurers may exclude or limits coverage on any person if evidence of insurability is not sufficient.

All of the following are true regarding the insurance of group life insurance to labor unions EXCEPT

Welfare benefits Social Security is an entitlement program, not a welfare program.

All of the following benefits are available under Social Security EXCEPT

The Guaranty Association TRUTH: Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.

All of the following entities regulate variable life policies EXCEPT

The annuitant receives a fixed amount of return Equity indexed annuities have guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

All of the following statements about equity index annuities are correct EXCEPT

Benefits are paid to the borrower's beneficiary TRUTH: In credit life insurance, the creditor is the beneficiary for the amount of benefit equal to the outstanding balance of the loan.

All of the following statements are correct regarding credit life insurance EXCEPT

The policy is owned by the company TRUTH: The policy is owned by the employee.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

Sales techniques and overcoming client objectives in the purchase of long-term care insurance TRUTH: Training courses on sales techniques or overcoming client objectives are not approved continuing education topics.

All of the following topics may be included in the continuing education requirement for long-term care insurance EXCEPT

When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the applicant will most likely need to fill out a Statement of Good Health.

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?

FINRA Because variable annuities are considered to be securities, a person must be registered with the FINRA (formerly NASD) and hold a securities license in addition to a life agent's license in order to sell variable annuities.

An agent selling variable annuities must be registered with...

Lower premiums than a person who receives a standard risk The preferred risk category is reserved for those persons with a superior physical condition, lifestyle, and habits.

An applicant who receives a preferred risk classification qualities for...

The cost of coverage is a deductible expense by the employer The cost of coverage paid by the employer in excess of $50,000 is taxed to the employee.

An employer offers group life insurance to its employees for the amount of $10,000. Which of the following is true?

Individual Retirement Account All individuals with earned income may fund an IRA, HR-10 is designed for self-employed individuals; Simplified Employee Pension Plan is an employer retirement plan for employees; and 403(b) is a special tax-favored retirement plan available to employees of certain specified nonprofit organizations.

An individual works for a manufacturing company. If he decides to fund a retirement plan for himself, for which of the following plans could he qualify?

Conditional A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of the condition on either the insurer or the policyowner.

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?

Universal life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?

$30,000 Additional violations of the replacement article by an insurer will result in increased fines ($30,000 to $300,000). The Commissioner may suspend or revoke the license of any person or entity that violates this article.

An insurer has been found guilty of a Code violation regarding replacement. The insurer then repeats the violation. What will he the minimum penalty?

An administractive penalty of no less than $5,000 and no more than $50,000 per violation The fines for additional violation of the replacement article by a individual agent will result in increased fines ($5,000 or $50,000). The Commissioner may suspend or revoke the license of any person or entity that violates the article.

Any insurance agent who commits a repeated violation of the Insurance Code with respect to insurance replacement will be liable for...

Be fined a sum of $1,000 An agent who violates the replacement provision of the Code will be fined a $1,000 for the first offense.

Any insurance agent who engages in the insurance business and violates the Code with respect to insurance replacement shall on the first violation...

Unemployment benefits Earned income means salary, wages, commissions, but would not include income from investments, unemployment benefits, income from trust funds, and any other forms of payment that are unearned.

As it pertains to IRA eligibility, which of the following would NOT be considered earned income?

Guaranteed insurability Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without providing evidence of insurability.

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. The rider is called...

Predicted needs of the family after the insured's death The Human Life Value Approach to determining the value of an individual's life requires the calculations of probable future earnings of the insured, which involves wages, expenses, inflation, amount of time until retirement, and the time value of money. Predicted needs of the family after the insured's death are used in the needs approach.

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value?

Conditions TRUTH: Conditions are part of the policy structure. Consideration is an essential part of a contract.

Because an insurance policy is a contract between the insurer and the insured, it must conform to the state laws governing contracts which require all of the following elements EXCEPT

Obtain a list of all life insurance policies that will replaced The replacing insurance company must require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant, and send each existing insurance company a written communication advising of the proposed replacement.

During replacement of life insurance, a replacing insurer must do which of the following?

30 Once the insurer receives notification of rescission, the company has 30 days to issue the refund of premiums and policy fees.

During the cancellation period, an insurer must refund any premiums and policy fees within how many days of written cancellation notice by the insured?

Value funds TRUTH: During the 30-day cancellation (free-look) period, the premium of a variable annuity may only be invested in fixed-income investments and money-market funds, unless the investor specifically requests that the premiums be invested in the mutual funds.

During the free-look period, the premium for a variable annuity may be invested in all of the following EXCEPT

Pay a late premium without penalty A grace period is the period of time specified in the policy that allows the policyowner to pay a premium after due date without penalty, or without policy lapsing.

During the grace period, the policyowner can...

Dividends TRUTH: Dividends are the return of premiums in mutual policies.

Each of the following factors are used in determining insurance rates EXCEPT

Hazards Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring.

Events or conditions that increase the chances of an insured loss occurring are referred to as...

10 days Insurers must allow individual life insurance customers the ability to return their new policy within 10-30 days (this time period is up to the insurer) for a full refund.

Every individual life insurance policy must provide for a free-look provision that lasts for at least...

Semiannually According to CIC 10234.93, the insurer must submit an updated list semiannually of all agents authorized to solicit long term care insurance.

Every long-term care insurer in California must submit to the Commissioner a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. These submitted agent lists must be updated at least...

30 days All premiums and policy fees paid for the policy must be refunded by the insurer to the owner within 30 days from the date that the insurer is notified that the insured has cancelled the policy.

Every policy of individual life insurance must include a notice of right to cancel the policy, stating the specific time frame for the free-look period. Once the insured has cancelled the policy, within how many days must the insurer refund all premiums and policy fees?

Reduction The insured's change in lifestyle and habits would likely reduce the chances of health problems.

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?

They are not included as income for the employee, but are taxable upon distribution Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal.

How are contributions to a tax-sheltered annuity treated with regards to taxation?

He/she typically decides by determining if the beneficiary will need one payment or a "steady stream" of income Typically, the settlement option is chosen by determining if the beneficiary will need one payment or income over a period of time.

How does an insured typically decide which settlement option to choose for his/her beneficiary?

The producer must provide the applicant with a Notice Regarding Replacement In a replacement transaction, a producer must present to the applicant a Notice Regarding Replacement, signed by both the applicant and the producer.

How must a replacing producer respond to an applicant wishing to replace existing life insurance?

Guaranteed insurability rider The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates of events, without proving continued insurability. Rates for the additions are based upon attained age.

If a life policy allows the policyowner to make periodic additions to face amount at standard rates, without proving insurability, the policy includes a...

With the policy If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant...

It is approved by the IRS A qualified retirement plan is approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.

If a retirement plan or annuity is "qualified," this means...

The policy will terminate when the cash value is reduced to nothing The option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.

If an insured continually uses the automatic premium loan options to pay the policy premium

Can void a contract A misrepresentation is a written or oral declaration that is stated to intentionally distract, deceive or mislead a party to a contract. If found material for underwriting, it can void a contract.

If found material for underwriting, a misrepresentation...

An applicant submits an application to the insurer In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

In insurance, an offer is usually made when...

Reduction Steps taken to prevent losses from occurring are called rick reduction.

Installing deadbolt locks on the doors of a home is an example of which method of handling risk?

Risk Insurance is the transfer of financial responsibility associated with a potential of a loss (risk) to an insurance company.

Insurance is the transfer of...

Employee choosing benefits Selection of coverage allows the employee to choose benefits that best suit his/her needs. There may also be a choice of providers for coverage.

Selection of coverage in employee benefits plans refers to...

Insurable interest Because the purchaser of a stranger-originated life insurance policy does not know the insured, or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.

Stranger-originated life insurance policies are in direct opposition to the principle of...

Set premium rates TRUTH: The insurer sets premium rates based upon underwriting considerations.

The Ownership provision entitles the policyowner to do all of the following EXCEPT

Tax deductible contributions Qualified plans have these tax advantages: Employer contributions are tax deductible and are not taxed as income to the employee; the earnings in the plan accumulate tax deferred; lump sum distributions to employees are eligible for favorable tax treatment.

The advantage of qualified plans to employers is...

The beneficiary will receive the greater of the money paid into the annuity of the cash value If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater.

The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE?

Grace Period Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.

The automatic premium loan provision is activated at the end of the...

Spendthrift clause The spendthrift clause protects the policy proceeds from creditors of the policyowner of beneficiary.

The clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the...

One-year term options The dividend is utilized to purchase one-year term insurance.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the...

The materiality of a given concealment The materiality of a given concealment determines the importance of a misrepresentation.

The importance of a misrepresentation is determined by...

A family A person is a legal entity which acts on behalf of itself, accepting legal and civil responsibility for the actions it performs and making contracts in its own name. Persons include individual human beings, associations, organizations, corporations, partnerships, and trusts.

The legal definition of "person" would NOT include which of the following?

Is defined as the frequency and the amount of the premium payment The mode refers to the frequency the policyowner pays the premium: monthly, quarterly, semiannually, or annually. The amount of premium will change accordingly.

The mode of premium payment...

The annuitant must be a natural person Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.

The president of a company is starting an annuity and decided that his corporation will be the annuitant. Which of the following statements is true?

Rate Rate is the price of insurance for each exposure unit. The rate helps determine the premium by multiplying it by the number of units of insurance purchased.

The price of insurance for each exposure unit is known as...

Waiver of premium Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called...

The insured's beneficiaries TRUTH: Although the named beneficiaries are important, it is information NOT contained within the first several pages of the policy which is known at the TITLE PAGE.

The title page of the policy provides a summary of the benefits and coverages provide by the policy. All of the following information is included in the title page EXCEPT

Absolute and collateral Absolute assigns the entire policy. Collateral assigns a part of all of the benefits.

The two types of assignments are...

Increasing term Increasing term insurances provides an increase in the death benefit each year. The coverage is usually structured to provide a death benefit equal to the amount of premium paid on a permanent life insurance policy, or to provide a death benefit equal to the cash value accumulation in a permanent policy; however, it can be written as a stand-alone policy for the individual that has a need for increasing amounts of insurance.

The type of term insurance that provides increasing death benefits as the insured ages is called...

Gradually increases each year by the amount that the cash value increases Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.

This death benefit under the Universal Life Option C...

Whole life insurance The Replacement Regulation does not apply to credit life, group annuities, or transactions with the same insurer.

To which of the following products does the Replacement Regulation apply?

Profitable distribution of exposures The profitable distribution of exposures is achieved when poor risks are balanced with preferred risks, and average risks are in the middle.

What best describes a situation when poor risks are balanced with preferred risks, and average risks are in the middle?

Accumulation of cash value Modified Life and Graded-Premium Life policies are useful as a compromise between straight life and convertible term insurance since the premium is less than straight life in the early years, but some cash value is being accumulated.

What do Modified Life and Straight Life policies have in common?

Insurance Insurance is the mechanism whereby an insured is protected against loss by a specified future contingency or peril in return for the present payment of premium. Because many other individuals with the same or similar risk or loss are paying premiums, funds are available to indemnify those who actually suffer that loss.

What do individuals use to transfer their risk of loss to a larger group?

One-sided: only one party makes an enforceable promise An insurance contract is unilateral in the only one of the parties to the contract is legally bound to do anything.

What is a definition of a unilateral contract?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

What is a material misrepresentation?

Tort A tort is a wrongful act or the violation of someone's rights that leads to the legal liability.

What is a wrongful act or the violation of someone's rights that leads to legal liability called?

Rescission of the policy An injured party is entitled to rescind the policy regardless of whether the concealment was intentional or unintentional.

What is an injured party entitled to receive if an intentional concealment is discovered?

10 days The free-look period for all individual life insurance contracts must be no less than 10 days and not exceed 30 days from the date the policy is delivered to the insured.

What is the minimum free-look period for newly issued life insurance policies in this state?

Lump sum Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

What is the other term for the cash payment settlement option?

Liquidation Liquidation is the process of selling one's assets in order to accumulate money. Keeping assets is called retention.

What is the term used when a person sells his assets as a way to gain money?

Group insurance Individual life insurance is written on a single life. The rate and coverage is based upon the underwriting of the individual. Group life insurance is written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group. In group insurance, individual participants typically do not need to provide proof of insurability.

What kind of policy does NOT typically require proof of insurability?

The insured's contingent beneficiary Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and if was impossible to determine who died first. Which of the following would receive the death benefit?

Conditional The contract is formed on the basis that certain conditions are met.

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is...

Guaranteed Lifetime Withdrawal The Guaranteed Life Withdrawal Benefit protects annuity owners from losing their investments if the annuity value drops.

Which of the following annuity riders ensures that the owner will receive from an annuity at least the amount paid for the annuity?

The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.

Which of the following determines the cash value of a variable life policy?

The loss must be catastrophic In order to be characterized as pure risk, the loss must be due to chance, definite, measurable, and predictable, but not catastrophic.

Which of the following is NOT a characteristic of pure risk?

Depreciation period The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?

Debtor in creditor The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member (relative or spouse), or the life of business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.

Which of the following is NOT an example of insurable interest?

It would not occur in a deferred annuity The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity)

Which of the following is NOT true regarding the accumulation period of an annuity?

Need is predicted using the number of years until the insured's retirement In the needs approach method, need is determined by the predicted needs of the family after the premature death of the insured, which must be assumed will happen immediately. The policy allows for benefits to be collected upon the insured's death.

Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life?

Beneficiaries are not identified by name A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive.

Which of the following is TRUE about a class designation?

Purchase insurance The most effective way to handle risk is to transfer it so that the loss is borne by another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company.

Which of the following is the most common way to transfer risk?

If it's returned during the free look period, the agreement will be void If the owner returns the policy within the free-look period, the agreement will be void from its beginning. All premiums and any policy fees that have already been paid must be refunded to the owner.

Which of the following is true regarding a policy with a face value less than $10,000?

Universal life The policyowner has the flexibility to increase the amount of premium going into the policy and the later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

Which of the following types of policies allows the policyowner to skip payments, provided that there is enough cash value in the policy to cover the premium amount?

Face amount Decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.

Which policy component decreases in decreasing term insurance?

Straight life With the straight life option, the annuity payments cease at death. However, because there are no other guarantees that might incur additional charges, this option provides the highest monthly benefits for an individual annuitant.

Your client is planning to retire. She has accumulated $100,000 in retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for a long as she lives. As her agent, you should recommend...