CA Life Insurance Practice Exam
Which one of the following is not a reason why premium for the individual policy issued to an insured exercising a group conversion right is higher than the group life rate previously charged?
-The conversion policy has a higher death benefit The premium of an individual policy issued due to a group life insurance plan conversion will be at a higher than normal rate to include the insurer's guaranteed convertible surcharge because the majority of all conversions involve persons that would otherwise be uninsurable, because the conversion policy will be issued at the attained (current) age of the insured, and the policy will build cash values.
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.
Errors and Omissions (E&O) policies are typically offered with a minimum limit of liability of how much?
1,000,000 Errors and Omissions insurance is usually offered with a minimum limit of liability of $1,000,000.
All Internet advertisements directed to California insurance consumers must include the agent's _____________ in addition to the agent's principal place of business.
California insurance license number Under the California Insurance Code, all Internet advertisements directed to California insurance consumers must include the agent's California insurance license number in addition to the agent's principal place of business.
A(n)__________ plan is when business partners buy life insurance policies on one another.
Cross Purchase A cross purchase plan calls for the partners to buy life insurance policies on one another. An entity plan has the business entity buy life insurance plans on the business owners.
Which of the following is considered the responsibility of the California Commissioner of Insurance?
Established policies and procedures for dealing with insurer insolvency The Commissioner has no authority to establish laws or alter or amend /insurance laws, that is the responsibility of the legislature. The Commissioner establishes policies and procedures for carrying out the laws. He or she does not set rates. Certificates of Authority go only to authorized insurers.
Qualified pension and profit-sharing plans were created by Congress to:
Help employees accumulate assets for retirement and provide tax advantages for contributions made by employers Qualified pension and profit-sharing plans were created by Congress to help employees accumulate assets for retirement and provide tax advantages for contributions made by employers.
Every licensee must include the license number on all of the following, except:
Home address labels Every licensee shall prominently affix, type, or have printed on business cards, price quotations and printed advertisements in this state, his/her license number in type the same size as that indicated for address or telephone number.
Why are dividends not taxable as income when paid out to a participating policyholder?
They represent a return of a portion of the premium paid A participating insurance company's dividend consists of the amount of premium that is returned to the policyowner if the insurance company achieves lower mortality and expense costs than expected.
In California, all of the following are true statements, except:
To be licensed as a Life and Disability Analyst, the applicant must have worked as a life licensee or employee of a licensee for at least 3 years prior to application The applicant must have worked as a life licensee or employee of a licensee for 5 years prior to application.
Every group policy containing a life insurance benefit must contain a reasonable extension of benefits upon discontinuance of the policy for employees who, while insured under the policy, become:
Totally disabled Every group policy containing a life insurance benefit must contain a reasonable extension of benefits upon discontinuance of the policy with respect to employees who become totally disabled while insured under the policy and who continue to be totally disabled at the date of discontinuance of the policy.
Temporary authority can be granted to an unlicensed person to handle the affairs of an agent on active military service, to do all of the following, except:
Transact new business in that agent's name Under the California Insurance Code, temporary authority can be granted to an unlicensed person to handle the affairs of an agent on active military service, but may not transact new business in that agent's name.
Under the California Insurance Code, original (or certified copies) of records must be delivered to the Commissioner within _____ days of request.
Under the California Insurance Code, original (or certified copies) must be delivered to the Commissioner within 30 days of request. 30 days Upon receiving a request for records, insurers and/or agents must deliver the records to the Commissioner within 30 days. If the requested files cannot be immediately furnished, on request the agent will be given an additional 60 days to provide the information.
A Surplus Line Broker must do all of the following, except:
Use only an insurer identified in the List of Approved Nonadmitted Insurers Although a Surplus Line Broker may use any of the Approved nonadmitted insurers on the list, the Department's list is not exclusive.
All of the following regarding credit life are true, except:
Usually the creditor pays the premium Usually the individual debtor pays the premium.
Before a regulation proposed by the Insurance Commissioner takes effect, all of the following must occur, except:
The state legislature must enact the regulation after the OAL has approved it The legislature is not involved in the process of creating regulations. Proposed regulations must be published for public comment A public hearing is held to receive comment on the proposed regulation The Office of Administrative Law must review the regulation for conformity with other state laws
An application for __________ of an expired license without retesting may be filed after the expiration date until the same month and day of the next succeeding year, providing the delinquent fee for that year is paid.
Renewal Under the California Insurance Code, an application for renewal of an expired license without retesting may be filed after the expiration date until the same month and day of the next succeeding year, providing the delinquent fee for that year is paid.
Which of the following is not an unfair trade practice?
Replacement of policies Replacement is not an unfair trade practice. There are specific requirements required when replacing a policy such as making fair comparisons, but the act itself is legal.
Who enforces the regulations found in the CCR?
The insurance commissioner The Commissioner enforces the Code by writing and adopting regulations that specify the manner of enforcement or provide details that are not explicitly cited in the Code.
Producer's licenses may be renewed after 2 years on which day?
The last day of the issuance month All licenses renew every 2 years on the last day of the month in which the license was originally issued.
In California, all of the following are true, except:
The notice of appointment of an agent by an insurer must be filed with the Commissioner upon licensing the agent or within 30 days of the appointment The notice of the appointment must be filed with the Commissioner upon licensing the applicant or within 14 days of the appointment. It is considered a misdemeanor in this state to assist a nonadmitted insurer to transact business unless acting in the capacity of Surplus Lines Broker Any insurer, agent, broker or solicitor who is found to have willfully violated the rules regarding 'free insurance' may have its certificate or license suspended for a maximum of one year
Lorraine's position has been terminated, and she is interested in converting her group life coverage to an individual policy. In the process, she will find all of the following to be TRUE, except:
-She will be converting her group term benefit to an individual term benefit She will be converting her group term life to an individual permanent policy.
Any insurer who knowingly violates any of the anti-discriminatory practices will be assessed a civil penalty in the amount of ____________, plus any court costs.
$1,000-$5,000 Under the California insurance code any insurer who knowingly violates any of the anti-discriminatory practices will be assessed a civil penalty in the amount of $1,000-$5,000, plus any court costs.
Persons who willfully commit unfair acts and practices may be issued a cease and desist order, carrying administrative penalties of up to how much per act?
$10,000 The Commissioner also has authority to issue cease and desist orders relative to unfair acts and practices enumerated in the Code. Committing any act considered an unfair method of competition or an unfair act or practice recognized by the Code may result in an administrative fine of $5,000 for each such act, up to $10,000 per act when determined to be a 'willful' violation or committed with such frequency that it may be considered a 'general business practice' of the person.
H has an annuity funded with after-tax contributions. So far, H has placed $10,000 into the policy and it is now worth $25,000. If H cashes out the annuity, what is H's cost basis?
$10,000 The amount contributed is after tax dollars and is considered the cost basis.
Furnishing false information to the Commissioner is subject to a civil penalty of $100,000 plus what amount per 30 days period of noncompliance?
$5,000 Civil penalties for persons who furnish false information to the Commissioner may be issued up to $100,000 per violation, as well as a $5,000 penalty for every 30-day period during which the person fails to comply with a request. Civil penalties for persons who furnish false information to the Commissioner may be issued up to $100,000 per violation, as well as a $5,000 penalty for every 30-day period during which the person fails to comply with a request.
All employer-paid premiums for amounts above $_________ of group life insurance are reported as taxable income to the employee.
$50,000 All employer-paid premiums for amounts above $50,000 are reported as taxable income to the employee.
The type of life insurance used to provide funds for a Buy-Sell Agreement is:
-Any type of life insurance Any type of life insurance may be used to provide funds for a Buy-Sell Agreement.
A key person is typically all of the following, except:
-Not directly involved in sales, production, or service Key persons are employees whose contributions have a significant impact on the revenue and profitability of the company, especially in small businesses. They are typically: part of the management team, more highly paid, respected by customers, creditors, suppliers, and vendors, and have direct responsibilities for sales, production, or service.
To help protect against experiencing immediate claims, group plans have a(n) _______ period set up by the group sponsor.
-Probationary A probationary period is set up to help reduce the chance of facing immediate claims.
The California Insurance Code requires all producers who meet with prospective clients age 65 and older in their homes for the purpose of transacting life insurance, annuities, or disability insurance products to first provide a written notice of the first meeting which producers must retain a copy of in their files for a minimum of ______ years.
5
L is no longer eligible for the employer's $50,000 group life insurance plan. L dies 28 days later without sending in the required conversion paperwork. What will their beneficiaries receive?
50,000, less any premium due The conversion period is also a grace period. In the event a terminated or ineligible employee dies during the conversion period, whether they were going to elect individual coverage or not, a death claim will be paid by the group policy, less the premium due for the benefit.
To be fully insured for Social Security, generally a person must have worked and paid into the Social Security system for a minimum of ______ years.
10 To be fully insured for Social Security, the requirement is to accumulate 40 credits or 10 years of work paying social security taxes. A maximum of four credits may be earned in one calendar year of employment.
Life insurance will be considered 'incidental' to a qualified plan if the insurance amount is not more than ________ times the expected monthly benefit amount.
100 Generally, life insurance will be considered 'incidental' to a qualified plan if no more than 50% of the contributions are used to pay insurance premiums, and the insurance amount is not more than 100 times the expected monthly benefit amount.
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.
The Social Security blackout period for surviving spouses begins when the youngest child reaches age ______, and ends when the surviving spouse reaches age ______
16/60 When the youngest child reaches age 16, the widow's/widower's blackout period begins. It continues until a surviving (non-remarried) spouse reaches age 60.
All CA resident insurance licenses renew every _____ years on the last day of the month in which the license was originally issued.
2 Under the California Insurance Code, all licenses renew every 2 years on the last day of the month in which the license was originally issued.
An agent will be required to retake a prelicensing course and pass the qualifying exam if a license is suspended for more than:
2 years Under the California Insurance Code, a license suspended for more than 2 years will require the agent to retake the prelicensing course and pass the qualifying exam.
All licensed producers must complete how many hours of CE to renew their license?
24 All licensed producers must complete a minimum of 24 hours of continuing education prior to each license renewal. Property Broker-Agent and/or Casualty Broker-Agent, Personal Lines Broker-Agent, Life-Only and/or Accident and Health licensees must complete a total of twenty four (24) hours of continuing education for every two-year license term.
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.
If the Insurance Commissioner has reason to believe that a producer has engaged in unfair competition, he/she is required to:
Advise the producer that he/she is entitled to a public hearing The Commissioner must advise the producer that he/she is entitled to a hearing before taking action against a producer.
If an annuity is annuitized, then the _________ investment is recovered income tax-free over the income benefit payment period.
After-tax Only the after-tax investment is recovered income tax-free from an annuity that is annuitized. It represents a return of the cost basis.
Which of the following establishes a cost basis in an annuity?
After-tax contributions Cost basis is established with any after-tax premiums deposited into the annuity.
California's Unfair Trade Practices Act does which of the following?
Applies to all licensed persons under the Insurance Code, as well as unlicensed persons who would otherwise be regulated under the Code Most violations of the Act are civil, not criminal, but the Act does not provide for 'private attorney general' actions by consumers. The Commissioner may take direct administrative action against any person who violates the Act, including persons who may or may not be licensed. The Act provides that the Commissioner may conduct hearings to determine whether unspecified acts are unfair or deceptive.
All of the following are allowed or true regarding a producer or agent, except:
As an incentive to close a sale, they may offer discounts of premium to a prospective client Discounts of premium are considered rebates and are prohibited by law.
Which circumstance would be a basis for Ted to have his California insurance license, suspended, revoked, or renewal refused?
All of the answers listed B Ted knowingly has misrepresented the terms of an insurance policy to a client C Ted has been convicted of a felony or crime of moral turpitude D Ted has committed a fraudulent or dishonest act in the acceptance, custody or payment of money All actions listed would be a basis for suspending, revoking, or refusing renewal of a license.
A Property & Casualty Broker-Agent who is also licensed as a Life-Only agent may not charge a fee to a consumer for which of the following acts?
Analyzing a person's universal life insurance policy Only a licensed Life & Disability Insurance Analyst may charge a consumer a fee to analyze a life or disability insurance policy or annuity. There is no prohibition against a Broker-Agent from charging a fee to represent a consumer and also collecting a commission for placing a consumer's business with an insurer, but the Broker-Agent is expected to disclose to the consumer that a commission may be paid to the Broker-Agent in addition to any fee charged.
Open enrollment periods are offered on a(n) ______ basis that allows individuals to enroll without evidence of insurability or to make changes.
Annual Open enrollment periods are offered on an annual basis that allows individuals to enroll without evidence of insurability or to make changes.
If a non-qualified variable annuity owned for 15 years is surrendered, what is the income tax consequence?
Any amount received in excess of its cost basis is taxable as ordinary income The same tax rules apply to both fixed and variable annuities. The funds received in excess of the cost basis are taxable as ordinary income.
Which of the following actions by an insurer is considered an unfair claims practice?
Attempting to settle a claim for less than the amount that the insured is entitled to under the policy Attempting to settle a claim for less than the insured is entitled is an unfair claims settlement practice.
A(n) ________ is someone who, for compensation, transacts insurance on behalf of another person, but not an insurer.
Broker Under the California Insurance Code, a broker is someone who for compensation transacts insurance on behalf of another person, but not an insurer.
When the Code requires a notice to be provided to a policyowner, which of the following would not be an acceptable method of delivery?
By U.S. Mail to the current address of the policyowner with less than $0.50 additional postage due U.S. Mail is an acceptable delivery, but a notice must be mailed postage paid.
An individual can make changes to their group life insurance plan at any time for any one of the following reasons, except:
Changing health insurance carriers and deductibles An individual can make changes at any time if they have a change in status, such as adding an eligible dependent or change in employment status such as going to or from full time to part time employment.
An agent's license remains in active status as long as all of the following conditions are met, except:
Commission income equals or exceeds $25,000 Under the California Insurance Code, an agent's license remains in active status as long as renewal fees are paid, continuing education requirements have been met, and at least one active Notice of Appointment is on file with the Commissioner.
A person will be deemed to be transacting insurance when the person advertises on the internet, and does any of the following, except:
Communicates an invitation to inquire Under the California Insurance Code, a person will be deemed to be transacting insurance when the person advertises on the internet, and provides an insurance premium quote to a California resident, accepts an application for coverage from a California resident, or communicates with a California resident regarding one or more terms of an agreement to provide insurance on an insurance policy.
A qualified pension plan must meet ___________ requirements.
ERISA A qualified plan must meet the requirements of the Employee Retirement Income Security Act (ERISA).
All of the following statements about Group Life Insurance are true, except:
Employees receive a tax deduction for employer paid premiums Employer, not employee, paid premiums are tax deductible. Only when the insurance benefit exceeds $50,000 does the employee have to report it as taxable income.
A licensed producer may not do which of the following?
Enter into an exclusive relationship with a lender to provide homeowners insurance to loan applicants A person who is required to obtain insurance as a condition of purchasing real or personal property may not be required to obtain insurance from a specific agent, broker, or insurance company.
A licensed life agent may __________ on behalf of a life insurer for which the life agent is not specifically appointed.
Present a proposal for insurance to a prospective policyholder Under the California Insurance Code, a licensed life agent may present a proposal for insurance to a prospective policyholder on behalf of a life insurer for which the life agent is not specifically appointed.
The continuation of coverage under a particular benefit provided under a group policy following discontinuance with respect to an employee or dependent who is totally disabled on the date of discontinuance is called:
Extension of benefits Extension of Benefits is the continuation of coverage under a particular benefit provided under a group policy following discontinuance with respect to an employee or dependent who is totally disabled on the date of discontinuance.
The __________ allows an insurer to pay death benefits to anyone it deems to be entitled in the absence of a designated beneficiary.
Facility of Payment Clause A Facility of Payment Clause allows the insurer to pay the death benefit to a relative or anyone it deems is entitled in the absence of a designated beneficiary.
Offering any kind of insurance as an inducement to the purchase of property or services without a separate fee charged to the insured for the insurance is a violation and is considered:
Free insurance No insurer or agent may offer any kind of insurance or annuities in this state as an inducement to the purchase or rental by the public of any property, or services, without any separate charge to the insured for such insurance. Offering free insurance is a violation that may result in suspension or revocation of a license
In the event a terminated or ineligible employee dies during the conversion period from a group life plan, whether they were going to elect individual coverage or not, a death claim will be paid by the group policy, less the premium due for the benefit, which means that the conversion period is really:
Grace period
In the event a terminated or ineligible employee dies during the conversion period from a group life plan, whether they were going to elect individual coverage or not, a death claim will be paid by the group policy, less the premium due for the benefit, which means that the conversion period is really:
Grace period In the event a terminated or ineligible employee dies during the conversion period from a group life plan, whether they were going to elect individual coverage or not, a death claim will be paid by the group policy, less the premium due for the benefit, which means that the conversion period is really a grace period.
For those individuals who have health issues, which of the following would be an insurance plan to consider?
Group If an individual has health issues, then a group insurance plan could be a valuable consideration. It offers the opportunity to obtain coverage without providing evidence of insurability.
All licensees are required to report a change of home, business, mailing and email address to the Commissioner:
Immediately Under the California Insurance Code, all licensees are required to provide the Commissioner with a home address, business address, mailing address, and a valid email address. In the event any or all of these addresses change, the change must be reported immediately to the Commissioner.
The restrictions on the amount of life insurance that can be held in a qualified plan are known as:
Incidental benefits limitation There are limitations on the types of benefits that may be included in a qualified plan, such as a restriction on the amount of life insurance that can be held, referred to as the 'incidental benefits' limitation, which the IRS developed standards, or rules, to determine the allowable limits.
What is it called when a producer, agent, or broker makes a false statement about an insurer's financial condition?
Misrepresentation Misrepresentation includes making any statement misrepresenting the terms of any policy, using any name or title misrepresenting the true nature of any policy, misrepresenting the financial condition of any insurer, or making any misrepresentation to a policyholder insured by any company for the purpose of inducing the policyholder to lapse, forfeit, or surrender a policy.
The Commissioner of Insurance has some general duties, which include all of the following, except:
Interpreting and amending state laws relating to insurance While the Commissioner has the responsibility to interpret state insurance laws, they do not have the authority to amend them. Laws are written and amended by the state legislature.
If no beneficiary is living at the time of the insured's death, the benefit will automatically be paid __________.
Into the insured's estate The policyowner may name the estate as a beneficiary, or by default, if no beneficiary is living at the time of the insured's death, the benefit will automatically be paid into the insured's estate.
The advantage of an insurance funded buy-sell agreement is:
It is a legally enforceable agreement, which pre-establishes the value of the business, and provides the funds for an efficient method of transferring the deceased's business interest Some of the advantages of having such an agreement: it is legally enforceable, the value of the business is previously agreed upon, it is an immediate and automatic method of transferring the deceased's interest due to readily available funds.
The proceeds from a _________ plan provide the necessary funds to recruit, hire, and train a replacement employee.
Key employee Key employee life insurance plans provide the funds to recruit, hire, and train a replacement employee.
Any notice required to be given to an insured by the insurer may be mailed, postage paid, and addressed to the policyowner, insured, claimant, or beneficiary to be notified at the:
Last known address of record Under the California insurance code any notice required to be given to an insured may be mailed, postage paid, and addressed to the policyowner, insured, claimant, or beneficiary to be notified at his/her last known address of record.
The California Insurance Code requires all producers who meet with established clients age 65 and older in their homes for the purpose of transacting life insurance, annuities, or disability insurance products to provide the required written notice:
No later than at the time of an appointment The 24 hours in advance requirement applies to prospective clients, not established clients. Established clients may be given the notice at the time of an appointment.
Funds controlled by the California Guarantee Association are used to:
Pay claims of insolvent insurers The Guarantee Association pays claims to the insureds of insolvent admitted insurers.
Regarding Proof of Notice under the California insurance code, the __________ is responsible for notifying the insurer of address changes including any change of email address.
Policyowner Under the California insurance code the policyowner is responsible for notifying the insurer of address changes including any change of email address.
An agreement by an employer to continue a key employee's salary upon retirement, death or disability as long as the employee continues employment during the term of the agreement is called a:
Salary continuation plan An agreement by an employer to continue a key employee's salary upon retirement, death or disability as long as the employee continues employment during the term of the agreement is called a salary continuation plan.
All Internet advertisements by nonresident agents directed to California insurance consumers must clearly indicate the:
State of resident licensing Under the California Insurance Code, all Internet advertisements by nonresident agents directed to California insurance consumers must clearly indicate their state of resident licensing.
An employee who becomes entitled under the terms of the group policy to have an individual policy issued without evidence of insurability must:
Submit an application along with the initial premium If an employee under a group policy becomes entitled under the terms of the policy to have an individual policy issued without evidence of insurability, he/she must submit an application with the initial premium.
When an insurer wishes to implement changes to a group life policy, whom must it notify?
The group sponsor Just as in individual contracts, the owner controls the policy. In this case, only the plan sponsor has a policy (i.e. the Master Policy). As such, the insurer must notify the group sponsor of the changes.
Which of the following is a disadvantage of being covered under a group insurance plan?
The group sponsor can elect to discontinue the plan, and the insurance company can increase the rates it charges
If an agent permits an unlicensed employee to perform acts for which a license is required, the agent is subject to having his/her license:
Suspended or revoked Under the California Insurance Code, an agent is responsible for the actions of his/her employees, and if an agent permits an unlicensed employee to perform acts for which a license is required, the agent is subject to having his/her license suspended or revoked.
If an annuitant withdraws funds from their annuity prior to age 59 1/2 what is the tax consequence?
Tax and 10% penalty tax on the withdrawal that represents earnings The withdrawal that represents earnings will be taxed along with a 10% tax penalty.
Which of the following is not one of the most common methods of determining group insurance benefits?
Tax bracket The most common methods of determining group insurance benefits are flat benefit (all employees receive the same insurance amounts), percentage of income (employees receive 100%, 150%, or 200% of their annual base wage, subject to imputed income), and position in the company (the employer may establish different benefits for specific classes of employees, but may not discriminate between employees in the same class).
Which of the following meets the criterion for being a natural group for group life insurance purposes?
The group was formed for a purpose other than for procuring or reducing the cost of insurance To be eligible for a group plan, the group must be a natural group, meaning it was formed for a purpose other than for procuring or reducing the cost of insurance.
In which of the following circumstances is an annuity's tax-deferral benefit lost?
The annuity is owned by a corporation If a corporation owns an annuity, the tax-deferral benefit is lost. Tax-deferral of annuity earnings is only for natural persons.
The premium for optional dependent group insurance can be payable by:
The employer, the employee or both Optional dependent coverage may be paid for by the employer, the employee, or both.
Generally, life insurance death proceeds are income tax free to the policy beneficiary, except:
When a transfer of ownership has taken place Life insurance proceeds are generally income tax free except when a transfer of ownership has taken place.
When are Errors and Omissions claims filed?
When clients file a report or a complaint Claims are filed due to client reports (complaints) and for a number of reasons, including negligence or inadequacy.