Life Insurance Practice Test
What is the minimum free-look period for newly issued life insurance policies in this state?
10 days
An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?
50% tax on the amount not distributed as required
A Straight Life policy has what type of premium?
A level annual premium for the life of the insured
Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?
A minor son of the insured
A tornado that destroys property would be an example of which of the following?
A peril
The term "illustration" in a life insurance policy refers to
A presentation of nonguaranteed elements of a policy
Who is eligible to purchase IRA
Anyone who has earned income
Which of the following is TRUE about a class designation?
Beneficiaries are not identified by name
According to the entire contract provision, what document must be made part of the insurance policy?
Copy of the original application
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?
Cost of living rider
All of the following are features and requirements of the Living Needs Rider EXCEPT
Diagnosis must indicate that the death is expected within 3 years
Which of the following is considered to be a morale hazard?
Driving recklessly
Which of the following terms is defined by the California Insurance Code as unassigned funds that must be reported on a stock insurer's annual statement?
Earned surplus
If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT
Erase the incorrect answer and record the correct answer
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?
Family term rider
Intentionally misrepresenting or concealing a material fact to induce an insurance company to make a contract is known as
Fraud
An insured has the right to return the new insurance policy for a full refund during the
Free-look period
Which is TRUE about the cash surrender nonforfeiture option?
Funds exceeding the premium paid are taxable as ordinary income
Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation?
Human Life Value Approach
A contract which one party undertakes to indemnify another against loss is called
Insurance
Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity?
Insurer's guaranteed minimum rate of interest
For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become
Larger
A set of legal or regulatory conditions that affect an insurer's ability to collect premiums commensurate with the level of risk incurred would be considered a(n):
Legal hazard
When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value?
Outstanding loans and interest
Which of the following individuals must have insurable interest in the insured?
Policyowner
Profitable distribution of exposures serves the purpose of
Protecting the insurer against adverse selection
Hazard is best defined as
Something that increases the risk of loss
Which of the following is NOT true regarding the annuitant?
The annuitant cannot be the same person as the annuity owner
If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?
The balance of the loan will be taken out of the death benefit
Which of the following is an example of liquidity in a life insurance contract?
The cash value available to the policyowner
Which of the following would NOT fall into the category of costs associated with death?
The expense of a vacation for surviving family members
All of the following are true of an annuity owner EXCEPT
The owner must be the party to receive benefits
If an insured continually uses the automatic premium loan option to pay the policy premium,
The policy will terminate once the cash value is reduced to nothing
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?
The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy?
They can convert their coverage to permanent life insurance without evidence of insurability
The main difference between immediate and deferred annuities is
When the income payments begin
The Department of Insurance contacts an agent about a claim that was settled two months ago. Within what timeframe must the agent issue a complete response?
21 days
Adjustable Life At age 30, an applicant wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs
Adjustable Life
Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?
Aleatory
What does "liquidity" refer to in a life insurance policy?
Cash values can be borrowed at any time
Which of the following must an insurer obtain in order to transact insurance within a given state?
Certificate of authority
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?
Conditional
The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?
Conditional
Stranger-originated life insurance policies are in direct opposition to the principle of
Insurable interest
Which of the following is NOT a license in the state of California?
Life broker
What is the term used when a person sells his assets as a way to gain money?
Liquidation
The premium of a survivorship life policy compared with that of a joint life policy would be
Lower
Which of the following information about the applicant is NOT included in the General Information section of the application for insurance?
Medical background
An independent agent may have contracts with which of the following?
More than one insurer
What other term is used to refer to unintentional torts?
Negligence
Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value?
Predicted needs of the family after the insured's death
In a group life insurance policy, the employer may select all of the following EXCEPT
The beneficiary
An agent has completed 30 hours of continuing education by the end of a license period instead of the required 24 hours. What will happen to the 6 hours in excess?
They will be carried over into the next licensing period
Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner?
Third party ownership
What type of account will most likely be established for a minor?
Trust
To which of the following products does the Replacement Regulation apply?
Whole life insurance
A property and casualty agent has been licensed for 7 years. How many continuing education hours must the agent complete this licensing period?
24
All insurance policies and annuity contracts delivered to senior citizens in the State of California are subject to a cancellation period of at least
30 days
The minimum interest rate on an equity indexed annuity is often based on
An index Standard and Poor's 500
Which of the following is TRUE of a qualified plan?
It has a tax benefit for both the employer and employee
If an agent wishes to sell variable life policies, what license must the agent obtain?
Securities
The premiums paid by the employer in a business life insurance policy are
Tax deductible to the employer
During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal?
Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 1/2
A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?
The insured's premium will be waived until she is 21
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
Cost of living rider
According to the California Insurance Code, any agent violating the regulations relating to misrepresentation will be charged with a
Misdemeanor, a fine not to exceed $25,000, and/or a possible 1-year imprisonment.
Which of the following is authorized to transact insurance on human lives?
Life agent
Which of the following is called a "second-to-die" policy?
Survivorship
The annuity owner dies during the accumulation period without naming a beneficiary. Annuity's cash value exceeds premiums paid. Which of the following is TRUE?
The cash value will be paid to the annuitants estate
An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?
200,000
In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to
The contingent beneficiary
Which of the following is TRUE regarding the insurance amount in a credit life policy?
The creditor can only insure the debtor for the amount owed.