Practice Life Exam A

72. What is the usual federal income tax treatment of individual life insurance?

B. Non-deductibility of premiums, non-taxable death benefits

54. The definitions of mortality and morbidity:

B. Odds of dying versus the odds of disability

5. Which is a false statement? The California Insurance Commissioner is:

B. Selected by the Governor as an appointee

31. All of the following statements about survivorship life are true, except:

C. The face amount is payable after the first death.

74. California rules for annuity sales require all agents to present a specific disclosure document in advance to any senior citizen who is not already a client whenever a sales appointment will be conducted in the person's home. How far in advance must the prospect receive the written notice?

B. At least 24 hours

33. An applicant for an insurance license has had a previous application for a professional license denied for cause within the last five years. The insurance commissioner will:

B. Deny the application without a hearing.

1. In disability insurance, the period of time between when the disability started and the commencement of benefits is the:

B. Elimination Period

58. The future account value of the annuity Alex purchased is connected to the S&P 500 index. What type of annuity did he purchase?

B. Equity-indexed annuity

9. An agent follows the rules and terms of his agent contract. He is exercising his __________ authority.

B. Express

38. A life settlement broker

B. Negotiates life settlement contracts between an owner and providers.

12. Mrs. Anderson needs to invest the proceeds from her late husband's life insurance. She invests a portion of the money into an annuity. Since she is 62, and is still working, she decides to purchase a single premium deferred annuity. She won't need an income for a few more years. What should the agent make sure Mrs. Anderson understands?

B. She has a 30 day free look period in case she changes her mind.

21. A life-only agent issues a binding receipt to his client since the client did include a check for the initial premium with his completed application. Which statement is true?

B. The agent faces potential suspension or revocation of their license.

2. Which of the following characteristics would not stop an insurance company from accepting an insurance risk?

B. The item to be insured is part of a large group of homogeneous exposure units.

27. After 12 years, the policyowner decides she no longer needs the large death benefit on her whole life policy. She calls you, her agent, and you tell her she can use the reduced paid-up non-forfeiture option. Which of the following is not true about the new policy?

B. The new policy will expire in 10 years.

42. What is not likely to happen with a return of premium policy?

B. The total premium paid is returned to the insured when the policy is cancelled

10. Any person who misappropriates fiduciary funds for personal use is guilty of:

B. Theft

67. Which statement is an accurate description of life insurance policy dividends?

B. They are not taxable and are not guaranteed.

41. A policy illustration may not include:

B. Vanishing premiums if the policy becomes paid up with non-guaranteed elements paying future premiums.

18. Which best describes industrial insurance?

A. $2,000 or less in coverage and premiums collected by agent

7. Which of the following statements about a resident life-only agent licensing is incorrect?

A. A licensee has 30 days to update a change in address.

64. Concerning qualified plans, which statement is false?

A. ESOP's invest in a portfolio of stock selected by the employer.

44. All of the following are characteristics of the social insurance program know as Social Security, except:

A. Full retirement age is 65 for all persons born after 1937.

39. E&O coverage

A. Protects an agent in the case of unintentional negligence.

50. Which of the following are common provisions found within many life insurance policies?

A. Reinstatement, entire contract, incontestability

51. The term aleatory is best defined by which of the following?

A. Unequal exchange in value

32. In contrasting stock insurers with mutual insurers, which statement is not false?

B. Stock insurers are owned by the shareholders, and issue non-participating policies.

65. Of the following, which is not one of the three major loss exposures faced by insureds?

C Financial losses

68. Under the terms of the 10-day free-look period, a claim will be paid

C If the premium has been paid and the policy has not been returned.

69. When a policy continues because of a payor benefit clause, it means

C The owner of the policy is disabled or has died.

11. According to the code, any person legally capable of making an insurance policy is considered:

C. An insurer

55. Per the Code, the best definitions of "shall" and "may" are:

C. Mandatory & permissive

30. Members of the MIB are required to report

C. Medical conditions found during underwriting

56. Starting from lowest to highest, rank the initial premium paid by the client for these insurance policies below:

C. Modified whole life, ordinary whole life, single premium whole life

66. What type of insurance would a person select as the most efficient method of paying the outstanding debt on their home in the event of death?

C. Mortgage redemption (decreasing term/mortgage protection)

3. All of the following statements about mutual insurance companies are correct except:

C. Policy dividends issued by mutual companies are guaranteed and not taxable

63. Every admitted insurer in California must maintain a unit, or department, responsible for investigating which of the following?

C. Possible fraudulent claims by the insureds

46. A client receives a lump-sum inheritance. He'd like to use the money to create a lifetime income since he'll be retiring soon. He purchases an annuity and wishes to receive payments beginning in 2 months. What did he buy?

C. Single Premium Immediate Annuity

61. How does the incontestability clause benefit the insured?

C. It keeps the policy from being cancelled if, after two years, it is discovered that there was an error, concealment, or misrepresentation by the policyowner.

26. A beneficiary decides to take the option that will pay the largest amount per payment,knowing after death no monies will be paid out to any descendents. The settlement option is:

C. Life Income (Straight Life)

28. Which qualified plan is characterized by having a non-deductible contribution and tax-free distributions?

C. Roth IRA

8. Tommy Greene has a CLU certification. Which of the following names would be automatically approved for use as his agency's name?

D. None of these would ever be automatically approved.

40. Candee owns a participating whole life policy and uses her policy dividends to buy more of the same type of coverage for herself. Candee has chosen the:

D. Paid-up additions option

48. Your policy contains the guaranteed insurability rider. When can you purchase additional insurance on your policy?

D. Without evidence of insurability at specified ages or dates.

43. When a client is declined after submitting a prepaid application for life insurance:

C. The insurance company must refund the entire premium paid.

17. All of the following are dividend options, except:

A. Interest only option

60. Which of the following can be written as a group policy?

B. Credit life

59. The entire contract can include many components. Which of the following cannot be a part of the entire contract?

B. Any documents referenced by the policy

73. A universal life policy may be surrendered for its cash value:

B. At any time

6. Which statement about life insurance code and ethics is not true?

B. Acts of fair and unfair discrimination are prohibited.

70. Upon the death of a primary breadwinner who is fully insured under Social Security, a dependent child is eligible to receive an income benefit until the age of

A. 18 or 19, if unmarried and a student in elementary or secondary school

23. According to the California Insurance Code, what information is the agent required to include on their business card?

A. Identification of their relationship to the insurance company. B. License number must appear in the same size font as the phone number. C. Must not include any titles, designations, or licenses that are not currently held. D. All of the above.

16. Rank from lowest to highest, the amount of monthly income that would result from the following annuity settlement options:

A. Life with refund option, life with 10 years certain, straight life

35. Pete, who is 35 years old, has a life insurance policy with a death benefit of $150,000. At the age of 65 the cash values of his policy will be $150,000. What type of policy does he have?

B. An Endowment to the age of 65

22. Which of the following would not be considered a speculative risk?

B. Any action that could do harm to your clients well-being such as reckless driving.

75. Gloria owns an annuity in which she has invested $5,000 a year for 10 years. She is currently receiving $8,000 annually from her annuity. By the time all of the principal and interest is paid out, Gloria will have been paid $100,000. How much of the annual benefit is taxable?

B. $4000

36. Roger, who is 35 years old, has a whole life insurance policy with a death benefit of $150,000. At the age of 65 he will no longer make premium payments. When will the cash values of his policy be $150,000?

B. 100

13. In a non-contributory group policy:

B. 100% of eligible employees must participate.

25. An insured has a terminal illness and needs access to 1/3 of his death benefit to pay mounting medical expenses. Which rider would meet the insured's current needs?

B. Accelerated (Living) Benefit

20. Which rider pays a multiple of the original face amount?

B. Accidental Death Benefit

15. Bob and Neal are partners in a law firm together. If one of them were to pass away, they want to make sure that their surviving family will receive a fair value for their stake in the business. What life insurance arrangement would be most suited for transitioning the business during this time of loss?

C. Buy-Sell Agreement

57. Sam has a $200,000 convertible life insurance policy. If he chooses, he can:

C. Convert to a whole life policy for the same face amount without proof of insurability.

24. How does the IRS classify the two different types of retirement accounts?

C. Qualified and non-qualified

45. In the insurance planning processes, the blackout period is:

C. The period of time after the youngest child reaches 16, but before the widow reaches 60, in which the surviving spouse receives no Social Security benefits.

49. After the insured passes away, it is discovered that the policy was rated based upon an incorrect age. The client lied about their age when filling out the application 8 years earlier. What effect will this have on the benefit?

C. The proceeds payable will be adjusted.

62. Under the cost of living adjustment rider, the policy:

C. Will only increase with the inflation rate. There will be an additional premium charged, but no evidence of insurability is required.

4. In a seven year vesting schedule, what percentage of employer contributions is vested after seven years?

D. 100%

34. In order to be financially solvent, an insurer must accomplish all of the following, except:

D. Contribute a specific amount of capital reserves to the state.

29. Which of the following statements about the process of replacement is incorrect?

D. Copies of any written illustration or comparisons used in the process of making the replacement do not need to be included with the submitted application.

37. Agent Darren offers life insurance for no cost to people buying property in a local development. When the Commissioner investigates his actions, which of the following is not a likely consequence?

D. Darren will be charged with a felony and/or up to 10 years in jail.

71. The beneficiary chooses to receive the policy proceeds in the form of monthly income at the rate of $3,000 per month, until principal and interest are exhausted. What settlement option did the beneficiary select?

D. Fixed amount

52. Of the following, which best describes the difference between life insurance and annuities?

D. Life insurance creates an instant estate, while annuities liquidate a sum of money.

53. Which pair are Activities of Daily Living (ADLs)?

D. Mobility & bathing

47. The applicant works 2 different jobs. The underwriter will rate him according to which job?

D. The job that is most hazardous.

14. An employee has lost access to their group term life insurance plan, but they are allowed to convert to a new plan. Which best describes this new plan?

D. The new policy will be cash value. The employee pays all the premiums.

19. A client's flexible premium is invested into a separate account. What type of insurance product did he purchase?

D. Variable Universal Life