CA.Life.Pract.Exam
Which statement best describes "agreement" as it relates to contracts?
One party accepts the exact terms of the other party's offer. Agreement includes both an offer and its acceptance.
While collecting underwriting information, certain rules must be followed. Which of the following is incorrect?
Post-claims underwriting is a valid and necessary means of determining the insurability of a potential applicant. Post-claims underwriting is a prohibited process in disability insurance. All underwriting must be completed prior to issuing the policy; it is illegal to do more underwriting after a claim has been filed.
In a non-contributory group policy:
100% of eligible employees must participate. In a non-contributory plan, the employer pays all of the premium, so they must cover all eligible employees.
According to the CIC, life-only agents must keep records of their transactions for:
5 years Agent records must be kept for 5 years.
At what age does Social Security Medicare program Part B start providing benefits?
65 Medicare Part B provides medical expense coverage to those 65 and older.
Which of the following is not a personal use of life insurance?
A client buys insurance to fund a buy-sell agreement. Buy-sell agreements are typically bought by partners in a business as a personnel/business use of insurance. The others are examples personal/family uses of insurance.
Which of the following is an incorrect statement about a client's privacy rights?
A client does not have access to their MIB report as it belongs to the member's life insurers. The client does have access to his/her MIB report.
All of the following are dividend options, except: A. Interest only option B. One-year term option C. Reduce the nest premium payment D. Accumulate with interest
A. Interest only option "Interest only" is a settlement option, not a dividend option.
An insured has a terminal illness and needs to access 1/3 of his death benefit to pay mounting medical expenses. Which rider would meet the insured's current needs?
Accelerated (Living) Benefit The accelerated death benefit, or living need rider, pays a portion of the death benefit before death is the insured has a terminal illness.
Which rider pays a multiple of the original face amount?
Accidental Death Benefit Also known as "double indemnity," accident riders pay a larger death benefit if the death is due to accidental means.
Premiums paid into a variable annuity purchase which of the following?
Accumulation units Variable annuity premiums purchase accumulation units during the accumulation period.
A universal life policy may be surrendered for its cash value:
At any time With universal life the cash value can always be surrendered. There might be surrender charges in the early years, or a loan to pay off, but any available cash value can always be obtained at any time by surrendering the policy.
The Roth and Traditional IRAs have some similarities. Which of the following is not true?
Both are tax deductible to the investor The Roth has non-deductible contributions, while the Traditional IRA allows tax deductible contributions.
Which statement is not true about insurance sales?
Brokers represent insurers in negotiating coverage with various insureds. An agent or broker must exercise care when using apparent authority during the sales process.
Sam has a $200,000 convertible life insurance policy. If he chooses, he can:
Convert to a whole life policy for the same face amount without proof of insurability. Conversion allows a term policy to be changed into a cash value policy (often whole life). While the premium will increase for the same amount of death benefit, no evidence of insurability is required.
Which of the following can be written as a group policy?
Credit life All of the above can be written as ordinary, or individual, policies. Only credit life can also be written as a group policy.
Concerning qualified plans, which statement is false?
ESOP's invest in a portfolio of stock selected by the employer. ESOP's invest in the employer's stock.
For an insurance contract, utmost good faith means:
Each party relies upon the truthfulness of the other. The policy owner will be indemnified in case of loss.
An agent follows the rules and terms of his agent contract. He is excersising his _______ authority.
Express
The Commissioner can deny an applicant for a license after a hearing:
If the applicant has permitted someone in their employment to violate the California Insurance Code. Applicants allowing others to violate the insurance code would be suspect for further violations.
A policyowner who cannot borrow the equity, change beneficiaries, assign a policy or stop paying premiums without the beneficiary's written consent has designated the beneficiary as a(n):
Irrevocable beneficiary Explanation: An irrevocable beneficiary shares many vested (ownership) rights with the policyowner. Therefore, the policyowner must obtain approval from the irrevocable beneficiary to make any of these policy changes.
Rank from lowest to highest, the amount of monthly income that would result from the following annuity settlement options:
Life with refund option, life with 10 years certain, straight life The larger the guarantee of payments, or returned monies, the lower the guaranteed income,. The more risk the annuitant takes during the annuity period, the higher the monthly income.
Which of the following is considered ordinary insurance?
Mortgage redemption Mortgage redemption must be ordinary or individual insurance, while whole life and term can be group or individual. Blanket insurance is group insurance.
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?
Mortgage redemption (decreasing term/mortgage protection) Mortgage redemption insurance, structured as decreasing term life insurance, is designed to pay off a debt as it amortizes. The decreasing death benefit pays just enough to cover the balance should pre-mature death occur.
Every admitted insurer in California must maintain a unit, or department, responsible for investigating which of the following?
Possible fraudulent claims by the insured While every insurer faces possible fraudulent claims, not every insurer deals with arson. The state would investigate insurer abuses such as fraud, not the companies themselves.
When an applicant makes a material statement believed to be true to the best of their knowledge, the statement is considered to be a/an
Representation A representation is true to the best of the applicant's knowledge.
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?
The proceeds payable will be adjusted. When the age is misstated on the application, the death benefit paid will be adjusted to reflect the correct age.
Which statement about reinstatement is false?
The reinstated policy is incontestable if the first time it was in force it already passed the two year mark. A reinstated policy will be contestable again for another two years.
Any person who misappropriates fiuciary funds for personal use is guilty of:
Theft A 'person' with fiduciary responsibilities is an agent. If and agent steals their clients' money, the agent is guilty of theft.
In which type of policy does the insurer apply flexible premium to pay for the cost of insurance and expenses and then uses the remaining balance plus interest to build the cash value account?
Universal life Universal life insurance is also known as "flexible premium" The calculation for gross premium is: Mortality risk - Interest + Expense, any remaining premium will be applied to cash value.
The entire contract can include many components. Which of the following cannot be a part of the entire contract.
Any document referenced by the policy The entire contract cannot reference any "outside" documents.
The applicant works 2 different jobs. The underwriter will rate him according to which job?
The job that is most hazardous. Regardless of hours worked or income, the most hazardous job will be used in the rating process.
The person who will receive the benefit of an annuity and whose life the payout is based upon when the contract is purchased is the:
annuitant This is the definition of annuitant. The owner does not have to be the annuitant, there may not be a beneficiary, and an annuity is a retirement plan, not insurance
How many hours of continuing education are required per renewal for a life-only agent?
24 hours, 4 of the hours must be in ethics According to the CIC, 24 hours of continuing education must be completed each renewal. Of the 24 hours, at least 4 must be in ethics.
An applicant has the right to know that the insurance company will collect certain personal information about their credit, character and reputation. The insurer may gain such information from:
A consumer report. A consumer report includes information about a potential client's credit, character and reputation. This report may be obtained by the insurer during the underwriting process.
Which of the following becomes part of the contract, is guaranteed to be true, and if untrue, may be grounds for rescinding the policy?
Warranty A warranty must be literally true. A violation of a material warranty permits the other party to rescind the contract.
Which statement is an accurate description of life insurance policy dividends?
They are not taxable and are not guaranteed. Policy dividends, considered a return of excess premium by a mutual insurer, are not taxable since the original premium was paid with after-tax dollars. Thus, these refunds are not taxable. Future dividends cannot be predicted nor guaranteed.
In a seven year vesting schedule, what percentage of employer contributions is vested after seven years?
100% If employment terminates, the employee own 100% of the employer's contributions after 7 years. They earn 20% each year for years 3 through 7. Employee contributions are immediately vested.
Which statement about life insurance code and ethics is not true?
Acts of fair and unfair discrimination are prohibited Acts of fair discrimination such as charging older clients a higher premium are legal.
Profit Sharing Plans:
Allow for a contribution of a specified proportion of company profits. In profit sharing plans, companies earmark a portion of their profits to be contributed to the employee.
According to the California DOI, an insurer whose articles of incorporation are registered in Oslo, Norway, is considered:
An alien insurer An insurer incorporated in a foreign country is considered to be an alien insurer.
Which of the following transactions would most likely be declined due to lack of insurable interest?
An employee insures their employer in the fear of losing their job While "blood and business" can be used as a way to remember the insurable interest relationship; employees do not have an insurable interest relationship with their employer.
A policy pays the face amount if the insured dies before a specified date, or lives to that specified date. This best describes:
An endowment policy Endowment policies mature, or endow at any time specified in the contract.
Which of the following statements about the process of replacement is incorrect?
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. To protect the client, disclosures need to be signed and left with the client, as well as submitted to all insurers involved. Anything used to make the sale should also be submitted.
All of the following needs to be included on an application for life insurance except: A. Life Insurance with other insurers B. The agent's statement, if applicable C. Signatures of the agent, proposed insured, and the owner D. Disability income insurance
D. Disability income insurance Disability income insurance is not material to a life insurance contract.
Which of the following is not an acceptable underwriting classification?
Declined Even though a sub-standard rating results in a higher premium, the risk (insured) has been accepted by the insurer. Declined means the risk is too high and therefore is not accepted by the insurer.
Which of the following riders would provide for an insured to increase the face amount of their life insurance policy without proof of insurability?
Guaranteed insurability/future purchase option The guaranteed insurability rider/option allows the insured to purchase additional amounts of insurance at specified times, regardless of health status, but at an increased premium.
A forty-five year old investor has been laid off from his job. In order to pay bills he takes a premature distribution from his traditional IRA account. What tax penalties, if any, will he face?
He will be required to pay a 10% tax penalty on the amount withdrawn. Early withdrawals from qualified plans before the age of 59 ½ require the normal taxes owed, plus an additional 10% tax penalty for early distribution except for hardship withdrawals.
A client has a history of DUIs. To his insurer, they see him as a ________ hazard.
Morale Morale hazards are characterized by an indifference towards risk. DUIs show apathy towards hurting oneself and others.
Which type of insurer requires an attorney-in-fact overseen by an advisory committee of subscribers?
Reciprocal insurer A committee of subscribers holds the attorney-in-fact accountable in reciprocal insurance agreements.
Which qualified plan is characterized by having a non-deductible contribution and tax-free distribution?
Roth IRA Contributions to a Roth IRA are not tax deductible. To encourage investing for retirement, Roth IRAs allow for tax-free withdrawal after 5 years and at least age 591/2.
Variable insurance and variable annuity products are regulated by:
SEC, FINRA and DOI. Variable products are governed at the national level by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), and at the state level by the Department of Insurance (DOI).
Which is a false statement? The California Insurance Commissioner is:
Selected by the Governor as an appointee The commissioner is no longer appointed by the governor. He/she has various duties and authorities.
In contrasting stock insurers with mutual insurers, which statement is not false?
Stock insurers are owned by the shareholders, and issue non-participating policies. Stock insurers are owned by their shareholders/stockholders. Their policies are labeled non-participating since the clients do not share in the divisible surplus (dividends).
Who submits a request for life insurance to a company?
The applicant While the agent often handles the paperwork; it's the applicant who is technically requesting life insurance coverage.
Brian purchased a variable life policy and died 25 months after the issue date. It is then discovered that Brian understated his age on the application. What will the insurer do in regard to the payment of the death benefit to the beneficiary?
The death benefit will be reduced to reflect the age discrepancy. The misstatement of age provision states that the insurer will "make it right" by adjusting the death benefit accordingly. This provision is not subject to the incontestable clause.
When a client is declined after submitting a prepaid application for life insurance:
The insurance company must refund the entire premium paid. Declining an application for insurance rescinds the contract, requiring a return of all premiums paid. It is as though the contract never existed.
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?
The new policy will be cash value. The employee pays all the premiums. Conversion from group to individual can be any insurance except term. The insured who lost their coverage is now paying the entire premium.
What is not likely to happen with a return of premium policy?
The total premiums paid is returned to the insured when the policy is cancelled. This benefit is payable to policy maturity.
An agent who knowingly misrepresents material information for the purpose of inducing a client to lapse, forfeit, change or surrender a life insurance policy or annuity has committed an illegal practice known as:
Twisting This is the definition of twisting, which is an unfair trade practice.
Which best describes industrial insurance?
$2,000 or less in coverage and premiums collected by agent. By law, industrial insurance must be paid in person. Since it involves high risk insureds, very low amounts are purchased.
What is the minimum number of members required for group life insurance?
10 10 is the minimum per the CIC.
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 value of his policy be $150,000?
100 Whole Life, even if a limited payment plan, still matures at age 100.
Situations where the risk is increased by slippery floors, a habit of lying, or reckless drunk driving are best described by which of the following?
A hazard A hazard is any factor that increases the likelihood that a loss may occur. This statement contains examples of physical hazard, moral hazard and morale hazard.
Which of the following statements about a resident life-only agent licensing is incorrect?
A licensee has 30 days to update a change in address Changes of address must be filed immediately.
Any person to whom the commissioner has issued a seizure order and who refuses to deliver any books, records, or assets of an insurer faces:
A misdemeanor punishable by a fine up to $1,000, a year in jail, or both. Crimes of this nature are misdemeanors. There are various levels of punishment based upon the level of damage done to the insurer and its clients.
Which of the following is not a qualified 1035 exchange?
A variable annuity exchanged for a variable universal life policy. "A 1035 exchange includes an exchange from one life policy to anther life policy, a life policy to an annuity, or from one annuity to another annuity. Exchanging an annuity for a life policy is not a "1035 exchange."
At age 72, Mrs. Smith is considering applying for Medi-Cal so she can afford her medical bills. Today Agent Charles is visiting her home and wanting to sell her an annuity product. Which of the following is true?
Agent Charles cannot allow Mrs. Smith to purchase an annuity if after the purchase, Mrs. Smith wouldn't qualify for Medi-Cal. Agents must be mindful of the effects of an annuity purchase on Medi-Cal eligibility.
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 value of his policy will be $150,000. What policy does he have?
An Endowment to the age of 65 Policy that matures at any age earlier than 100 is an endowment.
All of the following statements about agents are true, except: A. Independent agents can be appointed by multiple insurers. B. If an agent submits business to an insurer that the agent is not appointed with, the insurer can submit a notice of appointment within 14 days to validate the relationship. C. Exclusive agents work for themselves. D. Agents need to complete 4 hours of ethics continuing education every license renewal as a part of their regular CE hours.
C. Exclusive agents work for themselves. Exclusive agents work for or represent one insurer at a time. Independent agents work for themselves and can be appointed by multiple insurers.
All of the following statements about survivorship life are true, except: A. They are particularly well suited to help families deal with estate tax burdens. B. The face amounts are often for $1,000,000 or more. C. The face amount is payable after the first death. D. As a form of joint life, it covers two individuals on the same policy.
C. The face amount is payable after the first death. Survivorship life, sometimes referred to as "second-to-die" joint life, insures two people on the same policy, but pays the death benefit only after the second insured dies.
All of the following statements about assignments are not false, except: A. Absolute assignments can be used for life settlement agreements. B. Absolute assignments can be used for life settlement agreements. C. Absolute assignments involve the complete transfer of all policy owner rights in the insurance policy. D. Assignments need not be filed with the insurer if notarized and filed in county records.
D. Assignments need not be filed with the insurer if notarized and filed in county records. Changes in ownership always need to be filed with the insurer.
All of the following statements are true about participating and nonparticipating policies, except: A. They are sometimes referred to as par and non-par. B. Participating policies allow a policy owner to share in a mutual company's divisible surplus in the form of dividends. C. Non-participating policies issue dividends to shareholders. D. Non-participating policies issue dividends to policy owners.
D. Non-participating policies issue dividends to policy owners. Dividends on non-participating policies are paid to shareholders.
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?
Darren will be charged with a felony and/or up to 10 years in jail. Violations of the Unfair Practices Act customarily result in a hearing, a fine, and a cease and desist order.
In insurance, the agents have authorization to represent the company. The producers may exercise this relationship through:
Express authority, implied authority and apparent authority. An agent has three (3) types of authority which stem from the agency relationship. Express authority is written in the contract. Implied authority is not written, but is assumed based on common business practices. Apparent authority is action taken by the agent leading the consumer to believe the agent works for the insurer, i.e. business cards.
What nonforfeiture option allows a policyowner to use the existing cash value to purchase a policy of the same face amount as the original policy but for a reduced amount of time?
Extended term insurance The nonforfeiture option that results in a paid-up policy with the same face amount as the original policy is the "Extended Term" option.
Of the following, which is not one of the three major loss exposures faced by insured?
Financial losses According to the code, financial losses are not one of the 3 major loss exposures.
Under which life settlement option does the insurer retain the death benefit but pays the beneficiary the earnings on the death benefit?
Interest only option The "accumulate with interest" option and the "cash option" are dividend options, not settlement options. The "interest only" option is the settlement option that pays earnings on the death benefit.
How does the incontestability clause benefit the insured?
It keeps the policy from being cancelled if, after two years, it is discovered that there was an error, concealment, or misrepresentation by the policy owner. The incontestability clause keeps the policy from being cancelled after the insured's death despite the applicant's misdeeds.
Per the Code, the best definitions of "shall" and "may" are:
Mandatory & permissive While "shall" means required or mandatory, "may" means permissible or allowed.
Which of the following is not excluded from the California Life and Annuity Replacement Law?
Purchasing a new policy that will take the place of an existing policy Any transaction in which a client purchases a new policy with the intention of cancelling an existing policy is considered to be a replacement transaction.
A client receives a lump-sum inheritance. He'd like to use some of 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?
Single Premium Immediate Annuity Any annuitization in 12 months or less from the effective date is an immediate annuity. A single premium annuity involves depositing one premium payment.
The provision that protects the proceeds of a life insurance policy from attachment by the beneficiary's creditors after the insured's death is known as the:
Spendthrift (Trust) Clause. The "Spendthrift Clause" keeps the beneficiary's creditors from attaching the death benefit while held by the insurance company
When a policy continues because of a payor benefit clause, it means
The owner of the policy is disabled or has died. A payor benefit is a feature of a juvenile policy. If the parent/guardian (owner) dies or becomes disabled, the premium is waived until the child reaches adulthood. The child's policy will continue in force during the waiver period.
In the insurance planning processes, the blackout period is:
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.
Which of the following statements is false in regard to a Life Paid-up at-65 whole life policy?
The policy will endow at age 65. Limited pay policies limit the length of time for premium payment, all other features remain the same, such as length of coverage, maturity, and endowment. Because the number of premium payments is reduced in a limited pay policy, the premium must be higher than straight life.
The term aleatory is best defined by which of the following?
Unequal exchange in value. Insurance is designed so that those who don't make claims help pay for those who do make claims. Thus, it is possible that a policyholder could pay a small amount of premium before the insured dies, and the beneficiary would receive a large death benefit.
A policy illustration may not include:
Vanishing premiums if the policy becomes paid up with non-guaranteed elements paying future premiums. The term "vanishing premiums" can only be used if they are based on guaranteed elements.
A client's flexible premium is invested into a seperate account. What type of insurance product did he purchase?
Variable Universal Life Any universal policy is characterized by a flexible premium. Any variable product is characterized by the use of separate accounts.
Which of the following statements is not included in the Entire Contract clause?
insurer agrees to provide life insurance protection for the named insured which will be paid to a designated beneficiary when proof of death is received by the insurer. This describes the Insuring clause.
All of the following statements about life insurance policy illustrations and the senior market are correct, except: A. Guaranteed elements must be emphasized in bold print. B. To be understandable, policy illustrations must follow certain formats so the insured can make informed buying decisions. C. Illustrations must note that they are only an illustration. D. The illustration will note that both guaranteed and non-guaranteed elements will remain unchanged for the years illustrated.
A. Guaranteed elements must be emphasized in bold print. Non-guaranteed elements will change over time. Guaranteed elements show the minimum, guaranteed performance that will occur
According to the code, any person legally capable of making an insurance policy is considered:
An insurer Legally, a corporation is a "person". The insurer makes/produces the insurance policies the agents and brokers sell.
In disability insurance, the period of time between when the disability started and the commencement of benefits is the:
Elimination Period LTC and disability income policies don't begin to pay out benefits until a certain number of days of illness have elapsed.
A partial payment of proceeds to cover final expenses is paid to someone not designated as a beneficiary but acting in a legal or fiduciary capacity. This is provided in which provision?
Facility of Payment Facility of payment is a process whereby someone who is not a beneficiary could make a claim for reimbursement of final expenses
An insurer invests the cash value of a fixed annuity in which of the following assets?
General account An insurer guarantees the cash value in a fixed product and therefore assumes the risk of the investment. Money in fixed products is held in the general account which is invested in relatively safe and low risk instruments such as bonds, mortgages, and real estate.
A beneficiary decides to take the option that will the largest amount per payment, knowing after death no monies will be paid out to any descendants. The settlement option is:
Life Income (Straight Life) The life income settlement option pays the beneficiary an income until they die. Since no further payments will be made to their survivors, the insurer can afford to pay them a larger income versus the other options given.
Members of the MIB are required to report
Medical conditions found during underwriting. Made up of member insurance companies, the MIB only reports medical impairments found during underwriting; not policy information nor medical record information.
The insured dies 6 months after the policy issue date. Upon death of the insured, it is determined that the applicant made a material misstatement on the application. What is the most likely course of action for the insurer?
Rescind the policy The contestability period is still in force so the policy can be rescinded by the company for material misrepresentation on the application.
Which of the following is most likely to have a TSA?
School district employee Tax Sheltered Accounts (TSA) are retirement programs for not-forprofit institutions such as school districts, churches, charities, etc.
Mrs. Anderson need 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?
She has a 30 day free look period in case she changes her mind. As someone who is 60+, she gets the 30-day free-look period, and should invest cautiously.
To authorize the release of an attending physician's report, the applicant must:
Sign a consent form Physicians require the patient's written authorization to release patient information.
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 is true?
The agent faces potential suspension or revocation of their license. Binding receipt gives immediate coverage in the field of property insurance. Issuing a binding receipt to a life client could result in license suspension for jeopardizing and misleading the client. Life only agents do not have authority to issue binding receipts.
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?
The new policy will expire in 10 years. With the reduced paid-up non-forfeiture option, the policy will still be a whole life policy. Therefore it will mature at age 100 life the original policy. It will have a lower death benefit than the original.
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?
$4,000 Total invested amount is $50,000; total account value is $100,000. $50,000 divided by $100,000 = ½. ½ of $8,000 is $4000. That means $4000 is excluded from taxation, and $4000 is taxable.
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
18 or 19, if unmarried and a student in elementary or secondary school Under Social Security the unmarried children of a "fully insured" deceased worker will receive benefits until 18, or 19 if still in elementary or secondary school.
All of the following are characteristics of the social insurance program known as Social Security, except: A. Full retirement age is 65 for all persons born after 1937. B. Fully insured status can be achieved by paying the FICA tax for forty quarters/credits. C. Retirement age is based upon the worker's birth year. D. The worker's full retirement benefits are determined by the PIA.
A. Full retirement age is 65 for all persons born after 1937. While 65 is commonly though of as retirement age, the law now states that full retirement age is based upon the worker's year of birth.
For a flexible premium deferred annuity, the time during which the owner makes premium payments and the time before benefit payments begin is known as the:
Accumulation period. The time during which the account owner invests money in the annuity is known as the accumulation period.
Which action by an insurer, or its representatives, is not considered an unfair claims violation?
An agent advises a claimant to obtain the services of an attorney. It is only an unfair claims practice to advise a claimant to NOT obtain an attorney. A claimant always has the right to seek council.
Ashley, the policy owner and insured, named Wendell as primary beneficiary and Barbara as contingent beneficiary. Just six (6) weeks prior to Ashley's death, Wendell and Barbara are killed in a common disaster. The insurance proceeds will be received by whom?
Ashley's estate If both the primary and the contingent beneficiaries predecease the insured and no other beneficiaries are named, the face amount distribution will be paid to the insured's estate.
A client has missed her premium payment on her cash value policy, and the grace period has also lapsed. The policy is still in force because her insurer has been deducting the cost of the premium from her cash value. What provision allows this?
Automatic Premium Loan If included in a cash value policy, APLs allow insurers to subtract the missed premiums from the cash value as a loan to keep a policy from inadvertently lapsing for non-payment. This will continue until the client begins paying again or the cash value runs out. Interest will be charged on these loans.
All of the following statements about a policy grace period are false, except: A. Death during the grace period results in the denial of the claim. B. Grace periods are typically 31 days. C. Returning the policy during the grace period results in a full refund of premiums. D. Not every insurer is required to provide a grace period.
B. Grace periods are typically 31 days. According to the CIC, the grace period is 31 days.
The future account value of the annuity Alex purchased is connected to the S&P500 index. What type of annuity did he purchase?
Equity-Indexed annuity The S&P 500 is an index made up of the stock of 500 publicly traded companies. Stocks are an 'equity' investment. This type of annuity is indexed to the market so that. as the economy grows, so does the value of the annuity. The money in the account is not invested directly into the 500 stocks.
Which pair are Activities of Daily Living (ADLs)?
Mobility & bathing ADLs are personal care, nutrition, and health issues such as walking, hygiene, dressing, transferring, and eating. Seeing, hearing, speaking, and sleeping are not used as an evaluation for paying benefits.
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:
Paid-up additions option Paid-up additions are of the same type of insurance as the base plan.
Which of the following are common provisions found within many life insurance policies?
Reinstatement, entire contract, incontestability This is the only answer for which all items are policy provisions.
A client has purchased an annuity with an annual bonus she received at the end of last year. She has requested annual benefit payments to start at the end of this year. What type of annuity did she purchase?
Single Premium Immediate Annuity The client has purchased an annuity with one payment (single premium) and has requested that the benefit payments begin within 12 months or less of the contract date (immediate annuity).
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?
Fixed amount Under the fixed amount settlement option the beneficiary receives a stated amount for each benefit payment until the original lump-sum death benefit amount, plus some interest, are paid out. It this case, $3000 a month is the stated amount of the benefit payment.
E&O coverage
Protects an agent in the case of unintentional negligence. One of the main purposes of errors and omission (E&O) coverage is to protect the agent in case of unintentional negligence.
In comparing the purchase of individual life insurance to acquiring group life, which statement is not true?
Group insurance has a non-deductible premium while individual insurance has a tax deductible premium to the payor. Group insurance premium paid by the employer is tax deductible to the employer, while individual insurance premium is non-deductible.
All of the following statements about policy provisions are true, except: A. Death during the grace period results in a full death benefit being paid. B. Suicide during the policy's first two years results in policy rescission. C. The insuring clause states the insurer's promise to pay a death benefit if premiums are paid, and proof of death is received. D. The automatic premium loan can keep a policy in force when payments are missed and there is sufficient cash value to pay the premium.
A. Death during the grace period results in a full death benefit being paid. The missed premium will be deducted from the full death benefit if death occurs during the grace period.
Bob and Neal are partners in a law firm together. If one of them were to pass away, the 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
Buy-Sell Agreement. Buy-sell agreements allow surviving partners to buy out the family of the deceased partner so the business may continue past the death of the insured.
All of these statements about life insurance settlement options are false, except: A. Fixed amount is the default option when no option is selected. B. Life income payments are income tax free. C. Life income with 10 years certain provides at least 120 months of payments. D. Settlement options like fixed period are good ways to provide an income to a beneficiary who cannot handle large sums of money.
C. Life income with 10 years certain provides at least 120 months of payments. "Lump sum" is the default option. Life settlement options are good for those who cannot handle large sums of money, but the interest portion of each payment is taxable income. Only the face amount or lump sum amount is tax free.
Which statement below is least correct regarding the type of insurance that fits best with the applicant's needs?
Convertible term can be purchased by applicants who may require a larger death benefit in the future. Convertible term converts to a cash value policy with the same death benefit but at a higher premium.
In order to be financially solvent, an insurer must accomplish all of the following, except: A. Reinsure any risk in excess of state retention limits. B. Possess enough assets to cover its liabilities. C. Maintain an amount at least equal to its required minimum paid-in capital. D. Contribute a specific amount of capital reserves to the state.
D. Contribute a specific amount of capital reserves to the state. Reserves are retained by the insurer to pay future claims; they are not paid to the state.
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:
Deny the application without hearing. The loss of a professional license, or the previous denial of an application for a license, within five years of the submission of the current application will result in the application being denied without a hearing.
Under the terms of the 10-day free-look period, a claim will be paid
If the premium has been paid and the policy has not been returned. When a client dies during the free-look period they are covered, if consideration had been given (initial premium paid with application), and the policy has not been returned for a refund.
Starting from lowest to highest, rank the initial premium paid by the client for these insurance policies below:
Modified whole life, ordinary whole life, single premium whole life Modified whole life allows the insured to pay a lower premium than traditional/ordinary whole life for the first few years. Single premium whole life requires a large, one-time, up-front payment to begin the policy; thus, it costs more than traditional whole life.
According to the California Insurance Code, what information is the agent required to include on their business card?
Must not include any title, designations, or licenses that are not currently held. There are many rules related to business cards on full disclosure, clear communications, and proper identification of agent and insurer.
Which of the following cannot be used in a policy illustration if nonguaranteed elements are intended to pay future premiums?
Vanishing premiums This is true about policy illustrations according to the California Insurance Code.
Which insurance is known for having a level premium with a fixed rate of return resulting in guaranteed cash value?
Whole Life Because whole life has a level premium and a fixed rate of return, the resulting cash value is predictable.
The definition of mortality and morbidity:
Odds of dying versus the odds of disability. Mortal related to death, while morbid relates to illness/disability.
All of the following are true about key person insurance, except: A. The business is the applicant and owner. B. The employee must give written consent by signing the application. C. The business is the beneficiary. D. The death benefit is taxable to the business.
D. The death benefit is taxable to the business. Key person life insurance premium is not deductible by the business and the death benefit is not taxable to the business.
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?
At least 24 hours This rule is designed to protect seniors. It is written as "at least 24 hours" in advance of the first meeting in the client's home.
All of the following describe differences between binding receipts and conditional receipts, except: A. Conditional receipts are commonly used for life insurance applications. B. No claim is paid with either receipt until a policy is issued C. The binding receipt always provides immediate coverage from the date of the receipt D. The conditional receipt can provide coverage from the date of application once the application is later approved by underwriting
B. No claim is paid with either receipt until a policy is issued Under a binding receipt a claim would be paid even if the policy was not issued yet. Binding receipts tend to be used for property insurance.
All of the following statements about mutual insurance companies are correct, except: A. If a mutual company goes public, it demutualizes B. Mutual companies issue policies referred to as participating C. Policy dividends issued by mutual companies are guaranteed and not taxable D. Dividends allow policyholders to share in a mutual companies divisible surplus
C. Policy dividends issued by mutual companies are guaranteed and not taxable Insurance policy dividends are not guaranteed and are not taxable.
Of the following, which best descirbes the difference between life insuracne and annuities?
Life insurance creates an instant estate, while annuities liquidate a sum of money. Life insurance replaces the income the insured would have earned if the insured had lived to retirement age. During the annuitant's retirement years, the annuities slowly pay out money the annuitant already owns.
A life settlement broker
Negotiates life settlement contracts between an owner and providers. This is the definition of a life settlement broker.
What is the usual federal income tax treatment of individual life insurance?
Non-deductibility of premiums, non-taxable death benefits Because premiums are a non-deductible expense, death benefits are tax-free to the beneficiary. In a sense, the money has already been taxed when first earned and before the premium was paid.
Tommy Greene has a CLU certification. Which of th following names would automatically approve for use as his agency's name?
None of the would ever be automatically approved No name is ever automatically approved for licensee use. There are always procedures and background checks to administer.
How does the IRS classify the two different types of retirement accounts?
Qualified and non-qualified "Qualified" means a plan meets certain IRS guidelines so it receives beneficial tax treatment, such as tax deferred. "Non-Qualified" means it does not meet those guidelines, and therefore doe not receive beneficial tax treatment.
Your policy contains the guaranteed insurability rider. When can you purchase additional insurance on you policy?
Without evidence of insurability at specified ages or dates. Contractually, you can only add to the policy when permitted, since no medical qualification is required. Otherwise, the insured would wait for an illness to add to their policy.
Which of the following are characteristics of renewable term?
Allows the policyowner the opportunity to renew the policy at the end ofterm, without evidence of insurability. The premium will increase. Renewable term Insurance may be renewed at the end of the specified term for another term of the same length. When renewed, renewable term premiums will be higher to reflect the insured's attained age.
Which statement is false concerning insurance company regulations?
An insurer suffering from an impairment of their minimum required paid-in capital is labeled solvent. Insurers suffering from an impairment of paid-in capital are insolvent.
In life insurance, beneficiary succession is the method used to determine who will receive death proceeds. If the primary beneficiary is not living upon the death of the insured who will receive the payment?
Contingent beneficiary Contingent/secondary beneficiary is the individual who has the right to receive the face amount of the policy if the primary beneficiary has died and no new primary beneficiary has been named.
Which of the following characteristics would not stop an insurance company from accepting an insurance risk? The item to be insured:
Is part of a large group of homogeneous exposure units. Insurance companies prefer insured's that are part of a large group with similar risks so they can understand the scope of the risk, and charge the appropriate premium.
Which party has the legal authority to name or change the beneficiary?
Policy owner The policy owner/policy holder is usually the payor and has authority to decide who receives the proceeds.
In a group life policy with a death benefit of more than $50,000:
Premium cost for insurance above $50,000 is taxable as income to the employee. Any premiums paid by an employer for an employee's coverage of more than $50,000 are taxable to the employee. Premiums for coverage of $50,000 or less are not taxable to the employee.
Term insurance is best described by which of the following?
Provides temporary protection, builds no cash value, is less expensive, and may be renewed. Term insurance provides a substantial amount of coverage at a low cost. The lower price is possible due to no cash value.
Under the cost of living adjustment rider, the policy:
Will only increase with the inflation rate. There will be an additional premium charged, but no evidence of insurability is required. The COLA rider is tied to an inflation index, which permits the death benefit to increase periodically to offset the effects of inflation. The face amount will not decrease in times of deflation.
Which of the following would not be considered a speculative risk?
Any action that could do harm to your clients well-being such as reckless driving. Any situation that could result in harm, but no chance for financial gain, is a pure risk, not a speculative risk.