Life Final Exam
On a noncontributory employer group life contract, what percentage of the eligible employees must enroll? A. 100% B. 25% C. 50% D. 75%
A. 100% Explanation: In order to help prevent adverse selection, employer group life insurance policies contain participation requirements which assures the insurer that a large percentage of the healthy employees are covered, not just those with health problems. On noncontributory group, where the entire premium is paid by the employer, 100% of the eligible employees must enroll. On contributory group, where the premium is shared by the employer and the employees, 75% of those eligible must enroll.
The rules regarding replacement apply when replacing which of the following types of life insurance? A. Term life B. Group annuities C. Credit life D. Group life
A. Term life Explanation: The rules regarding replacement do not apply when replacing credit life insurance, group life or group annuities. They do apply when replacing other types of insurance, including term life insurance.
Benefits of a group life policy must be paid to the employee's beneficiary, which may not be: A. Their spouse B. Their employer C. Their children D. Their estate
B. Their employer Explanation: Benefits of a group life policy must be paid to the employee's beneficiary, which cannot be the employee's employer.
The net profit of an insurer, less any dividends paid out, is known as their: A. Net capital. B. Working capital. C. Earned surplus. D. Net worth.
C. Earned surplus. Explanation: The earned surplus of an insurer, which is also known as retained earnings, consists of the net profit of the insurer, less any dividends paid out to policyholders. Net profit consists of the total income of the insurer, less all expenses and taxes. Dividends, if declared, are paid out of the insurer's net profit and what is left over after that is known as the earned surplus.
Under the California Insurance Code, all of the following are insurable events EXCEPT: A. Death of a spouse B. Occupational injury or sickness C. Losing money playing the lottery D. Automobile accident
C. Losing money playing the lottery. Explanation: The CIC states that an insurable event is any contingent or unknown event which may damage a person having an insurable interest, or create a liability against such person. However, a lottery or its outcome may not be insured against.
Which department of an insurer is responsible for the selection and classification of risks: Underwriting Marketing Actuarial Claims
Underwriting Explanation: Underwriting is also known as risk classification. Underwriters are employees of the insurer whose job is to select risks that will be profitable for the insurer to write at the premium rate charged.
On employer group life, dependent children may be covered from birth until age: 26. 21. 18. 23.
26. Explanation: On group life, a dependent includes the member's spouse and all children from birth until 26 years of age, or a child 26 years of age or older who is both incapable of self-sustaining employment by reason of mental retardation or physical handicap and chiefly dependent upon the employee for support and maintenance if proof of the incapacity and dependency is furnished to the insurer by the employee within 31 days of the child's attainment of the limiting age.
All life insurance policies and annuities offered for sale to a senior citizen in California shall provide a free look period of ____ days after the receipt of the policy, during which time the applicant may return the contract for a refund of all premiums paid. 30 60 10 20
30 Explanation: Every policy of individual life insurance and every individual annuity contract that is delivered to a senior citizen in this state shall include a notice stating that, after receipt of the policy by the owner, the policy may be returned for cancellation by delivering it or mailing it to the insurer during a free look period of not less than 30 days.
The spouse of a currently insured social security participant who died is eligible to receive monthly life income benefits starting as early as age: 59 1/2. 60. 62. 55.
60 Explanation: A currently insured worker is one who has at least 6 quarters of coverage earned during a 13 quarter period which ends with the calendar quarter in which the covered person dies, becomes eligible for retirement benefits, or becomes disabled. The surviving spouse of a currently insured participant is eligible to receive monthly life income benefits as early as age 60.
All of the following are true regarding convertible term insurance EXCEPT: Conversion is permitted without proof of insurability. A convertible term policy may be converted to any type of life insurance. Coverage may not be increased upon conversion. The premium for the converted policy is based up the insured's current age.
A convertible term policy may be converted to any type of life insurance. Explanation: The owner of a convertible term life insurance policy has the right to convert at any time, but only to a policy other than term, such as whole life. Although conversion may be done without a physical exam, the premium for the converted policy will be based upon the current age of the insured and coverage may not be increased.
Under social security, to be fully insured for full retirement, disability, death and survivor's benefits, an individual must have worked and contributed to social security for at least ____ calendar quarters. A. 40 B. 25 C. 13 D. 10
A. 40 Explanation: Fully insured status under social security is achieved if an individual has worked and contributed to social security for at least 40 calendar quarters. Being fully insured entitles the worker to full retirement, disability, death and survivor benefits.
A licensee who has applied to renew a license is entitled to continue operating under his or her existing license for ____ days after its specified expiration date, or until notified by the department that the renewal application is deficient, whichever comes first, as long as the applicant has satisfied all the license renewal requirements. A. 60 B. 90 C. 120 D. 30
A. 60 Explanation: A licensee who has applied to renew a license shall be entitled to continue operating under their existing license for 60 days after its specified expiration date, or until notified by the department that the renewal application is deficient, whichever comes first, if the applicant has satisfied all license renewal requirements, including submitting their renewal application and fee on or before their expiration date and completing their continuing education requirements.
When ordering an attending physician's statement, the underwriter must include: A. An authorization form signed by the applicant B. A copy of the application C. A privacy protection notice D. A copy of the entire contract
A. An authorization form signed by the applicant Explanation: The underwriter's request for an attending physician's statement must be accompanied by an authorization form signed by the applicant.
The individual upon whose life an annuity is based on is known as the: A. Annuitant B. Insured C. Beneficiary D. Owner
A. Annuitant Explanation: Remember, since annuities do not provide any life insurance protection, the person upon whose life the contract is based is known as the annuitant, not the insured. Although the policyowner and the annuitant are not required to be the same person, they usually are. The death benefit payable to the beneficiary of an annuity consists of the value of the annuitant's account and amounts paid out above the annuitant's cost basis are taxable as ordinary income to the beneficiary.
When must the beneficiary of a life insurance policy have an insurable interest in the insured: A. At no time B. At the time of application C. At time of death D. At both the time of application and the time of death
A. At no time. Explanation: A policyowner may name anyone they want as beneficiary. Beneficiaries need not have an insurable interest in the person insured.
When a new life insurance policy is classified as a modified endowment contract (MEC), the policyholder may be affected in all of the following ways EXCEPT: A. Death benefits are taxable B. An IRS 10% penalty applies to premature distributions prior to age 59 1/2 C. Distributions are taxed as income first and recovery of cost basis second D. Loans are taxable
A. Death benefits are taxable Explanation: Life insurance enjoys favorable tax treatment, including tax free death benefits, tax deferred interest, tax free loans and no premature distribution penalties. However, when interest rates were high, many individuals purchased single premium universal life insurance policies as an investment, rather than as life insurance. As a result, the IRS created a new category of life insurance known as modified endowment contracts, or MECs. While not illegal, these policies lost many of their tax advantages because they build cash value too fast. Although MECs still pay a tax free death benefit to beneficiaries, loans are taxable, a 10% premature distribution penalty applies and on partial withdrawals, the first money out is the interest, not the customer's cost basis (premiums).
The process by which a mutual insurer becomes a stock insurance company is known as: A. Demutualization B. Reincorporation C. De-corporation D. Reorganization
A. Demutualization. Explanation: A domestic incorporated mutual life insurer issuing non-assessable policies on a reserve basis may be converted into an incorporated stock life insurance company, issuing on a reserve basis, non-assessable policies of life insurance. Such a process is known as demutualization.
If a life insurance beneficiary wants all of the proceeds paid out to them in 10 years, they should select which of the following settlement options? A. Fixed period B. Fixed amount C. Life income D. Interest only
A. Fixed period Explanation: To settle a claim means to pay it. When an insured dies, the beneficiary has the choice of several settlement options, including cash, interest only, fixed amount, fixed period and life income. When a beneficiary wants the money paid out to them over a specified period of time, they should select the fixed period settlement option
The person whose life is covered by a life insurance policy is known as the: A. Insured B. Beneficiary C. Policyowner D. Applicant
A. Insured Explanation: Although the policyowner and the insured are often the same individual, they do not have to be. For example, a parent may take out a life insurance policy of their minor child. The parent is the policyowner and the child is the insured. The policyowner has all the rights of ownership, including the right to take a loan, name the beneficiary and to pay the premium.
A person who, for a fee paid by any person other than an insurer, advises any person insured under, named as beneficiary of, or having any interest in, a life or disability insurance contract, in any manner concerning that contract must be licensed as a: A. Life and disability insurance analyst B. Life and accident and health solicitor C. Life only agent D. Life insurance broker
A. Life and disability insurance analyst. Explanation: A life and disability insurance analyst sells advice for a fee, which may be paid by any person other than an insurer.
When recommending to a senior consumer an annuity purchase or the exchange of an annuity that results in another insurance transaction, a producer must have reasonable grounds for believing that the recommendation is: A. Suitable B. Profitable C. Appropriate D. Reasonable
A. Suitable Explanation: California regulations require insurers to establish a system to supervise recommendations and set forth the suitability standards and procedures for recommendations to senior consumers that result in the sale of annuities so that their insurance needs and financial objectives at the time of the transaction are appropriately addressed.
When an applicant reveals conditions that require more information the underwriter will order: A medical information bureau (MIB) report. An investigative consumer report. CAn attending physician's statement. A special questionnaire.
An attending physician's statement. Explanation: An attending physician's statement is a statement requested by the insurer from any doctors that the applicant may have seen within a specified period of time before the policy was applied for. It includes detailed information regarding the purpose of the doctor's visits, results of any tests that were administered, the diagnosis and treatment provided, the length of any hospital stay, and any tests or surgeries that may have been recommended, but have not yet been done.
All of the following criteria must be satisfied before a participant is eligible to receive social security disability income benefits EXCEPT: A. Fully insured status B. 12 month waiting period C. Disability must last at least 12 months or be expected to result in death D. Unable to perform any substantial gainful work
B. 12 month waiting period Explanation: A fully insured social security participant who becomes totally disabled is eligible for disability income benefits if they meet social security's stringent definition of total disability, which requires that an individual must be disabled as a result of a medically defined physical or mental impairment for at least five months and be unable to perform any gainful work. Further, the disability must be expected to last at least 12 months, or be expected to result in death.
Insurable interest must exist: A. At the time of death B. At the time of application C. At all times D. At the time of application and the time of death
B. At the time of application Explanation: On life insurance, an insurable interest must exist at the time of application, but need not continue to exist at the time of loss. Insurable interest is usually based upon either close kinship or economics.
If a corporation enters into an agreement with a shareholder to purchase their shares if they die, they have entered into a: A. Split dollar plan B. Buy/sell agreement C. Life settlement agreement D. Key person agreement
B. Buy/sell agreement Explanation: A buy/sell agreement is not life insurance. It is a legal contract that governs the continuation of either a business partnership upon the death of a partner or a closed corporation upon the death of a shareholder that is funded by life insurance. Buy/sell agreements should be drafted by attorneys, not insurance agents.
A comprehensive long-term care rider added to a life insurance policy will provide coverage for: A. Hospital services that are not covered by Medicare B. Custodial care in a nursing home and home based care C. Physician's services that are not covered by a Medicare Supplement policy D. Medically necessary personal care in an acute care unit of a hospital
B. Custodial care in a nursing home and home based care Explanation: There are several levels of long term care. A rider that provides comprehensive long term care will cover both custodial care in a nursing home and home based care.
An applicant who wants to provide permanent life insurance on themselves and term life insurance coverage for their spouse and children all on one policy should purchase a: A. Joint-life-and-survivorship policy B. Family policy C. Joint life policy D. Family maintenance policy
B. Family policy Explanation: A family life policy (also known as a family protection policy) provides coverage for the policyowner's entire family for just one premium charge. The policy actually consists of permanent whole life insurance on the primary insured and level, convertible term insurance added as a rider to cover the spouse and children.
All of the following are true regarding concealment EXCEPT: A. Information that is not material to the risk or that which the other party waives need not be communicated in a contract B. Only intentional concealment entitles an injured party to rescind the contract C. The materiality of the concealment is the rule used to determine the importance of a misrepresentation D. Information that the other party knows or should have known need not be communicated in a contract
B. Only intentional concealment entitles an injured party to rescind the contract. Explanation: Concealment, whether intentional or unintentional, entitles an injured party to rescind (void) the contract.
All of the following are true regarding the conversion privilege on employer group life EXCEPT: A. The converted policy will be in an amount equal to the amount the terminated employee had under the group policy B. The employer must pay the entire cost of the converted policy C. Terminated employees have 31 days to convert to an individual policy issued by the same insurer D. If a terminated employee dies before their converted policy becomes effective, the claim will be payable under the group policy
B. The employer must pay the entire cost of the converted policy Explanation: A group life policy must contain a provision that if the employment terminates for any reason and the employee applies to the insurer within 31 days after termination, paying the premium applicable to the class of risks to which they belong and to the form and amount of the policy at their then attained age, they are entitled, without producing evidence of insurability, to the issue by the insurer of any individual life policy in any of the forms, other than term insurance, customarily issued by the insurer. The employee must pay the entire premium for the converted policy.
Buying life insurance is a risk management process whereby a person elects to ____ the financial risk of their premature death. A. Reduce B. Transfer C. Avoid D. Retain
B. Transfer Explanation: Risk may be managed several different ways, including risk avoidance, risk retention and risk reduction. However, buying insurance is the most common method of risk management, which involves the transfer of risk to an insurer in consideration of a premium.
On employer group life, premiums paid by an employer for that portion of an employee's group life coverage in excess of $_________ are taxable as income to the employee. A. $75,000 B. $100,000 C. $50,000 D. $25,000
C. $50,000 Explanation: The premium paid for employer group life is tax deductible as a business expense for the employer and is not considered to be income to the employee. However, any premiums paid by an employer for that portion of an employee's group life coverage in excess of $50,000 are taxable as income to the employee.
All life insurance policies and annuities offered for sale to individuals under age 60 in California shall provide a free look period of not less than ____ days nor more than ____ days. A. 30 / 60 B. 20 / 45 C. 10 / 30 D. 5 / 10
C. 10 / 30 Explanation: All life insurance policies and annuities offered for sale to individuals under age 60 in this state shall provide a free look period of not less than 10 days nor more than 30 days.
A licensed life agent may transmit an application for insurance to an insurer for which the life agent is not appointed. If the insurer issues the policy, the insurer is considered to have authorized the agent to act on its behalf, and they must forward a notice of appointment to the Commissioner within ____ days after receiving the application. A. 21 B. 10 C. 14 D. 30
C. 14 Explanation: A licensed life agent may transmit an application for insurance to an insurer for which the life agent is not appointed. If the insurer issues the policy, the insurer is considered to have authorized the agent to act on its behalf, and the insurer shall forward a notice of appointment to the Commissioner within 14 days.
Which of the following is true regarding the accelerated benefits rider: A. Amounts paid out under the rider constitute a policy loan B. Amounts paid out are taxable to the policyowner as ordinary income C. Amounts paid out will reduce the future death benefit payable to a beneficiary D. Amounts paid out must be used to pay for medical expenses
C. Amounts paid out will reduce the future death benefit payable to a beneficiary The accelerated benefits rider serves as a viable alternative to making a viatical settlement. The rider allows a policyowner to accelerate receipt of a portion of the policy's death benefit upon the occurrence of a critical or terminal illness. Depending upon the insurer, accelerated (or living) benefits may be included as a policy provision or added as a rider, generally for no additional premium charge. All insureds are eligible and there are no restrictions on the use of the funds. Accelerated benefits are not taxable, although future death benefits payable to a beneficiary will be reduced by any amounts paid under the terms of this rider.
Life insurance applications must be signed by all of the following EXCEPT the: A. Insured B. Agent C. Beneficiary D. Policyowner
C. Beneficiary Explanation: Although an agent is not a party to a life insurance contract, they are a party to the application, so they must sign it along with the insured and the policyowner, if different than the insured. Beneficiaries are not considered to be a party to the application, so they need not sign it.
Licensees must print their license number on all of the following EXCEPT: A. Advertisements B. Business cards C. Correspondence D. Price quotations
C. Correspondence. Explanation: Every licensee shall print on its business cards, price quotations and advertisements its license number in type the same size as its telephone number, address or fax number. License numbers are not required to be printed on other types of correspondence.
All of the following are true regarding key person life insurance EXCEPT: A. The key person is the insured B. The employer is both the policyholder and the beneficiary C. Death benefits are taxable D. Premiums are not tax deductible
C. Death benefits are taxable Explanation: Key person life insurance utilizes an individual life insurance policy for a business purpose. On a key person life policy, the employer is both the policyowner and the beneficiary and the key person is the insured. Although the premiums paid by the employer are not tax deductible, the proceeds payable upon the death of the key person are not taxable to the employer, who would use them to hire and train a replacement.
Which type of term life insurance is usually used as mortgage redemption life insurance? A. Level B. Home service C. Decreasing D. Renewable
C. Decreasing. Explanation: Decreasing term life insurance may be set up to decrease straight-line each year, or to decrease at exactly the same rate as a real estate mortgage amortizes. If the latter, the policy limit will always be enough to pay no more and no less than the actual mortgage balance upon the death of the insured. Decreasing term life insurance has a level premium, but a decreasing face amount. Although most is convertible, it is not renewable, since at policy expiration there is nothing left to renew.
Which of the following is not a dividend option offered on participating life insurance policies: A. Accumulation at interest B. Reduced premium payment C. Extended term D. 1-year term
C. Extended term Explanation: On a participating policy issued by a mutual insurer, the policyholders might participate in the insurer's profits in the form of dividends, although they may not be guaranteed. If declared, the policyowner may choose to receive the dividends several different ways, including cash, interest, paid-up additions, applied to the premium when due or as a premium to buy one-year term insurance. However, the extended term option is a non-forfeiture option, not a dividend option.
All of the following are true regarding adverse selection EXCEPT: A. It may occur if an insurer's rates are too low in view of losses that may occur B. It may occur if an insurer's underwriting guidelines are too liberal C. Insurers may discriminate against those who may incur losses in order to avoid it D. It may occur because a catastrophic insurable event is not excluded
C. Insurers may discriminate against those who may incur losses in order to avoid it Explanation: Although insurers may utilize various strategies designed to prevent adverse selection, they cannot discriminate against those who may incur losses to avoid it.
A 30 year old applicant wants to buy a $100,000 ordinary life insurance policy with the lowest possible initial premium outlay. Which of the following should the agent recommend? A. Single premium whole life B. Limited pay whole life C. Modified whole life D. Traditional whole life
C. Modified whole life Explanation: On modified whole life, it is the premium that is modified (or discounted) in the early years of the policy, not the face amount. Of the responses listed, the modified whole life policy would have the lowest initial premium outlay at policy inception, followed by traditional whole life, limited-pay whole life and single premium whole life, which would be the most expensive.
Upon annuitization, which annuity pay out option will generate the highest monthly payments? A. Installment certain B. Joint-and-survivor C. Straight life D. Refund life
C. Straight life Explanation: Upon annuitization, annuity owners must select a pay out option, which can never be changed. Since the straight life (or life income) pay out option has no beneficiary, it is considered the most risky choice. However, generally the higher the risk, the higher the reward.
A policy shall specify all of the following EXCEPT: A. The risks insured against B. The parties to the contract C. The financial rating of the insurer D. The property or life insured
C. The financial rating of the insurer. Explanation: An exposure is a condition that could result in a loss. A peril is a cause of loss. Risk is the chance of loss and a hazard is something that increases the risk.
Every life and disability agent must maintain all records at their principal place of business for a minimum of ____ years, readily available and open to the inspection of the Commissioner at all times. A. 2 B. 3 C. 4 D. 5
D. 5 Explanation: Agents must maintain all records at their principal place of business for a minimum of five years, readily available and open to the inspection of the Commissioner at all times.
A non-taxable refund of premium that may be returned to a policyowner by an insurance company under a participating life insurance policy is known as a: A. Incentive B. Bonus C. Rebate D. Dividend
D. Dividend. Explanation: Dividends paid out to policyholders of a mutual insurer are not taxable since they are treated as a return of a premium overpayment. Remember, insurance premiums are paid with after tax dollars, so a dividend is simply a return of money that the policyholder has already paid tax on.
All of the following are true regarding participating life insurance policies issued by mutual insurers EXCEPT: A. Dividends are legally defined as a return of premium and are not taxable. B. Dividend options may be changed by the policyowner at any time. C. Dividends are paid from accumulated surplus at the discretion of the board of directors. D. Dividends are guaranteed to be paid if the insurer makes a profit.
D. Dividends are guaranteed to be paid if the insurer makes a profit. Explanation: On participating life insurance policies, the payment of dividends to the policyholders is at the discretion of the board of directors of the insurer. Remember, dividends may never be guaranteed and the insurer does not have to pay them, whether they make a profit or not.
War and aviation are common types of life insurance: A. Covered perils B. Endorsements C. Riders D. Exclusions
D. Exclusions Explanation: Life insurance policies contain very few exclusions, other than death due to war, aviation and suicide during the first two years. The war exclusion applies to death due to war and in some cases, includes death due to military action. The aviation exclusion addresses death occurring while flying a private aircraft, not regularly scheduled commercial planes
All of the following would be considered to be ordinary life insurance EXCEPT: A. Term B. Whole life C. Endowment D. Group
D. Group Explanation: Mortality tables are used to calculate the rates and benefits for ordinary life insurance, which include whole life, term and endowment policies. Group life is not considered to be ordinary life, and group rates and benefits are usually based upon the prior claims experience of the group.
Which of the following life insurance riders allows the policyowner to increase coverage periodically without providing proof of insurability: A. Accelerated benefits B. Accidental death benefit C. Waiver of premium D. Guaranteed insurability
D. Guaranteed insurability Explanation: The guaranteed insurability rider allows the insured to purchase additional life insurance in the future without furnishing proof of insurability, although all options to do so must be exercised prior to reaching a certain age, often age 35. Option dates generally occur at three year intervals or when the insured gets married or has a child. If the option is not exercised it is lost, and the insured will have to wait for the next option date to occur. Of course, the premium for the additional amounts of insurance added will be based upon the insured's age at the time the option is exercised. Without this rider, the insured may be required to purchase more than one life insurance policy in order to increase coverage, assuming they can still pass a physical exam.
A renewable term life insurance policy has a(n): A. Decreasing death benefit and a level premium B. Increasing death benefit and a level premium C. Level death benefits with a decreasing premium D. Level death benefit with an increasing premium
D. Level death benefit with an increasing premium. Explanation: Although renewable term life insurance has a level face amount, the premiums will increase as the insured gets older. Renewable term may be written for one year, five years, 10 years or even longer. On annual renewable term, the premium will increase each year, but for renewable term written for longer periods of time, the premium is based upon the average age of the insured during the term.
A life insurance policy supplemental illustration may be furnished in addition to a basic illustration as long as it illustrates: A. Guaranteed elements and other important information B. A scale of guaranteed elements C. Non-guaranteed elements more favorably than shown in the basic illustration D. Non-guaranteed elements that are not guaranteed or not determined at policy issue
D. Non-guaranteed elements that are not guaranteed or not determined at policy issue. Explanation: A supplemental illustration may be provided so long as: 1) it is accompanied by or preceded by a basic illustration; 2) the non-guaranteed elements shown are not more favorable to the policyowner than those shown in the basic illustration; 3) it contains the same statement required of a basic illustration that non-guaranteed elements are not guaranteed; and 4) the supplemental illustration includes a notice referring to the basic illustration for guaranteed elements and other important information.
All of the following are non-forfeiture options contained in a cash value life insurance policy EXCEPT: A. Cash surrender B. Reduced paid-up C. Extended term D. Paid-up additions
D. Paid-up additions Explanation: Be sure to know and understand the three non-forfeiture options that are designed to protect a customer's cash value upon policy lapse. Paid-up additions are not a non-forfeiture option, they are a dividend option.
A hazard is defined as: A. A cause of loss B. The possibility of loss C. The uncertainty of loss D. Something that increases the chance of loss
D. Something that increases the chance of loss Explanation: A hazard is something that increases the risk, such as smoking. A peril is a cause of loss and risk is defined at the possibility, uncertainty or chance of loss.
All of the following are true regarding the waiver of premium rider when it is attached to a whole life insurance policy EXCEPT: A. It usually drops off the policy when the insured turns age 65 B. Premiums are waived after the insured has been disabled for 6 months C. An additional premium is charged D. The amount of the waived premium due is treated as a policy loan
D. The amount of the waived premium due is treated as a policy loan Explanation: The waiver of premium rider is actually a type of credit disability insurance that is added to a life insurance policy for an additional premium charge. If the insured is disabled for more than six months, the rider will pay the insured's premium until they either recover or die. Since the premium is being paid by the rider, the cash value in the policy will continue to accumulate as if the insured was paying the premium themselves. If the insured does not become disabled, the rider will usually drop off the policy at age 65 and the overall policy premium will be reduced.
If an applicant for life insurance misstated their age on their application and dies 5 years later: A. Coverage will be contested due to material misrepresentation B. No coverage applies, but the premiums will be refunded to the beneficiary C. The premium will be adjusted to what it should have been if the correct age was known D.The death benefit will be adjusted to what the premium paid would have purchased if the correct age was known
D. The death benefit will be adjusted to what the premium paid would have purchased if the correct age was known. Explanation: Although a life insurance policy is incontestable after it has been in force for two years, the misstatement of age clause goes on indefinitely. Although a claim may never be denied for misstatement of age, the amount payable to the beneficiary may be adjusted to reflect how much coverage the premium paid by the insured would have purchased if the correct age was known.
Under the Internal Revenue Code section 1035, all of the following life insurance exchanges are tax deferred EXCEPT: A. The exchange of life insurance for an annuity B. The exchange of a life insurance policy for another life insurance policy C. The exchange of an annuity for another annuity D. The exchange of an annuity for a life insurance policy
D. The exchange of an annuity for a life insurance policy Explanation: Under the Internal Revenue Code section 1035, if a policyowner takes cash surrender but uses the money to purchase a new policy, they may be able to defer taxes on the accumulated interest by making a 1035 exchange which allows a life policy to be exchanged for another life policy or annuity and an annuity to be exchanged for another annuity. However, annuities may not be exchanged for life insurance, since that would put the customer in a better overall tax position upon death.
Under the CIC, all of the following are true when a person transacts insurance without a valid license EXCEPT: A. The may be imprisoned in a county jail for up to 1 year B. The may be subject to both a fine and imprisonment C. The may be fined up to $50,000 D. They are guilty of a felony
D. They are guilty of a felony Explanation: Transacting insurance without a valid license is a misdemeanor, not a felony.
All of the following are components of a life insurance policy premium EXCEPT: Dividends. Investment returns. Cost of reinsurance. Mortality cost.
Dividends. Explanation: To calculate a life insurance premium, the insurer adds up their expenses, including the cost of death (mortality) and other expenses (such as commissions and reinsurance), then they subtract investment income that is generated from investing their insured's unearned premiums. Dividends are not a component of premium calculation, since they are not an expense of the company. Remember, dividends are not guaranteed, and if paid, are considered to be a return of an overpayment, which is why they are not taxable.
At the time of application, life settlement brokers must disclose all of the following EXCEPT: A. The transaction may have tax implications and advice should be sought from a qualified tax advisor B. Affiliations between the broker and the person making an offer on a proposed life settlement contract C.That the owner will be required to disclose medical, financial and personal information D. Accelerated benefits may be a possible alternative
Explanation: A life settlement transaction occurs when a policyowner sells their life insurance policy to another for more than its cash value, but less than its face amount. A life settlement broker is a person who represents the policyowner in a life settlement transaction. At the time the policyowner applies to make a life settlement transaction, the broker must disclose that accelerated benefits may be a possible alternative, that the transaction may have tax implications and that the owner will be required to disclose medical, financial and personal information. Any affiliations between the broker and the person making an offer to buy the policy must be disclosed by the broker at the time of the offer, not at the time of the application.
All are true about representations EXCEPT: A. A representation is false when the facts fail to correspond with its assertions B. The injured party may rescind the contract if a representation is false in a material point C. A representation in an insurance contract qualifies as an implied warranty D. A representation may be altered or withdrawn before or after the insurance is effected
Explanation: A representation may be altered or withdrawn before an insurance policy is effected, but not after. D. A representation may be altered or withdrawn before or after the insurance is effected
Using the needs approach to quantifying, how much life insurance a client needs focuses on all of the following except: A. Children's education B. Income replacement C. Funeral expenses D. Unpaid mortgage obligation
Explanation: It is the human life value approach to determining how much life insurance coverage a person should buy that involves replacing the future income lost due to the premature death of the insured.
The legal doctrine that states that any ambiguity in an insurance contract will be construed in favor of the insured is known as the Doctrine of: A Reasonable expectations B. Adhesion C. Indemnity D. Utmost good faith
Explanation: Since an insured does not have the opportunity to negotiate the terms and conditions contained in an insurance contract, any vague language in the contract is construed against the insurer, since they wrote it. This is known as the Doctrine of Adhesion.
A condition that could result in a loss is known as a: Risk. Hazard. Exposure. Peril.
Exposure. Explanation: An exposure is a condition that could result in a loss. A peril is a cause of loss. Risk is the chance of loss and a hazard is something that increases the risk.
Every licensee must notify the Commissioner of a change in their email, residence, principal business or mailing address: At license renewal. Immediately. Within 30 days. Within 45 days.
Immediately. Explanation: Every licensee shall immediately notify the Commissioner using an electronic service approved by the Commissioner of any change in his or her email, residence, principal business, or mailing address.
All of the following are true regarding a mortality table EXCEPT: It is developed by actuaries. It is based upon the law of large numbers. It shows the rate of death per thousand at each given age. It shows which individuals will die each year at a given age.
It shows which individuals will die each year at a given age Explanation: Life insurance mortality tables are used by insurance company actuaries to develop their rates and benefits. They show the rate of death per thousand at given ages on the average, but mortality tables cannot be used to determine which individuals will die at a given age.
Many insurers follow the principle of indemnity. To indemnify means to: Make whole. Guarantee. Promise. Coordinate.
Make whole. Explanation: To indemnify other persons is to restore them financially to the position they were in prior to a loss, or to make them whole again financially.
Contributions to a Roth IRA withdrawn prior to age 59 1/2: Are subject to a 10% IRS premature distribution penalty. May be withdrawn without tax or penalty. Are taxable as ordinary income and subject to a 10% penalty. Are taxable as ordinary income.
May be withdrawn without tax or penalty. Explanation: Since the contributions to a Roth IRA are made in after tax dollars, the participant may withdraw the money they contributed at any time, without tax or penalty.
All are true regarding the reinstatement of a lapsed life insurance policy EXCEPT: A new physical examination is required. A policy that has been surrendered for cash may not be reinstated. The premium for the reinstated policy will be based upon the insured's original age. No new contestability clause or suicide exclusion may apply.
No new contestability clause or suicide exclusion may apply. Explanation: Most insurers will allow an insured up to three years to reinstate a lapsed life insurance policy by paying their overdue premium and providing satisfactory proof of insurability. However, since both the suicide clause and the contestability clause start over on reinstatement, the main advantage of reinstating would be that the premium for the reinstated policy is based upon the insured's original age, not the age at reinstatement. Remember though, a policy that has been surrendered for cash cannot be reinstated.
The Commissioner may, without notice or hearing, suspend or revoke the permanent license of a licensee for any of the following reasons EXCEPT: Having a previously issued professional, occupational, or vocational license suspended or revoked for cause by any licensing authority within the past 5 years. Placing before the public any advertisement which uses the existence of the California Life and Health Insurance Guarantee Association for the purpose of inducing the sale of insurance. The conviction of, or a plea of no contest to, a felony. Conviction of, or a plea of no contest to, a misdemeanor denounced by the insurance code.
Placing before the public any advertisement which uses the existence of the California Life and Health Insurance Guarantee Association for the purpose of inducing the sale of insurance. Explanation: Every licensee shall print on its business cards, price quotations and advertisements its license number in type the same size as its telephone number, address or fax number. License numbers are not required to be printed on other types of correspondence.
The chance of loss without any possibility for gain is known as: Uninsurable risk. Assumed risk. Pure risk. Speculative risk.
Pure risk. Explanation: Pure risk is the only type of risk that is insurable. Pure risk has the chance of loss, with no possibility for gain. Speculative risk, which is uninsurable, has both the chance of loss but also the chance for gain. In other words, if you play the lottery you might win, but you probably will not.
All of the following are true regarding Traditional IRAs EXCEPT: Qualified distributions are tax free. Premature distributions are subject to a 10% IRS penalty. Required minimum distributions must begin by age 70 1/2. Contributions may be tax deductible.
Qualified distributions are tax free. Explanation: Assuming that all of the contributions to a Traditional IRA were made with before tax dollars, both the contributions and the interest earned will be taxable as ordinary income to the participant upon distribution. However, on a Roth IRA, distributions are tax free to the participant if they maintained the Roth for at least five years and are at least age 59 1/2. Remember, contributions to a Roth IRA are always made in after dollars.
Which type of annuity has no accumulation period? Single premium immediate. Level premium deferred. Flexible premium deferred. Single premium deferred.
Single premium immediate. Explanation: Deferred annuities have two stages: the accumulation (or pay in) period and the annuity (or pay out) period. However, a single premium immediate annuity is purchased with a lump-sum and annuitized right away, so it does not have any accumulation period.
The entire contract provision on a life insurance policy states: The policy and any verbal statements made by the applicant constitute the entire contract The policy is the entire contract that is admissible in court The entire contract includes the policy and the application, if attached The entire contract includes all statements made by the applicant, insured and agent
The entire contract includes the policy and the application, if attached. Explanation: Under the rules of evidence, only the entire contract is admissible in court. The entire contract consists of the policy and the insured's application, if attached to the policy at issue. Remember, a life insurer may contest a life insurance claim during the first two years of a new policy if the insured lied about a material fact on their application, but only if the application is part of the entire contract. If it is not attached, it would be inadmissible in court and the insurer would have to pay the claim.
Which of the following insurance mathematical premises states that the greater the number of similar exposures, the easier it is to predict future losses? The principle of indemnity The law of large numbers The principle of insurable interest The law of diminishing returns
The law of large numbers. Explanation: Life insurers base their rates and benefits on a mortality table, which utilizes the law of large numbers. This mathematical premise states that the more individuals the company insures, the greater the number of claims they will have, but the easier they will be to predict.
Which of the following is true regarding variable annuities? They are also known as equity indexed annuities. They are considered tax-qualified plans. Unit values fluctuate depending upon the performance of the separate account. They have a guaranteed minimum rate of return.
Unit values fluctuate depending upon the performance of the separate account. Explanation: Premiums paid by variable annuity contract owners are invested in the insurers separate account, which is very similar to a mutual fund in that unit values will fluctuate depending upon performance and there is no guaranteed rate of return. Variable annuities are considered to be securities products, and agents need both a life license and a FINRA securities license to sell them. However, although equity indexed annuity performance is often linked to the Standard and Poor's 500 stock index, they are not considered to be securities since both principal and interest are guaranteed. Further, most annuities are non-qualified, meaning that they are purchased with after tax dollars.