Life insurance exam
The Federal Fair Credit Reporting Act a)Prevents money laundering. b)Regulates consumer reports. c)Protects customer privacy. d)Regulates telemarketing.
Regulates consumer reports.
Which of the following components must a life insurance policy have to allow policy loans? a)Flexible premiums b)Face amount c)Cash value d)Dividends
Cash value
An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay? a)50% tax on the amount not distributed as required b)No penalties, since the owner is older than 59 ½ c)10% for early withdrawal d)15% for early withdrawal
50% tax on the amount not distributed as required
Which of the following premium modes would result in the highest annual cost for an insurance policy? a)Monthly b)Quarterly c)Semi-annual d)Annual
Monthly
Which of the following types of insurance covers the whole family in a single contract? a)Whole Life Policy b)Family Policy c)Family Income Policy d)Survivorship Policy
Family Policy
Variable Whole Life insurance is based on what type of premium? a)Graded b)Level fixed c)Increasing d)Flexible
Level fixed
Insurance is a contract by which one seeks to protect another from a)Hazards. b)Loss. c)Exposure. d)Uncertainty.
Loss
According to the California Insurance Code, any agent violating the regulations relating to misrepresentation will be charged with a a)Felony, a fine not to exceed $2,000, and a possible 2-5 year imprisonment. b)Felony, a fine not to exceed $5,000, and a possible 2 year imprisonment. c)Misdemeanor, a fine not to exceed $25,000, and/or a possible 1-year imprisonment. d)Misdemeanor, a fine not to exceed $500, and a possible 1-year imprisonment.
Misdemeanor, a fine not to exceed $25,000, and/or a possible 1-year imprisonment.
Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life? a)Coverage is based on the predicted needs of that family. b)The death of an insured must be premature. c)It must be assumed that the death of the insured will occur immediately. d)Need is predicted using the number of years until the insured's retirement.
Need is predicted using the number of years until the insured's retirement.
All of the following are true regarding insurance policy loans EXCEPT a)The policy will terminate if the loan plus interest equals or exceeds the cash value of the policy. b)Policyowners can borrow up to the full amount of their whole life policy's cash value. c)Policy loans can be made on policies that do not accumulate cash value. d)The amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies.
Policy loans can be made on policies that do not accumulate cash value.
Every long-term care insurer in California must submit to the Commissioner a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. These submitted agent lists must be updated at least a)Quarterly b)Annually c)Semiannually d)Monthly
Semiannually
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT a)Delivery receipt. b)Signed waiver of premium. c)Statement of good health. d)Payment of premium.
Signed waiver of premium.
Which type of life insurance policy generates immediate cash value? a)Single Premium b)Level Term c)Decreasing Term d)Continuous Premium
Single Premium
The interest earned on policy dividends is a)40% taxable, similar to a capital gain. b)Taxable. c)Nontaxable. d)Tax deductible
Taxable.
If an insured continually uses the automatic premium loan option to pay the policy premium, a)The policy will terminate when the cash value is reduced to nothing. b)The face amount of the policy will be reduced by the automatic premium loan amount. c)The cash value will continue to increase. d)The insurer will increase the premium amount.
The policy will terminate when the cash value is reduced to nothing.
To which of the following products does the Replacement Regulation apply? a)Converting an existing policy with the same insurer b)Whole life insurance c)Group annuities d)Credit life insurance
Whole life insurance
Which of the following is TRUE for both equity indexed annuities and fixed annuities? a)They are both tied to an equity index. b)Both are considered to be more risky than variable annuities. c)They invest on a conservative basis. d)They have a guaranteed minimum interest rate.
They have a guaranteed minimum interest rate.
A tax-sheltered annuity is a special tax-favored retirement plan available to a)Certain groups depending on factors such as race, gender, and age. b)Certain groups of employees only. c)Anyone. d)Certain age groups only.
Certain groups of employees only.
What happens when a policy is surrendered for its cash value? a)Coverage ends but the policy can be reinstated at any time .b)The policy can be reinstated by paying back all policy loans and premiums. c)The policy can be converted to term coverage. d)Coverage ends and the policy cannot be reinstated.
Coverage ends and the policy cannot be reinstated.
Written binders provide insurance before the policy is actually issued. The time period between the issuance of the binder and the policy's effective date is called a)Temporary term. b)Grace period. c)Binding period. d)Interim term.
Temporary term.
An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term? a)The insured must provide evidence of insurability to renew the policy. b)The insured may only convert the policy to another term policy. c)The insured may renew the policy for another 10 years at the same premium rate. d)The insured may renew the policy for another 10 years, but at a higher premium rate.
The insured may renew the policy for another 10 years, but at a higher premium rate.
All of the following are true regarding the guaranteed insurability rider EXCEPT a)The insured may purchase additional insurance up to the amount specified in the base policy. b)It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. c)This rider is available to all insureds with no additional premium. d)The insured may purchase additional coverage at the attained age.
This rider is available to all insureds with no additional premium.
During the free-look period, the premium for a variable annuity may be invested in all of the following EXCEPT a)Mutual funds (only upon the investor's request). b)Value funds. c)Fixed-income investments. d)Money-market funds.
Value funds.
Which of the following CANNOT be included along with illustrations used to sell life insurance? a)Original death benefit b)Vanishing premium information c)Name of the insurer d)Rating information
Vanishing premium information
To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters? a)4 credits b)6 credits c)10 credits d)40 credits
6 credits
Which of the following best describes the concept that the insured pays a small amount of premiuim for a large amount of risk on the part of the insurance company?
Aleatory
All of the following are personal uses of life insurance EXCEPT a)Cash accumulation. b)Buy-sell agreement. c)Survivor protection. d)Estate creation.
Buy-sell agreement.
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT a) Legal purpose b) offer and accpetance c) Condition d) Competent parties
Condition
A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? a)Cost of Living Rider b)Value Adjustment Rider c)Return of Premium Rider d)Inflation Rider
Cost of Living Rider
Which of the following annuity riders ensures that the owner will receive from an annuity at least the amount paid for the annuity? a)Guaranteed Lifetime Earning b)Guaranteed Lifetime Withdrawal c)Guaranteed Minimum Income d)Guaranteed Minimum Accumulation
Guaranteed Lifetime Withdrawal
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? a)Stop-loss b)Consideration c)Reasonable expectations d)Indemnity
Indemnity
In California, a person applying for an insurance license is considered to have been convicted of a misdemeanor or felony if the person entered all of the following pleas EXCEPT a)Guilty .b)Nolo contendere. c)No contest. d)Innocent.
Innocent.
The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? a)Interest only option b)Life income with period certain c)Joint and survivor d)Fixed amount option
Interest only option
Which of the following is correct regarding credit life insurance? a)It has a maximum term of 20 years. b)It insures the life of a debtor. c)It is purchased on an installment basis. d)It insures the life of a creditor.
It insures the life of a debtor.
Which of the following statements best describes the effect the Accelerated Benefit provision would have on the benefits paid to the beneficiary ?a)It will not affect the benefits paid to the beneficiary. b)It will reduce the benefits by 70%. c)It will increase the benefits paid to the beneficiary. d)It will decrease the benefits paid to the beneficiary.
It will decrease the benefits paid to the beneficiary.
Signing and dating a delivery receipt for a life insurance policy helps to establish all of the following timeframes EXCEPT a)The Grace Period. b)The Incontestability Period. c)The Free-Look Period. d)The Right of Rescission.
The Grace Period.
An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? a)The date of policy delivery b)The date of issue c)The date of application d)The date of medical exam
The date of medical exam
What is the purpose of a suicide provision within a life insurance policy? a)To limit the insurer's liability after the 2 year waiting period b)To deter the policyowner from committing suicide c)To protect the policyowner d)To protect the insurer from persons who purchase life insurance with the intention of committing suicide
To protect the insurer from persons who purchase life insurance with the intention of committing suicide
An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of a)A prearranged funeral plan. b)A viatical settlement. c)Third-party ownership. d)A STOLI policy.
A STOLI policy.
An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement? a)$0 b)$100,000 c)$200,000 d)$100,000 plus the total of paid premiums
$200,000
All of the following are examples of third-party ownership of a life insurance policy EXCEPT a)When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. b)An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. c)An insured couple purchases a life insurance policy insuring the life of their grandson. d)A company purchases a life insurance policy on their manager, who is an important part of the operation.
An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.
An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an a)Self-insurer. b)Authorized insurer. c)Local insurer. d)Certified insurer.
Authorized insurer
When the partners of a business develop an arrangement whereby should one of them die or become permanently disabled, the other partners would purchase the interest of the deceased or disabled partner at a predetermined price, this is called a/an a)Key person plan. b)Business overhead expense plan. c)Executive bonus plan. d)Business continuation plan.
Business continuation plan.
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? a)Representation b)Adhesion c)Consideration d)Good faith
Consideration
All of the following statements are true of a nonqualified retirement plan EXCEPT a)They do not qualify for special tax treatment by the IRS. b)Contributions are tax exempt. c)Increases of funds are not taxed until received. d)Contributions grow tax deferred.
Contributions are tax exempt.
Which statement regarding insurable risks is NOT correct? a)Insurance cannot be mandatory. b)The insurable risk needs to be statistically predictable. c)An insurable risk must involve a loss that is definite as to cause, time, place and amount. d)Insureds cannot be randomly selected.
Insureds cannot be randomly selected.
What describes the specific information about a policy? a)Producer's report b)Policy summary c)Illustrations d)Buyer's guide
Policy summary
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? a)Premiums are not tax deductible as a business expense. b)Premiums are tax deductible by the key employee. c)Premiums are tax deductible as a business expense. d)Premiums are taxable to the employee.
Premiums are not tax deductible as a business expense.
When may a representation be withdrawn? a) After the policy is issued b) Within the first two years of the policy c) Prior to the issuance of the policy d) at any time
Prior to the issuance
A life insurance policy can be delivered by all of the following means, EXCEPT a)First class mail with a delivery receipt. b)Personal delivery by a trained employee of the insurer, with a delivery receipt. c)Certified mail. d)Priority mail.
Priority mail.
What describes a situation when poor risks are balanced with preferred risks, and average risks are in the middle? a)Ideally insurable risk b)Profitable distribution of exposures c)Adverse selection d)Equitable spread of risk
Profitable distribution of exposures
All of the following are the responsibilities of every long-term care insurer in California EXCEPT a)Provide enough business to solicit long-term care insurance. b)Establish marketing procedures to assure that any comparison of policies will be fair and accurate. c)Establish marketing procedures to assure excessive insurance is not sold or issued. d)Submit to the Commissioner a list of all agents authorized to solicit individual consumers for the sale of long-term care insurance.
Provide enough business to solicit long-term care insurance.
Under an extended term nonforfeiture option, the policy cash value is converted to a)The same face amount as in the whole life policy. b)The face amount equal to the cash value. c)A lower face amount than the whole life policy. d)A higher face amount than the whole life policy.
The same face amount as in the whole life policy.
Which of the following statements regarding policy dividends is true? a)They are automatically paid out to policyholders. b)They are available in any life insurance policy. c)They are guaranteed .d)They are a refund of unearned premiums.
They are a refund of unearned premiums
A young father would like a life insurance policy to provide coverage for all five family members at the lowest cost. Which type of policy would he most likely buy? a)Family Protection Policy b)Universal Life Policy c)Family Income Policy d)Level Term Policy
Family Protection Policy
Which of the following annuity riders ensures investors will receive a set amount of income annually? a)Guaranteed Lifetime Earnings b)Guaranteed Lifetime Withdrawal c)Guaranteed Minimum Income Benefit d)Guaranteed Minimum Accumulation Benefit
Guaranteed Minimum Income Benefit
Which of the following is true regarding a policy with a face value less than $10,000? a)The policy can be cancelled with full refund of premium at any time. b)If it's returned during the free look period, the agreement will be void. c)An insured cannot return the policy. d)If it's returned during the free look period, the contract will be cancelled, but the insurer will retain the premium paid.
If it's returned during the free look period, the agreement will be void.
Which of the following policy components contains the company's promise to pay? a)Premium mode b)Owner's rights c)Entire contract provision d)Insuring clause
Insuring clause
Which of the following riders would NOT cause the Death Benefit to increase? a)Guaranteed Insurability Rider b)Cost of Living Rider c)Accidental Death Rider d)Payor Benefit Rider
Payor Benefit Rider
Which of the following is an example of liquidity in a life insurance contract? a)The money in a savings account b)The cash value available to the policyowner c)The death benefit paid to the beneficiary d)The flexible premium
The cash value available to the policyowner
An Adjustable Life policyowner can change which of the following policy features? a)The mortality expense b)The investment account c)The insured d)The coverage period
The coverage period
For the purpose of insurance, risk is defined as a)The uncertainty or chance of loss. b)The certainty of loss. c)The cause of loss. d)An event that increases the amount of loss.
The uncertainty or chance of loss.
Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? a)Automatic premium loan b)Extended term c)Reinstatement d)Reduced paid-up option
Automatic premium loan
Who is a third-party owner? a)An insurer who issues a policy for two people b)An employee in a group policy c)An irrevocable beneficiary d)A policyowner who is not the insured
A policyowner who is not the insured
The protection of the insurer from adverse selection is provided in part by a)A drop in applicants. b)A reduction in coverage .c)A profitable distribution of exposures. d)Reducing costs.
A profitable distribution of exposures.
Any insurance agent who engages in the insurance business and violates the Code with respect to insurance replacement shall on the first violation a)Be administratively suspended from licensing for a period of 180 days. b)Be fined a sum of $5,000. c)Be fined a sum of $1,000. d)Be fined a sum of $10,000.
Be fined a sum of $1,000.
All of the following statements are correct regarding credit life insurance EXCEPT a)Benefits are paid to the borrower's beneficiary. b)The amount of insurance permissible is limited per borrower. c)Premiums are usually paid by the borrower. d)Benefits are paid to the creditor.
Benefits are paid to the borrower's beneficiary.
Which of the following statements regarding Business Overhead Expense policies is NOT true? a)Any benefits received are taxable to the business .b)Leased equipment expenses are covered by the plan. c)Benefits are usually limited to six months .d)Premiums paid for BOE are tax-deductible.
Benefits are usually limited to six months
The violation of a material warranty or other material provision of a policy allows a)Only the insured to rescind. b)Only the insurer to rescind. c)Both the insurer and the insured to rescind. d)Neither the insurer nor the insured to rescind.
Both the insurer and the insured to rescind.
Which of the following is NOT fundable by annuities? a)A person's retirement b)Estate liquidation c)Death benefits d)Cash accumulation for any reason
Death benefits
An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation? a)Universal life b)Whole life c)Decreasing term d)Variable life
Decreasing term
Which of the following types of insurance policies is most commonly used in credit life insurance? a)Whole life b)Equity indexed life c)Decreasing term d)Increasing term
Decreasing term
Which of the following best describes what policy dividends are? a)Guaranteed b)Distribution of excess funds c)Income d)Profit
Distribution of excess funds
If an annuitant dies before annuitization occurs, what will the beneficiary receive? a)Cash value of the plan b)Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount c)Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount d)Amount paid into the plan
Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount
When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? a)In lesser amounts for the remaining policy term of age 100. b)Equal to the cash value surrendered from the policy c)The same as the original policy minus the cash value d)Equal to the original policy for as long as the cash values will purchase.
Equal to the original policy for as long as the cash values will purchase.
Which of the following are the authorities that an agent can hold? a)Primary and secondary b)Express and implied c)Apparent and allowed d)Authorized and admitted
Express and implied
The growing tendency of individuals to file lawsuits and to claim tremendous amounts for alleged damages is known as a)Legal hazard. b)Double indemnity. c)Legal risk. d)Fraud.
Legal hazard.
Regarding the taxation of Business Overhead policies, a)Premiums are not deductible, but benefits are deductible. b)Premiums are not deductible, but expenses paid are deductible. c)Premiums are deductible, and benefits are taxed. d)Premiums are not deductible, and benefits are taxed.
Premiums are deductible, and benefits are taxed.
When a discontinued policy contained a death benefit, what term is used in the CIC to describe the length of the applicable extension of benefits? a)Reasonable b)Client's discretion c)Insurer's discretion d)Until death or cancellation
Reasonable
Installing deadbolt locks on the doors of a home is an example of which method of handling risk? a)Avoidance b)Transfer c)Self-insurance d)Reduction
Reduction
Signing and dating a delivery receipt for a life insurance policy helps to establish all of the following timeframes EXCEPT a)The Grace Period. b)The Incontestability Period. c)The Free-Look Period .d)The Right of Rescission.
The Grace Period.
Which of the following would provide an underwriter with information concerning an applicant's health history? a)A medical examination b)The agent's report c)The inspection report d)The Medical Information Bureau
The Medical Information Bureau
An intentional or unintentional concealment entitles the affected party to which of the following? a)Rescission of a contract. b)Estoppel. c)Waiver of concealed conditions. d)Subrogation of a contract.
Rescission of a contract.
Which two terms are associated directly with the way an annuity is funded? a)Renewable or convertible b)Single payment or periodic payments c)Increasing or decreasing d)Immediate or deferred
Single payment or periodic payments
An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the interest accumulated in the annuity NOT be taxable? a)Dependents b)Annuitant c)Spouse d)Charitable organization
Spouse
An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin? a)When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health b)On the designated effective date c)On the application dated)\
When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health
The paid-up addition option uses the dividend a)To accumulate additional savings for retirement. b)To purchase a smaller amount of the same type of insurance as the original policy. c)To purchase a one-year term insurance in the amount of the cash value. d)To reduce the next year's premium.
To purchase a smaller amount of the same type of insurance as the original policy.
If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than a)Upon issuance of the policy .b)Within 30 days after the first premium payment was collected. c)Prior to filling out an application for insurance. d)With the policy.
With the policy.
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? a)Representation b)Adhesion c)Consideration d)Good faith
Consideration
A Return of Premium term life policy is written as what type of term coverage? a)Renewable b)Level c)Increasing d)Decreasing
Increasing
All of the following are reasons an insurer or an insured would have the right to rescind a policy EXCEPT a)The amount of paid claims exceeds the premiums paid. b)The violation of a material warranty. c)When concealment is unintentional. d)An intentional omission in determining if a warranty is false.
The amount of paid claims exceeds the premiums paid.
All of the following are requirements for life insurance illustrations EXCEPT a)They must differentiate between guaranteed and projected amounts. b)They must be part of the contract. c)They may only be used as approved. d)They must identify non-guaranteed values.
They must be part of the contract.
Who can make a fully deductible contribution to a traditional IRA? a)Someone making contributions to an educational IRA b)A person whose contributions are funded by a return on investment c)An individual who has earned income d)Anybody: all IRA contributions are fully deductible regardless of income level
An individual who has earned income
In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment? a)The annuitant will receive the lower of either the guaranteed minimum rate or current rate. b)The annuitant will only receive the guaranteed minimum specified in the contract. c)The annuitant will receive the higher of either the guaranteed minimum rate or current rate. d)The annuitant will always receive the current interest rate.
The annuitant will receive the higher of either the guaranteed minimum rate or current rate.
When an employee or dependent who is currently receiving benefits qualifies for an extension of benefits due to a discontinuance which was followed by a replacement, which of the following is responsible for that disabled person's continuance of benefits? a)The old insurer b)Workers Compensation c)The employer d)The new insurer
The old insurer
How are contributions to a tax-sheltered annuity treated with regards to taxation? a)They are never taxed. b)They are taxed as income for the employee. c)They are taxed as income for the employee, but are tax free upon withdrawal. d)They are not included as income for the employee, but are taxable upon distribution.
They are not included as income for the employee, but are taxable upon distribution.
Which of the following is NOT a goal of risk retention? a)To minimize the insured's level of liability in the event of loss b)To reduce expenses and improve cash flow c)To increase control of claim reserving and claims settlements d)To fund losses that cannot be insured
To minimize the insured's level of liability in the event of loss