Life-Only Agent Exam #2

Which of the following is an express authority of an agent in an agency agreement? > Authority to collect premiums > Authority to bind an insurer to any risks > Authority to represent the insurer > Authority to advertise

Authority to represent the insurer.

What is the first step in the personal financial planning process?

Define Objectives

Which retirement plan was designed for employees of public school system?

TSA

An individual with a low income and high insurance needs should buy:

Term insurance

Choose the payments from an insurance policy which are not subject to federal income taxes:

The death benefit paid to a beneficiary in a lump sum.

In the life insurance planning process, the "blackout period" is:

The period of the time when a surviving spouse does not receive any Social Security benefits.

Which of the following is required to be included in the writing of an insurance contract? > The risks insured against. > The period in which the insurance is to continue. > The parties between whom the contract is made. > All the above.

All of the above.

An insured replaces an existing annuity with a new one and must pay a surrender charge for cancelling the existing annuity. The new policy holds no greater financial benefits to the insured than the existing contract. This is an example of:

An unnecessary replacement

There is a financial product that was created to address the risks of a person outliving their life savings. What is this product called?

Annuities

Non-participation life insurance policies provide all of the following, EXCEPT: > Guaranteed premiums > Settlement options > Death benefits > Dividends

Dividends

When are parties to a contract required to communicate information solely based on personal judgement for a matter in question?

Never

Subject to restriction of the California Insurance Code, any person capable of making a contract may be considered

an insurer

Who are members of the Medical Information Bureau?

life insurance companies

A person has paid $50,000 into a fixed annuity over 20 years. When he decides to begin income payments the insurer calculates that he will receive $4,000 per year for life, which means that he will receive a total of $100,000. In the first 10 years of payments how much is taxable each year?

$2,000

if the commissioner issued a notice of seizure for documents and the individual fails to send those documents what is the penalty?

1 year in jail and/or $1000 fine

What is the penalty tax imposed on amounts received from a modified endowment contract?

10%

Failure to report background changes within 30 days as required under section 1729.2 of the California Insurance Code could subject a licensee or applicant to:

> Revocation of the license > Denial > Suspension

all of the following statements apply to a producer acting as an insurance BROKER, EXCEPT: > A broker acts on behalf of the insurer. > A broker represents the insured in dealings with the insurer. > A broker is appointed by an insurer to sell insurance. > A broker may collect a fee for service from the insured.

A broker acts on behalf of the insurer

Which of the following is a hazard? > A peril > A condition that might increase the likelihood of a loss occurring. > A large number of similar exposure units > A speculative risk

A condition that might increase the likelihood of a loss occurring.

Any situation that presents the possibility of a loss is known as:

A loss exposure

Which of the following would be the best client to purchase a variable annuity? > An older man searching for a guaranteed monthly income that will last for the rest of his life. He is on Social Security and has little savings. > A person who does not like the fluctuations of equity investments. > A middle aged divorced housewife with a substantial portfolio, and $60,000 per year income. > All of the above would be suitable candidates for a variable annuity.

A middle aged divorced housewife with a substantial portfolio, and $60,000 per year income.

Which type of beneficiary designation gives the policy owner the right to change the beneficiary designation without requiring the beneficiary's consent?

A revocable beneficiary designation.

Joe receives a large bonus at work and decided to purchase an annuity with it. His monthly income payments from the annuity will begin the following month. Which of the following has Joe purchased?

A single premium immediate annuity.

An annuity in which the underlying investment performance will cause a fluctuation in the value of the benefit is:

A variable annuity

An assignment which transfers all "incidents of ownership" to another part is a(n):

Absolute Assignment

an example of a morale hazard in relation to a life insurance application would be:

An individual has an indifferent attitude about participating in activities that may be damaging to his health.

If the owner of a life insurance policy does not select a settlement option on behalf of the beneficiary, the beneficiary:

Can choose a settlement since it was not chosen by the owner.

As defined by the California Code of Regulations, a person who asserts a right of recovery under an insurance policy is called a

Claimant

The policy provision which comes into effect when the insured and primary beneficiary die in a simultaneous accident with no evidence as to who died first is:

Common disaster provision

Which of the following is false about dividends paid from life insurance policies? > Dividends are a return of excess premium and are therefore taxable. > Interest earned on dividends is considered taxable. > Dividends are not guaranteed to be paid to the policyowner. > All of the above statements about life policy dividends are false.

Dividends are a return of excess premiums and are therefore taxable.

The purchase of an insurance policy may not provide one of the following for the insured. Select the most complete answer: > Reduction in worry/greater peace of mind. > The replacement of a large possible loss for a small certain loss. > A reduction of uncertainty. > Elimination of the risk.

Elimination of the risk.

Which type of policy pays the face amount if the insured survives to the end of a certain period?

Endowment insurance

When children are covered under a family life policy:

Evidence of insurability is not required if conversion is made to permanent insurance for those children.

In a group 'insurance policy acts of war and aviation are considered examples of:

Exclusions

All of the following would be considered one of the four major types of loss exposures, EXCEPT: > Personnel loss exposure > Property loss exposure > Liability loss exposure > Financial loss exposure

Financial loss exposure

A beneficiary wants to receive $2,000 per month until the principal and interest are exhausted. Which statement option should be chosen?

Fixed amount option

Unless the applicant indicates otherwise during the right-to-return period in an individual annuity, the premium for a variable annuity would be invested only in:

Fixed income investment and money market funds.

Choose from the following selections the best description of a premium. > A bonus paid to an agent for high insurance sales production. > The amount an insured pays for each unit of coverage. $ 7 for every $ 1,000 of coverage is an example. > Funds received by an insurer from an insured to realize the benefits of the policy. > Funds received by an insured from an insurer to realize the benefits of the policy.

Funds received by an insurer from an insured to realize the benefits of the policy.

Which of the following gives individuals the right to purchase additional life insurance regardless of their insurability?

Guaranteed insurability

All of the following are characteristics of adverse selection EXCPET > People with the greatest probability of loss are the ones most likely to buy insurance. > It normally occurs if the premium is low relative to the loss exposure. > Poor underwriting results may occur if too many of the applicants accepted for insurance are those most likely to incur serious losses. > Insurance companies can not discriminate against applicants who have a higher probability of loss.

Insurance companies can not discriminate against applicants who have a higher probability of loss.

Creditors have rights to life insurance policy proceeds when the beneficiary is the

Insured's estate

The insured cannot borrow against the loan value of the policy without the permission and consent of which to the following?

Irrevocable beneficiary

Which of the following is not a characteristic of life insurance? > it creates an immediate estate. > It may be based strictly on an oral agreement. > An incompetent adult may not enter into a contract. > It does not have to be paid for at once.

It may be based strictly on an oral agreement.

Which of the following products creates an immediate estate? > Mutual Funds > Annuities > IRAs > Life insurance

Life insurance

Which two insurance products are commonly used to fund buy-sell agreements?

Life insurance and Disability insurance

The theory of probability is applied to life insurance through the use of

Mortality Tables

Insurance negatively affects society in all of the following ways EXCEPT: > To earn more money insureds inflate claims > Takes qualified labor away from other parts of society. > Takes away capital that could be used for other things. > Paid claims do not actually replace the damages as a whole.

Paid claims do not actually replace the damages as a whole.

John pays the premium for a $200,000 life insurance policy and is issued a binding receipt. John dies in an accident the next day. In the course of underwriting, the company determines John was not insurable by their guidelines at the time the binding recipe was issued. What must the insurer do?

Pay the claim in full.

Which of the following statements about life insurance policy loans is correct? > Policy loans can be used to pay premiums without affecting the amount of the death benefit. > Policy loans may be repaid at any time while the policy is in force. > A policy loan establishes a debtor-creditor relationship between the insurer and the policyowner. > Unpaid policy loans become debts of a deceased policyowner's estate.

Policy loans may be repaid at any time while the policy is in force.

Individual life insurance policies sold to seniors in the state of California must include a prominently placed statement that divulges all of the following information EXCEPT > Proof of surrender must be notarized at the agent's principal office. > The policy can be returned during a free look period for a full refund. > The policy should be returned to the agent or insurer in not wanted. > A charge might apply if declined after the time allowed for surrender.

Proof of surrender must be notarized at the agents principle office.

The price of insurance for each exposure unit is called the:

Rate

How would a 'peril' best be defined?

Reason for the loss

Which type of insurance guarantees the right to renew the policy each year, regardless of health, but at an increased premium?

Renewable term

According to the California Insurance Code, which of the following MUST be specified in an insurance contract? > Insurer financial rating > Risks insured against > Additional coverages > Policy exclusions

Risks insured against

What is the performance of an Equity Index annuity based on

S&P 500

select the type of annuity payment option that has the least amount of risk for the insurer, and therefore, pays the highest amount of income to the insured over time.

Straight/pure life

There are four basic classes of life insurance. All of the selections listed below are regarded as ordinary insurance, EXCPET: > A 10-year endowment contract > A life paid-up-at-age-55 policy > Term life insurance > 20 pay life policy

Term life insurance policy

The mathematical rule that says that as the number of individual but similar exposure units increases the easier it is to predict losses is which of the following?

The Law of Large Numbers

What is the limit of liability in a term life insurance policy?

The face amount of the policy.

When does an individual have an insurable interest in the life of another person?

The individual depends on the other person for financial support.

From the choices below, select the answer that best reflects the concept of indemnification. > Either of the parties to the contract can assume the other is not concealing facts. > The insured can not get back any more than the loss they have experienced. > If it is determined that a statement in the contract is ambiguous, courts will favor the policyowner. > A promise is given by only one party, the insurer.

The insured can not get back any more than the loss they have experienced.

Which of the following is not a factor in determining the premium for a life insurance contract?

The number of new policy owners expected in the next anniversary year.

Which statement best describes how the Return of Premium (ROP) rider works on a term life policy?

The policy owner will receive all or a portion of the premiums paid in over the life of the policy if the insured is still living at the end of the policy's term.

The Free Look provision of life insurance issued in California states that certain conditions exist in order for a policy to be delivered to the policy owner properly. which of the following is not correct in determining good delivery? > The policy was mailed certified. > The policy was mailed with a signed delivery receipt. > The policy was hand delivered personally, no receipt of delivery needed. > None of the above.

The policy was hand delivered personally, no receipt of delivery needed.

Assume two people apply for life insurance with exactly the same monthly premiums. One individual buys a whole life policy, and the other, a 10-year renewable term plan. Both are standard risks with no difference in their age or health rating. Select the statement which is false. > Stopping premium payments on the whole life plan may trigger an option of having the cash value pay for premiums. This will have the effect of reducing the overall death benefit. > The 10-year renewable term contract will have a premium increase every 10 years while the whole life policy premium remains level. > The whole life policy will pay a higher amount to the beneficiary should the insured die within the first 10 years. > The whole life policy will generate a larger cash value.

The whole life policy will pay higher amount to the beneficiary should the insured die within the first 10 years.

A type of life insurance policy called first-to-die policy is very helpful in business situations whereby a partner can purchase the interest of a deceased partner at death. This policy can also be used by a husband and wife by naming each other as beneficiaries. Select the incorrect statement about first-to-die plans from below. > They pay a reduced amount upon death of the last surviving insured. > They pay the full face amount on the death of the first insured to die. > Compared to buying two individual ordinary life insurance contracts, a first-to-die would be cheaper. > All of the above are incorrect statements about first-to-die policies.

They pay a reduced amount upon the death of the last surviving insured.

All of the following are reasons for an individual to purchase personal life insurance, EXCEPT: > To have cash available for emergencies. > For the creation of an immediate estate. > To have funds that can supplement Social Security at retirement. > To cover a buy/sell agreement.

To cover a buy/sell agreement.

The purpose if laws regarding the replacement of life and annuity contracts includes all of the following, EXCEPT: > To establish the penalties for failure to comply with replacement requirements. > To assure the purchaser receives information to make an informed decision. > To reduce the opportunity for misrepresentation and incomplete disclosures. > To protect the interests of life insurers and their agents.

To protect the interests of life insurers and their agents.

The minimum number if employees for group life insurance in California is:

Two

Which type of insurance coverage has both a saving element and a flexible premium option?

Universal Life

An automatic premium loan, found only in cash value policies:

Will pay a premium that is die by using the policy's cash value.

The components of determining policy premiums include all of the following EXCEPT > Investment return > Dividends > Insurer expenses > Mortality cost

dividends

With the cost of living rider, the life insurance policy owner:

gets the automatic increase in the face value if there is an increase in the cost of living index. There is an additional premium for the additional coverage.

All of the following are contained in a mortality table EXCEPT > yearly probability of dying. > age at the beginning of the year. > number of dying during a designated year. > number living at the end of designated year.

number living at the end of designated year.

When premium payments on a whole life insurance policy are being waived because the person whose life is insured is totally disabled, the actual effect on the policy's cash value will be to:

provide for the continued increase in the cash value during the period of disability.