Final Exam - California Life Only Questions and Answers Already Passed

Final Exam - California Life Only Questions and Answers Already Passed According to the California Insurance Code, what is "insurance"? A contract Which of these statements correctly describes risk? Pure risk is the only insurable risk Only pure risks are insurable Which of the following does NOT have to be included on life insurance policy illustrations? Statement that all values and benefits are guaranteed An agent's attempt to stop the replacement of an existing life insurance policy is known as conservation If a material warranty violation on the part of the insured is found, what recourse does an insurer have? Rescind the policy Which of the following pieces of information is NOT gathered during the personal financial planning process? An individual's civic organization memberships Which of the following does the California Insurance Code NOT require an insurance policy to specify? Insurer's financial rating What is an "insurance broker" according to California Insurance Code? A person compensated for transacting insurance on behalf of another person with an insurer The objective of underwriting is to avoid selecting a disproportionate number of bad risks An annuitant would like to determine the amount of an annuity distribution that is exempt from taxation. What is used to calculate this? Exclusion ratio A worker is entitled to Social Security disability benefits if all of the following are true, EXCEPT for: worker cannot perform his or her current job, but is actively seeking other employment How are death benefits that are received by a beneficiary normally treated for tax purposes? Exempt from federal income taxes Which of the following statements correctly describes a contract of indemnity? One party is restored to the same financial position the party was in before the loss occurred How is a life insurance policy dividend legally defined? A return of excess premium and not taxable When handling premiums for an insured, an agent is acting in which capacity? Fiduciary What does the term "illustration" mean when used in the phrase "life insurance policy illustration", according to the California Insurance Code? Presentation of policy features that includes non-guaranteed elements John and Mary have a handicapped child that is financially dependent upon them. The death of one of the parents would not be financially disastrous, however the death of both likely would be. Which policy would be best suited for them? Second-to-die policy Jim is applying to become an insurance agent and has a past misdemeanor conviction that was later expunged due to California Penal Code 1203.4. Which of the following statements is correct? Jim must still disclose the conviction on his insurance license application Which of the following best describes the statement "The more times an event is repeated, the more predictable the outcome becomes"? Law of large numbers Bob and Tom are partners in a business. If one of them were to die, which of the following would guarantee a market for each of their share of the business? Buy-Sell agreement What is the price of insurance for each exposure unit? Rate Any changes in background information that occur after a producer application has been submitted or a license has been issued MUST be reported to the Insurance Commissioner within 30 days Section 1729.2 of the California Insurance Code requires insurances producer application and licensees to notify the insurance commissioner in writing, within 30 days of changes in background information after an application has been submitted or a license has been issued. "Life insurance creates an immediate estate". This phrase means: when the insured dies, a death benefit is paid According to the California Insurance Code, what term is used to describe a fact so important it could affect the policy premium? Materiality Materiality is relevant information that would probably influence an insurer's assessment of a proposed contract. An individual who transacts life, disability, or life and accident and health insurance on behalf of an insurer is called a(n): life agent One important function of an insurance company is to identify and sell to potential customers. Which of these BEST describes this function? Marketing In a modified endowment contract, the penalty tax imposed on premature withdrawals is 10% The "blackout period" affects whose benefits? surviving spouse An annuity which is backed by a life insurer's separate account is called a(n) variable annuity Which of the following acts is NOT a Federal offense committed by an insurance agent? Misrepresentation on an insurance application Who is eligible for retirement benefits under Social Security? Fully insured workers When an insurance company requests an attending physician's report, the request must be accompanied by a copy of the signed authorization What determines the Social Security normal retirement age? Year in which worker was born The Social Security normal retirement age depends upon the worker's year of birth. An insurer owned by its policyholders is called a mutual insurer A mutual insurer is owned by its policyholders. When calculating life insurance premium rates, which component is affected by an insured's age and gender? Mortality Mortality is the component of a life insurance premium that age and gender affects. Which of the following contracts is defined as "one that restores an injured party to the condition that was present before the loss"? Indemnity contract Which of the following is a situation where there is a possibility of either a loss or a gain? Speculative risk A situation in which there is a possibility of a loss or a gain is a speculative risk. All of these are common personal uses of life insurance EXCEPT Fund a Buy-Sell agreement The risk selection process is primarily given to which insurance company department? Underwriting Which of the following is NOT a common life insurance policy rider? extended term In order to be considered "currently insured" under Social Security, an individual must be credited with: 6 quarters of coverage during the last 13-quarter period Which of the following types of information is NOT required for a life insurance application? Ethnicity In California, an insurer organized under the state laws of Oregon is called a(n) foreign insurer Which provision will pay a portion of the death benefit prior to the insured's death due to a serious illness? Accelerated death benefit A life insurance policy can be surrendered for its cash value under which policy provision? Nonforfeiture options Who is NOT eligible for Social Security survivor benefits? A deceased worker's dependent parents of any age The California Life and Health Insurance Guarantee Association covers all of these types of policies, EXCEPT Self-funded plans Which of the following risk classifications charges the lowest premium? Preferred What does the term "indemnity" mean as it pertains to insurance? To make whole Which course of action is the insurer entitled to when deliberate concealment is committed by the insured? Rescinding the contract Which of the following is NOT protected under the California Life and Health Guarantee Association? Insurers What is considered to be the definition of disability, according to Social Security? Unable to engage in any substantial gainful activity What does ESOP stand for? Employee Stock Ownership Plan Which statement is NOT true regarding Social Security benefits? Benefits are designed to replace the entire amount of the worker's earnings Which of the following is NOT considered to be a definition of the term "loss"? Probability that an event will occur Which statement is CORRECT when describing a contract of adhesion? Contract may be accepted or rejected by the insured Which of the following is NOT a risk classification that an underwriter would use? Dividend risk Pam is the primary beneficiary of a life insurance policy and wants to let the death benefit accumulate and receive only the monthly investment proceeds. Which settlement option should she choose? Interest Option Anyone employed in California to assist an insurance agent in transacting insurance is called an insurance solicitor An insurance solicitor is a person authorized to assist a broker or agent in transacting insurance. Which of the following describes the number of deaths in a year compared to the number of people in a select group? Mortality rate Which word implies permissiveness according to the California Insurance Code? May When found in California Insurance Code, the word "may" implies permissiveness. In a renewable term life insurance policy, the contract will usually require a higher premium payable at each renewal The California Insurance Code has authorized standards for names used by life insurance agents. Which of the following, if any, are automatically acceptable for Lance Manyon, a holder of the CLU designation? Lance Manyon Insurance Services When a life insurance policy is surrendered, how does the cost recovery rule apply? The policy's cost basis is exempt from taxation How long is a person expected to be disabled in order to receive Social Security disability benefits? 12 months What is an insurance solicitor authorized to do? Help an agent or broker sell insurance An insurer enters into a contract with a third party to insure itself against losses from insurance policies it issues. What is this agreement called? Reinsurance Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer. Which of the following is NOT considered to be an unfair claims settlement practice? Advising a claimant to hire an attorney Which of the following refers to a condition that may increase the chance of a loss? Hazard A hazard is a condition or situation that creates or increases a chance of loss. Most U.S. life insurance companies belong to the Medical Information Bureau Which of the following is NOT a benefit of insurance? Losses due to fraud are eliminated The Human Life Value concept is based on income Premiums are best described as the amount an insured pays per unit of coverage Which of the following types of life insurance is normally associated with a mortgage loan? Decreasing term Which type of risk is gambling? Speculative risk Which of the following is NOT an insurer policy expense? Premiums Pete is a life agent who has misappropriated fiduciary funds to his own use. What is Pete guilty of? Theft Which of the following is NOT considered a definition of risk? The cause of loss Something that can cause a loss, such as an earthquake or tornado, is referred to as a peril, not a risk. Which of the following is NOT an important reason for a life insurance application? The beneficiary must sign the application before the insurer will issue the policy A terminated employee that has exercised the conversion privilege is able to convert term insurance into permanent insurance Employer contributions to qualified plans are tax-deductible by the employer Under the California Insurance Code, a licensee's license number must be printed at what size on all price quotes, business cards, and printed material? The same size print as the licensee's phone number, fax number or address What are collateral assignments normally associated with? Bank loans What does the guaranteed insurability option allow an insured to do? Purchase additional coverage with no evidence of insurability required An insurer that has been found using higher rates based on race, religion, or ethnicity is said to be engaging in unfair discrimination Failure to report background changes within 30 days as required under section 1729.2 of the California insurance code could subject a license or applicant to 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 formal disciplinary action, including a fine, suspension, denial, restriction, or revocation of the license. All of these are reasons the Commissioner may disapprove a licensee's request to use a fictitious name EXCEPT The name is the licensee's actual name Which of the following is NOT a characteristic of the conversion privilege? Employer pays the premium for the converted policy A participating company is also referred to as which type of insurer? Mutual insurer According to Social Security, an individual with 6 credits of coverage during the previous 13-quarter period is considered to be: currently insured Who is issued a certificate of insurance with a group insurance policy? Participant How does underwriting differ between group life and individual life insurance? Medical questions must be answered on individual life insurance An insurance company entitled to transact business in California is called a(n) admitted carrier An admitted California insurance carrier is one that submits to specific requirements set forth by the California Department of Insurance (CDI). Which type of jurisdiction requires an insurer to have its rates accepted by the Insurance Department prior to using them? Prior approval The importance of a representation is demonstrated in what rule? Materiality of concealment In a life insurance policy, the entire contract consists of policy and attached application A hazard can be best described as a condition that may increase the likelihood of a loss occuring Under a 10-year vesting schedule, what percentage of employer contributions must be vested after 10 years of service? 100% What is the proper order of initial life insurance premiums, from lowest to highest? Modified premium, ordinary life, single premium Retirement plans are prevented from favoring highly compensated employees under which government regulation? Nondiscrimination Which of the following types of life insurance combines a savings element along with a flexible premium option? Universal life When intentional concealment is involved, what course of action is the injured party entitled to? Rescission of the contract The California Insurance Code requires that an insurer must have enough assets to cover its liabilities and for reinsurance of all outstanding risks. To remain solvent, it must also possess additional assets equal to what amount? Its paid-in capital In order to be solvent, an insurer must not only be able to provide for its liabilities and reinsure capital risks, but must also possess additional assets equivalent to the required paid-in capital. When does a life insurance policy's waiver of premium take effect? Insured becomes totally disabled What kind of annuity pays income to two annuitants until their deaths? Joint and survivor annuity Restoring an insured to the same condition as before a loss is known as Principle of indemnity Insurance agents and brokers must make their insurance records available to the Commissioner at all times Non-deductible contributions are typically associated with a Roth IRA Tim was recently terminated from his employment and opted to change his existing group term life insurance to individual permanent life insurance. What is this process called? Conversion A person who asserts a right of recovery under an insurance policy is called claimant Moral hazard is described as the increased chance of a loss because of an insured's dishonest tendencies Which of the following is NOT an element of an insurable risk? Loss must be catastrophic The reason for social insurance is to protect certain vulnerable segments of the population Which of the following is NOT a characteristic of reinsurance? Increases the unearned premium reserve Which of the following is NOT required in the content of a policy? Probability of loss According to the California Insurance Code, what is the maximum penalty per violation for anyone who unwillfully commits an unfair method of competition? $5,000 What time period allows an insured's life insurance policy to remain in force even if the premium was not paid on the due date? Grace period What distinguishes a deferred annuity from an immediate annuity? The time at which benefit payments start Which of these is the automatic mode of settlement for life insurance policy proceeds? Lump-sum A life insurance policy where the insured can choose where the cash value can be invested is called variable life How are Roth IRA's treated for tax purposes? Non-deductible contributions and tax-free distributions An insurance policy written after 1988 that fails to pass the seven-pay test is known as a modified endowment contract Which of the following is a life insurance policy that does NOT require a physical exam? Non-medical According to the California Insurance Code, which of the following is NOT an example of an insurable event? An insured suffers a financial loss in the state lottery A unilateral contract is one in which only one party (the insurer) makes any kind of legally enforceable promise The Fair Credit and Reporting Act's main purpose is to protect consumers with guidelines regarding credit reporting and distribution A nonparticipating policy willA nonparticipating company is sometimes called a(n) not pay dividends An insurer's claim settlement practices are regulated by the State insurance departments Which of the following is a contract that involves one party which indemnifies another when a loss arises from an unknown event? Insurance policy Fraternal Benefit Society has each of the following characteristics EXCEPT Exist For profit Fraternal Benefit Societies are not-for-profit entities which exist for the benefit of its members. John owns an insurance policy that gives him the right to share in the insurer's surplus. What kind of policy is this? Participating Ken is a producer who has obtained Consumer Information Reports under false pretenses. Under the Fair Credit Reporting Act, what is the maximum penalty that may be imposed on Ken? $5,000 Which of the following is NOT considered advertising? A rating from a rating service company, such as A.M. Best Which of the following is a type of insurance where an insurer transfers loss exposures from policies written for its insureds? Reinsurance AAA Insurance Company has transferred a portion of its loss exposure to BBB Insurance Company. In this reinsurance transaction, what is AAA Insurance Company called? Primary insurer The Do Not Call Registry offers exemptions for calls placed from all of the following EXCEPT insurance sales calls Which of the following is NOT a characteristic of reinsurance? Increases the unearned premium reserve What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus? participating life insurance policy Which of the following is an insurer established by a parent company for the purpose of insuring the parent company's loss exposures? Captive insurer An insurer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposures is known as a captive insurer. When a mutual insurer becomes a stock company, the process is called Demutualization Karen is a producer who has obtained personal information about a client without having a legitimate reason to do so. Under the McCarran-Ferguson Act, what is the minimum penalty for this? $10,000 A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the reinsurer A participating company is also referred to as which type of insurer? Mutual insurer What is a participating life insurance policy? Contract that allows the policyowner to receive a share of surplus in the form of policy dividends Which of the following is NOT a benefit of insurance? Losses due to fraud are eliminated An insurer's ability to make unpredictable payouts to policyowners is called liquidity Why are dividends from a mutual insurer not subject to taxation? Because dividends are considered to be a return of premium Dividends are not subject to taxation because paying dividends is equivalent to returning a premium. What is the primary purpose of a rating service company such as A.M Best? Determine financial strength of an insurance company A plan in which an employer pays insurance benefits from a fund derived from the employer's current revenues is called A self-funded plan Which of the following statements regarding a life insurance policy dividend is TRUE? It is the distribution of excess of funds accumulated by the insurer on participating policies What is considered to be the primary reason for buying life insurance? Provide death benefits A nonparticipating company is sometimes called a(n) stock insurer A stock insurer is referred to as a nonparticipating company because policyholders do not participate in dividends resulting from stock ownership. Risk avoidance An individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in pure risk A situation in which there is ONLY a chance of loss or no loss is a adverse selection People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called Which of the following is any situation that presents the possibility of a loss? Loss exposure Which of these statements correctly describes risk? Pure risk is the only insurable risk An insurer having a large number of similar exposure units is considered important because the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums Which of the following is NOT an element of an insurable risk? Loss must be catastrophic All of the following circumstances must be met for loss retention to be an effective risk management technique, EXCEPT Probability of loss is unknown Loss retention is an effective risk management technique with all of these conditions exist EXCEPT when the probability of loss is unknown. The loss MUST be predictable. Insurance companies determine risk exposure by which of the following? Law of large numbers and risk pooling Which of the following best describes the statement "The more times an event is repeated, the more predictable the outcome becomes"? Law of large numbers Insurance represents the process of risk transference Insurance involves the transfer of risk. What is known as the immediate specific event causing loss and giving rise to risk? Peril Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies? Moral hazard An example of risk sharing would be Doctors pooling their money to cover malpractice exposures peril Select the appropriate response The cause of a loss is referred to as a(n) A peril is an event or circumstance that causes or may potentially cause a loss. Examples of perils include fire, flooding, hailstorms, tornado, hurricane, auto accident or home accident such as falling. All of the following are elements of an insurance policy EXCEPT claim forms A professional liability for which producers can be sued for mistakes of putting a policy into effect is called errors and omissions Which principle is accurately described with the statement "Insureds are entitled to recover an amount NOT greater than the amount of their loss"? Indemnity Which type of clause describes the following statement: "We have issued the policy in consideration of the representations in your applications and payment of the first-term premium". Consideration clause Legal purpose is a term used in contract law meaning there must be legal reasons for entering into the contract Reasonably necessary acts that an agent must perform for carrying out his/her expressly authorized duties are covered by an agent's Implied authority Bob and Tom start a business. Since each partner contributes an important element to the success of the business, they decide to take life insurance policies out on each other, and name each other as beneficiaries. Eventually, they retire and dissolve the business. Bob dies 12 months later. The policies continue in force with no change. Both partners are still married at the time of Bob's death. In this situation, who will receive Bob's policy proceeds? Tom The authority granted to a licensed producer is provided via the Law of Agency Countersignature A countersignature is not an element of a valid contract. Insurable interest does NOT occur in which of the following relationships? Business owner and business client Which of the following is NOT a requirement of a contract? Equal consideration is required between the involved parties What are an applicant's statements concerning occupation, hobbies, and personal health history regarded as? representation Intentional withholding of material facts that would affect an insurance policy's validity is called a(n) concealment What is implied authority defined as? Authority that is not specifically given to an agent in the agency contract, but that an agent can reasonably assume to carry out his/her duties Express power given to an agent in an agency agreement is the authority to represent the insurer According to the principle of Utmost Good Faith, the insured will answer questions on the application to the best of their knowledge and pay the required premium, while the insurer will deal fairly with the insured and it's promises made The term which describes the fact that both parties of a contract may NOT receive the same value is referred to as Aleatory Ambiguities in an insurance policy are always resolved in favor of the insured The deeds and actions of a producer indicate what kind of authority? Apparent Apparent authority is the appearance or assumption of authority based on the actions, words, or deeds of the producer. Which of the following is an example of the insured's consideration? A paid premium According to life insurance contract law, insurable interest exists at the time of application Which of the following BEST describes a conditional insurance contract? A contract that requires certain conditions or acts by the insured individual The power given to an individual producer that is not specifically addressed in his/her contract is considered what type of authority? implied Which of the following is present when an applicant stands to lose value if the insured dies? Insurable interest In an insurance contract, the applicant's "consideration" is the statements made in the application and the premium Which contract element is insurable interest a component of? Legal purpose In an insurance contract, the element that shows each party is giving something of value is called consideration Who is responsible for assembling the policy forms for insureds? Insurance carriers When the principal gives the agent authority in writing, it's referred to as express authority Under a contract of adhesion, the terms must be accepted or rejected in full Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive? Endowment policy A type of life insurance policy which provides for the payment of the face amount at the end of the specified period if the insured is still alive is an endowment policy. A life insurance policy that is subject to a contract interest rate is referred to as universal life Which of the following is NOT a true description of non-medical life insurance? Applicants are not required to answer medical questions on the application Medical questions can still be asked on an application of non-medical life insurance. What types of life insurance are normally used for key employee indemnification? term, whole, and universal life insurance The premium for a Modified whole life policy is lower than the typical whole life policy during the first few years and then higher than typical for the remainder All of these statements concerning whole life insurance are false EXCEPT When a whole life policy is surrendered, income taxes may be owed What happens to the coverage under a children's term rider when that child reaches a certain specified age? Coverage is eliminated Pre-death distributions from a modified endowment contract (MEC) receive different tax treatment than other life insurance policies because the MEC tends to be an investment vehicle Which of the following are the premium payments for a Universal life policy NOT used for? Separate account investments A permanent life insurance policy where the policyowner pays premiums for a specified number of years is called a(n) adjustable policy limited pay policy Which type of multiple protection policy pays on the death of the last person? Survivorship life policy Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be $500,000 Level premium permanent insurance accumulates a reserve that will eventually equal the face amount of the policy What does the word "level" in Level Term describe? The face amount A renewable Term Life insurance policy allows the policyowner the right to renew the policy without producing proof of insurability Which type of life insurance is normally associated with a Payor Benefit rider? Juvenile insurance Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider? Can be converted to permanent coverage without evidence of insurability A life insurance policy written on one contract for two people in which it is payable upon the first death is called Joint Julie has a $100,000 30-year mortgage on her new home. What type of life insurance could she purchase that is designed to pay off the loan balance if she dies within the 30-year period? Decreasing term insurance A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called universal life A life insurance policy's limit of liability would be the policy's face amount The type of multiple protection coverage that pays on the death of the last person is called a(n) joint life policy survivorship life policy A life insurance policy which contains cash values that vary according to its investment performance of stocks is called Variable Whole Life Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested? Variable universal policy A Renewable Term Life insurance policy can be renewed at a predetermined date or age, regardless of the insured's health An interest-sensitive life insurance policyowner may be able to withdraw the policy's cash value interest free. The provision that allows this is called Partial Surrender A life insurance policy that has premiums fully paid up within a stated time period is called limited payment insurance An insurance policy written after 1988 that fails to pass the seven-pay test is known as a modified endowment contract Which of the following policies does NOT build cash value? Term Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true? The face amount and premium will remain constant over the 10-year period When a decreasing term policy is purchased, it contains a decreasing death benefit and level premiums Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test? Pre-death distributions are typically taxable The systematic liquidation of a sum of money is provided by a(n) annuity Under a non-qualified annuity, interest is taxed after the exclusion ratio has been calculated Kathy's annuity is currently experiencing tax-deferred growth until she retires. Which phase is this annuity in? Accumulation period