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CA PSI Site - Life, Accident and Health
Agent Examination (Life Agent)
Admitted Insurance Company vs. Non-Admitted Insurance Company -
CORRECT ANSWER-An admitted insurance company is authorized to transact
insurance in California because it has a Certificate of Authority granted by the
California Department of Insurance (CDI)
A non-admitted insurance company is not authorized to transact insurance in
California because of failing to comply with California requirements or did not
seek admission
Pure Risk vs. Speculative Risk - CORRECT ANSWER-Pure risks are insurable
but Speculative risks are not
Pure Risks - A possibility of loss, no loss, or gain
Pure Risk - A possibility of loss or no loss; there is no possibility for gain
Contract of Adhesion - CORRECT ANSWER-One party writes the contract
without inout from the other party on a "take-it-or-leave-it" basis
Aleatory Contract - CORRECT ANSWER-The exchange of value is unequal.
Insured's premium payment is less than the potential benefit to be received in the
event of a loss.
Indemnity Contract - CORRECT ANSWER-An agreement to pay on behalf of
another party under specified circumstances
Unilateral Contract - CORRECT ANSWER-Only one party is legally bound to the
contractual obligations after the premium is paid to the insurer
Only the insurer makes a promise of future performance, and only the insurer
can be charged with breach of contract
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4 elements of a valid contract - CORRECT ANSWER-1) Competent Parties
2) Legal Purpose
3) Agreement (offer and acceptance)
4) Consideration
Preferred Risks vs Standard Risks - CORRECT ANSWER-Standard Risks are
individuals who have the same health, habits, sex/gender, and occupational
characteristics as those reflected in the mortality table
Preferred Risks are individuals who meet certain requirements and qualify for
lower premiums because of ideal health, height and weight. Individuals in this
category have a longer than average life expectancy
Human Life Value Approach vs. Needs Analysis Approach - CORRECT
ANSWER-Human Life Value approach is a measure of the projected future
earnings and services of a person at risk in the event of a premature death.
The objective is to provide the proper amount of coverage as determined by the
value of the individual to his/her dependents using the following factors:
- The individual's age and gender
- The individual's occupation, annual wage, and planned retirement age
- Inflation
Needs Analysis Approach determines a need for coverage upon the premature
death of an individual.
It always assumes the death of the individual to be immediate and factors the
following steps into arriving at the proper amount of coverage needed:
- Calculate all financial needs caused by immediate death, including debts,
medical bills, and final expenses
- Provide lifetime income to the spouse
- Pay off mortgage or other debts
- Provide funds for children's education
- Subtracts any assets available to fund financial needs after death (such as
retirement plan, other insurance, liquid investments, separate savings)
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Waiver of Premium - CORRECT ANSWER-Life Insurance Disability Rider
If the insured becomes totally disabled, the insurer will waive premiums for the
duration of the disability or the end of the policy, whichever occurs first.
To qualify for the waiver, the insured must be disabled for a waiting period of 3-6
months.
The policyowner must continue to pay premiums during the waiting period, but
once eligible, the waiver is retroactive to the start of the disability and the
premiums will be refunded.
During the disability, the insured will credit the premiums to the policy and all
benefits, such as cash value accumulation and dividend payments, will continue.
Disability Income Rider - CORRECT ANSWER-Life Insurance Disability Rider
In the event of total disability and after the initial waiting period (such as 6
months), premiums are waived and the insured is paid a monthly income.
The monthly disability income benefit is typically limited to a percentage of the
face value.
The benefit paid from the rider does not reduce the death benefits paid out upon
death.
Accidental Death Benefit rider - CORRECT ANSWER-Life Insurance Rider
affecting the death benefit amount
May be called multiple indemnity rider
In the event of a claim, the policy normally pays double or triple the face amount
only if the insured's death was a result of an accident.
The benefit is payable only if death occurs before a specific age and within 90
days of the accident
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Separate Account (Variable) vs General Account (Life Insurance) - CORRECT
ANSWER-The separate account is invested in debt or equity securities as offered
by the insurance company.
o Both the cash value in the separate account and the death benefit will fluctuate
based on market conditions and performance of the subaccounts.
o There is no guaranteed minimum return on the cash value in the separate
account and the policy may lose both cash value and death benefit if there are
market losses.
o The death benefit is recalculated annually.
The general account provides a fixed rate of interest and the cash value in the
general account provides for a guaranteed minimum death benefit.
Viatical Settlement - CORRECT ANSWER-An agreement between a policyowner
and a third-party buyer to purchase the life policy covering a person who is
diagnosed as terminally ill with less than 24 months remaining life expectancy.
Principle of Indemnity - CORRECT ANSWER-To indemnify means to restore a
person, in whole or in part, to the same physical or financial condition which
existed prior to a loss, but without profit or gain.
In life and health insurance, it may not be possible to truly indemnify a person for
all losses.
o Instead, indemnity takes the form of cash (a death or disability income benefit)
or payments to physicians or hospitals for care and services provided to an
insured who is injured or ill.
Joint Life - CORRECT ANSWER-Joint Life (First to Die) is a whole life policy that
is written to cover 2 or more lives.
• The death benefit is paid upon the first insured to die and the policy terminates.
Joint Survivorship - CORRECT ANSWER-Joint Survivorship (Last to Die) is a
whole life policy written to cover 2 or more lives, and the death benefit is not paid
until the last insured dies.
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CA PSI Site - Life, Accident and Health
Agent Examination (Life Agent)
Admitted Insurance Company vs. Non-Admitted Insurance Company -
CORRECT ANSWER-An admitted insurance company is authorized to transact
insurance in California because it has a Certificate of Authority granted by the
California Department of Insurance (CDI)
A non-admitted insurance company is not authorized to transact insurance in
California because of failing to comply with California requirements or did not
seek admission
Pure Risk vs. Speculative Risk - CORRECT ANSWER-Pure risks are insurable
but Speculative risks are not
Pure Risks - A possibility of loss, no loss, or gain
Pure Risk - A possibility of loss or no loss; there is no possibility for gain
Contract of Adhesion - CORRECT ANSWER-One party writes the contract
without inout from the other party on a "take-it-or-leave-it" basis
Aleatory Contract - CORRECT ANSWER-The exchange of value is unequal.
Insured's premium payment is less than the potential benefit to be received in the
event of a loss.
Indemnity Contract - CORRECT ANSWER-An agreement to pay on behalf of
another party under specified circumstances
Unilateral Contract - CORRECT ANSWER-Only one party is legally bound to the
contractual obligations after the premium is paid to the insurer
Only the insurer makes a promise of future performance, and only the insurer
can be charged with breach of contract
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4 elements of a valid contract - CORRECT ANSWER-1) Competent Parties
2) Legal Purpose
3) Agreement (offer and acceptance)
4) Consideration
Preferred Risks vs Standard Risks - CORRECT ANSWER-Standard Risks are
individuals who have the same health, habits, sex/gender, and occupational
characteristics as those reflected in the mortality table
Preferred Risks are individuals who meet certain requirements and qualify for
lower premiums because of ideal health, height and weight. Individuals in this
category have a longer than average life expectancy
Human Life Value Approach vs. Needs Analysis Approach - CORRECT
ANSWER-Human Life Value approach is a measure of the projected future
earnings and services of a person at risk in the event of a premature death.
The objective is to provide the proper amount of coverage as determined by the
value of the individual to his/her dependents using the following factors:
- The individual's age and gender
- The individual's occupation, annual wage, and planned retirement age
- Inflation
Needs Analysis Approach determines a need for coverage upon the premature
death of an individual.
It always assumes the death of the individual to be immediate and factors the
following steps into arriving at the proper amount of coverage needed:
- Calculate all financial needs caused by immediate death, including debts,
medical bills, and final expenses
- Provide lifetime income to the spouse
- Pay off mortgage or other debts
- Provide funds for children's education
- Subtracts any assets available to fund financial needs after death (such as
retirement plan, other insurance, liquid investments, separate savings)
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Waiver of Premium - CORRECT ANSWER-Life Insurance Disability Rider
If the insured becomes totally disabled, the insurer will waive premiums for the
duration of the disability or the end of the policy, whichever occurs first.
To qualify for the waiver, the insured must be disabled for a waiting period of 3-6
months.
The policyowner must continue to pay premiums during the waiting period, but
once eligible, the waiver is retroactive to the start of the disability and the
premiums will be refunded.
During the disability, the insured will credit the premiums to the policy and all
benefits, such as cash value accumulation and dividend payments, will continue.
Disability Income Rider - CORRECT ANSWER-Life Insurance Disability Rider
In the event of total disability and after the initial waiting period (such as 6
months), premiums are waived and the insured is paid a monthly income.
The monthly disability income benefit is typically limited to a percentage of the
face value.
The benefit paid from the rider does not reduce the death benefits paid out upon
death.
Accidental Death Benefit rider - CORRECT ANSWER-Life Insurance Rider
affecting the death benefit amount
May be called multiple indemnity rider
In the event of a claim, the policy normally pays double or triple the face amount
only if the insured's death was a result of an accident.
The benefit is payable only if death occurs before a specific age and within 90
days of the accident
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Separate Account (Variable) vs General Account (Life Insurance) - CORRECT
ANSWER-The separate account is invested in debt or equity securities as offered
by the insurance company.
o Both the cash value in the separate account and the death benefit will fluctuate
based on market conditions and performance of the subaccounts.
o There is no guaranteed minimum return on the cash value in the separate
account and the policy may lose both cash value and death benefit if there are
market losses.
o The death benefit is recalculated annually.
The general account provides a fixed rate of interest and the cash value in the
general account provides for a guaranteed minimum death benefit.
Viatical Settlement - CORRECT ANSWER-An agreement between a policyowner
and a third-party buyer to purchase the life policy covering a person who is
diagnosed as terminally ill with less than 24 months remaining life expectancy.
Principle of Indemnity - CORRECT ANSWER-To indemnify means to restore a
person, in whole or in part, to the same physical or financial condition which
existed prior to a loss, but without profit or gain.
In life and health insurance, it may not be possible to truly indemnify a person for
all losses.
o Instead, indemnity takes the form of cash (a death or disability income benefit)
or payments to physicians or hospitals for care and services provided to an
insured who is injured or ill.
Joint Life - CORRECT ANSWER-Joint Life (First to Die) is a whole life policy that
is written to cover 2 or more lives.
• The death benefit is paid upon the first insured to die and the policy terminates.
Joint Survivorship - CORRECT ANSWER-Joint Survivorship (Last to Die) is a
whole life policy written to cover 2 or more lives, and the death benefit is not paid
until the last insured dies.
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