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In disability insurance, the period of time between when the disability started and the commencement of benefits is the:

A. Cancellation Period
B. Elimination Period
C. Probationary Period
D. Grace Period
B. Elimination Period

LTC and disability income policies don't begin to pay-out benefits until a certain number of days of illness have elapsed.
Which of the following characteristics would not stop an insurance company from accepting an insurance risk? The item to be insured:

A. faces high catastrophic loss exposure.
B. is part of a large group of homogenous exposure units.
C. has a market value difficult to determine.
D. holds no hardship to the owner should it be lost or damaged.
B. The item to be insured is part of a large group of homogenous exposure units.

Insurance companies prefer insureds that are part of a large group with similar risks so they can understand the scope of the risk, and charge the appropriate premium.
All of the following statements about mutual insurance companies are correct except:

A. If a mutual company goes public, it demutualizes.
B. Mutual companies issue policies referred to as participating.
C. Policy dividends issued by mutual companies are guaranteed and not taxable.
D. Dividends allow policyholders to share in a mutual company's divisible surplus.
C. Policy dividends issued by mutual companies are guaranteed and not taxable.

Insurance policy dividends are not guaranteed and are not taxable.
In a seven year vesting schedule, what percentage of employer contributions is vested after seven years?

A. 0%
B. 60%
C. 80%
D. 100%
D. 100%

If employment terminates, the employee owns 100% of the employer's contributions after 7 years. They earn 20% each year for years 3 through 7. Employee contributions are immediately vested.
Which is a false statement? The California Insurance Commissioner is:

A. Elected by the people of California every four years
B. Selected by the Governor as an appointee
C. Is a representative to the National Association of Insurance Commissioners
(NAIC)
D. Capable of becoming the conservator of a financially impaired, or insolvent,
insurer
B. Selected by the Governor as an appointee

The commissioner is no longer appointed by the governor. He or she has various duties and authorities.
6. Which statement about life insurance code and ethics is not true?

A. Marketing plans to offer free insurance as an inducement to buy or rent real
property are prohibited.
B. Acts of fair and unfair discrimination are prohibited.
C. Agents are not permitted to advertise that an insurer is a member of any insurance
guaranty association.
D. The act of twisting could result in a license suspension for up to three years.
B. Acts of fair and unfair discrimination are prohibited.

Acts of fair discrimination such as charging older clients a higher premium are
legal.
Which of the following statements about a resident life-only agent licensing is
incorrect?

A. A licensee has 30 days to update a change in address.
B. Licensees are required to have an in-state residential address.
C. Loss of a previous professional license could result in the automatic denial of the
life-only license application.
D. A plea of nolo contendere is considered a conviction, thus it could hinder attempts
to obtain a life-only license.
A. A licensee has 30 days to update a change in address.

Changes of address must be filed immediately.
Tommy Greene has a CLU certification. Which of the following names would be
automatically approved for use as his agency’s name?

A. Tommy Greene and Associates
B. Thomas Greene, CLU, & Company
C. Greene Insurance Agency
D. None of these would ever be automatically approved.
D. None of these would ever be automatically approved.

No name is ever automatically approved for licensee use. There are always
procedures and background checks to administer.
An agent follows the rules and terms of his agent contract. He is exercising his
__________ authority.

A. Implied
B. Express
C. Apparent
D. Contractual
B. Express

Express authority is legitimate authority written into a contract.
10. Any person who misappropriates fiduciary funds for personal use is guilty of:

A. Fraud
B. Theft
C. Misrepresentation
D. Pre-texting
B. Theft

A ‘person’ with fiduciary responsibilities is an agent. If an agent steals their
clients’ money, the agent is guilty of theft.
According to the code, any person legally capable of making an insurance policy is
considered:

A. An agent
B. A broker
C. An insurer
D. An underwriter
C. An insurer

Legally, a corporation is a “person”. The insurer makes/produces the
insurance policies the agents and brokers sell.
Mrs. Anderson needs to invest the proceeds from her late husband’s life insurance.
She invests a portion of the money into an annuity. Since she is 62, and is still
working, she decides to purchase a single premium deferred annuity. She won’t need
an income for a few more years. What should the agent make sure Mrs. Anderson
understands?

A. As a life insurance product, future proceeds are tax free.
B. She has a 30 day free look period in case she changes her mind.
C. Since she only has a few more years before she retires, she should invest with the
objective to make as much money as possible. Her time horizon is limited.
D. She will have to begin taking withdrawals within six months of receiving the
proceeds.
B. She has a 30 day free look period in case she changes her mind.

As someone who is 60+, she gets the 30-day free-look period, and should
invest cautiously.
In a non-contributory group policy:

A. 75% of eligible employees must elect to join the plan.
B. 100% of eligible employees must participate.
C. 75% of employees must elect to join the plan.
D. 100% of employees must be allowed to participate.
B. 100% of eligible employees must participate.

In a non-contributory plan, the employer pays all of the premium, so they
must cover all eligible employees.
An employee has lost access to their group term life insurance plan, but they are
allowed to convert to a new plan. Which best describes this new plan?

A. The new policy will be term life. The employee pays all premiums.
B. The new policy will be term life. The employer will pay a portion of the cost.
C. The new policy will be cash value. The employer will pay a portion of the cost.
D. The new policy will be cash value. The employee pays all the premiums.
D. The new policy will be cash value. The employee pays all the premiums.

Conversion from group to individual can be any insurance except term. The
insured who lost their coverage is now paying the entire premium.
Bob and Neal are partners in a law firm together. If one of them were to pass away,
they want to make sure that their surviving family will receive a fair value for their
stake in the business. What life insurance arrangement would be most suited for
transitioning the business during this time of loss?

A. Executive Bonus Plan
B. Split Dollar Plan
C. Buy-Sell Agreement
D. Deferred Compensation Plans
C. Buy-Sell Agreement

Buy-sell agreements allow surviving partners to buy out the family of the
deceased partner so the business may continue past the death of the insured.
Rank from lowest to highest, the amount of monthly income that would result from
the following annuity settlement options:

A. Life with refund option, life with 10 years certain, straight life
B. Straight life, life with ten years certain, life refund option
C. Life with ten year certain, life with refund option, straight life
D. Life with refund option, straight life, life with 10 years certain
A. Life with refund option, life with 10 years certain, straight life

The larger the guarantee of payments, or returned monies, the lower the
guaranteed income. The more risk the annuitant takes during the annuity
period, the higher the monthly income.
All of the following are dividend options, except:

A. Interest only option
B. One-year term option
C. Reduce the next premium payment
D. Accumulate with Interest
A. Interest only option

“Interest only” is a settlement option, not a dividend option.
Which best describes industrial insurance?

A. $2,000 or less in coverage and premiums collected by agent
B. $10,000 coverage and premiums paid by mail
C. $50,000 coverage and premiums paid by mail
D. $100,000 coverage and premiums collected by agent
A. $2,000 or less in coverage and premiums collected by agent

By law, industrial insurance must be paid in person. Since it involves high
risk insureds, very low amounts are purchased.
A client’s flexible premium is invested into a separate account. What type of
insurance product did he purchase?

A. Universal Life
B. An Annuity
C. Variable Life
D. Variable Universal Life
D. Variable Universal Life

Any universal policy is characterized by a flexible premium. Any variable
product is characterized by the use of separate accounts.
Which rider pays a multiple of the original face amount?

A. Accelerated Death Benefit
B. Accidental Death Benefit
C. Accidental Death and Dismemberment
D. Cost of Living
B. Accidental Death Benefit

Also known as “double indemnity,” accident riders pay a larger death benefit
if death is due to accidental means.
A life-only agent issues a binding receipt to his client since the client did include a
check for the initial premium with his completed application. Which statement is
true?
 
A. The client is covered during underwriting.
B. The agent faces potential suspension or revocation of their license.
C. The client is not covered during underwriting since binders only start once
underwriting is complete.
D. Since the medical exam hasn’t been completed yet, the client is not covered at all.
B. The agent faces potential suspension or revocation of their license.
 
Binding receipt gives immediate coverage in the field of property insurance.
Issuing a binding receipt to a life client could result in license suspension for
jeopardizing and misleading the client. Life only agents do not have authority
to issue binding receipts.
Which of the following would not be considered a speculative risk?
 
A. Every week your client plays $20 on the lotto.
B. Any action that could do harm to your clients well-being such as reckless driving.
C. Your client invests 5% of his salary into the defined benefit plan at his workplace.
D. All of the above situations involve some risk.
B. Any action that could do harm to your clients well-being such as reckless driving.
 
Any situation that could result in harm, but no chance for financial gain, is a
pure risk, not a speculative risk.
According to the California Insurance Code, what information is the agent required to
include on their business card?
 
A. Identification of their relationship to the insurance company.
B. License number must appear in the same size font as the phone number.
C. Must not include any titles, designations, or licenses that are not currently held.
D. All of the above.
D. All of the above.
 
There are many rules related to business cards focused on full disclosure,
clear communications, and proper identification of agent and insurer.
How does the IRS classify the two different types of retirement accounts?
 
A. Qualified and unfunded
B. Fully funded and non-qualified
C. Qualified and non-qualified
D. Contributory and noncontributory
C. Qualified and non-qualified
 

“Qualified” means a plan meets certain IRS guidelines so it receives
beneficial tax treatment, such as tax deferral. “Non-qualified” means it does
not meet those guidelines, and therefore does not receive beneficial tax
treatment.
An insured has a terminal illness and needs access to 1/3 of his death benefit to pay
mounting medical expenses. Which rider would meet the insured’s current needs?
 
A. Automatic Premium Loan
B. Accelerated (Living) Benefit
C. Assignment of Benefits
D. Payor Benefit
B. Accelerated (Living) Benefit
 

The accelerated death benefit, or living needs rider, pays a portion of the death
benefit before death if the insured has a terminal illness.
A beneficiary decides to take the option that will pay the largest amount per payment,
knowing after death no monies will be paid out to any descendents. The settlement
option is:
 
A. Life Guaranteed
B. Life with Period Certain
C. Life Income (Straight Life)
D. Life Refund Income
C. Life Income (Straight Life)
 

The life income settlement option pays the beneficiary an income until they
die. Since no further payments will be made to their survivors, the insurer can
afford to pay them a larger income versus the other options given.
After 12 years, the policyowner decides she no longer needs the large death benefit
on her whole life policy. She calls you, her agent, and you tell her she can use the
reduced paid-up non-forfeiture option. Which of the following is not true about the
new policy?
 
A. The new policy will require no further premium payments.
B. The new policy will expire in 10 years.
C. The new death benefit is much lower than the original policy.
D. The new policy will be in effect until the age of 100, or until she dies, whichever
occurs first.
B. The new policy will expire in 10 years.
 

With the reduced paid-up non-forfeiture option, the policy will still be a whole
life policy. Therefore it will mature at age 100 like the original policy. It will
have a lower death benefit than the original.
Which qualified plan is characterized by having a non-deductible contribution and
tax-free distributions?
 
A. Traditional IRA
B. Keogh
C. Roth IRA
D. TSA’s
C. Roth IRA
 

Contributions to a Roth IRA are not tax deductible. To encourage
investing for retirement, Roth IRAs allow for tax-free withdrawals after
5 years and at least age 59 1/2.
Which of the following statements about the process of replacement is incorrect?
 
A. The replacing insurer must notify the original insurer within 3 days of the
potential replacement.
B. The agent and the applicant must sign a statement as to whether replacement will
be involved in the transaction.
C. A copy of the signed replacement disclosure statement must be left with the
applicant.
D. Copies of any written illustration or comparisons used in the process of making
the replacement do not need to be included with the submitted application.
D. Copies of any written illustration or comparisons used in the process of making
the replacement do not need to be included with the submitted application.
 

To protect the client, disclosures need to be signed and left with the
client, as well as submitted to all insurers involved. Anything used to make
the sale should also be submitted.
Members of the MIB are required to report
 
A. Names of patients treated by member physicians
B. Cause of death when death benefits are paid
C. Medical conditions found during underwriting
D. Amounts of life insurance applied for by all applicants
C. Medical conditions found during underwriting
 

Made up of member insurance companies, the MIB only reports medical
impairments found during underwriting; not policy information nor medical
record information.
All of the following statements about survivorship life are true, except:
 
A. They are particularly well suited to help families deal with estate tax burdens.
B. The face amounts are often for $1,000,000 or more.
C. The face amount is payable after the first death.
D. As a form of joint life, it covers two individuals on the same policy.
C. The face amount is payable after the first death.
 

Survivorship life, sometimes referred to as “second-to-die” joint life, insures
two people on the same policy, but pays the death benefit only after the
second insured dies.
In contrasting stock insurers with mutual insurers, which statement is not false?
 
A. Mutual insurers are owned by the shareholders, and issue participating policies.
B. Stock insurers are owned by the shareholders, and issue non-participating
policies.
C. Stock dividends are tax-free while policy dividends are taxable.
D. Non-participating policies can pay out dividends to the policyholders.
B. Stock insurers are owned by the shareholders, and issue non-participating
policies.
 

Stock insurers are owned by their shareholders/stockholders. Their policies
are labeled non-participating since the clients do not share in the divisible
surplus (dividends).
An applicant for an insurance license has had a previous application for a professional
license denied for cause within the last five years. The insurance commissioner will:
 
A. Accept or deny the application after an exploratory hearing.
B. Deny the application without a hearing.
C. Accept the application as other licenses have no bearing on this application.
D. Accept the application for a two year provisional license.
B. Deny the application without a hearing.
 

The loss of a professional license, or the previous denial of an application for
a license, within five years of the submission of the current application will
result in the application being denied without a hearing.
34. In order to be financially solvent, an insurer must accomplish all of the following,
except:
 
A. Reinsure any risk in excess of state retention limits.
B. Possess enough assets to cover its liabilities.
C. Maintain an amount at least equal to its required minimum paid-in capital.
D. Contribute a specific amount of capital reserves to the state.
D. Contribute a specific amount of capital reserves to the state.
 

Reserves are retained by the insurer to pay future claims; they are not paid to
the state.
Pete, who is 35 years old, has a life insurance policy with a death benefit of $150,000.
At the age of 65 the cash values of his policy will be $150,000. What type of policy
does he have?
 
A. Whole Life
B. An Endowment to the age of 65
C. Life Paid-up at 65
D. A 30-Year Term Plan
B. An Endowment to the age of 65
 

policy that matures at any age earlier than 100 is an endowment.
Roger, who is 35 years old, has a whole life insurance policy with a death benefit of
$150,000. At the age of 65 he will no longer make premium payments. When will
the cash values of his policy be $150,000?
 
A. 65
B. 100
C. 35
D. 70
B. 100
 

Whole life, even if a limited payment plan, still matures at age 100.
Agent Darren offers life insurance for no cost to people buying property in a local
development. When the Commissioner investigates his actions, which of the
following is not a likely consequence?
 
A. A civil penalty of up to $5,000 if his actions were not willful and $10,000 fine if
they were willful.
B. A cease and desist order will be issued.
C. A hearing will be called.
D. Darren will be charged with a felony and/or up to 10 years in jail.
D. Darren will be charged with a felony and/or up to 10 years in jail.
 

Violations of the Unfair Practices Act customarily result in a hearing, a fine,
and a cease and desist order.

 
 
A life settlement broker
 
A. Places property & casualty insurance with non-admitted carriers.
B. Negotiates life settlement contracts between an owner and providers.
C. Sells single premium immediate annuities to seniors.
D. Assists beneficiaries in filing a claim on a life insurance policy.
B. Negotiates life settlement contracts between an owner and providers.
 

This is the definition of life settlement broker.
E&O coverage
 
A. Protects an agent in the case of unintentional negligence.
B. Has very low deductibles.
C. Does not protect the agent if the case against her is frivolous.
D. Is unlimited.
A. Protects an agent in the case of unintentional negligence.
 

One of the main purposes of errors and omissions (E & O) coverage is to
protect the agent in the case of unintentional negligence.
Candee owns a participating whole life policy and uses her policy dividends to buy
more of the same type of coverage for herself. Candee has chosen the:
 
A. One-year term option
B. Accumulation at interest option
C. Reduced paid up option
D. Paid-up additions option
D. Paid-up additions option
 

Paid-up additions are of the same type of insurance as the base plan.
A policy illustration may not include:
 
A. The name of the insurer, the name of the client, and the name of the producer.
B. Vanishing premiums if the policy becomes paid up with non-guaranteed elements
paying future premiums.
C. An interest rate for nonguaranteed elements that is less than the earned interest
rate of the disciplined current scale.
D. Depictions of policy performance being less favorable than the insurer’s
illustrated scale.
B. Vanishing premiums if the policy becomes paid up with non-guaranteed elements
paying future premiums.
 

The term “vanishing premiums” can only be used if they are based on
guaranteed elements.
What is not likely to happen with a return of premium policy?
 
A. The total premiums paid are added to the death benefit
B. The total premium paid is returned to the insured when the policy is cancelled
C. These policies typically have a higher premium than policies without this feature
D. Increasing term insurance is used to provide this additional benefit
B. The total premium paid is returned to the insured when the policy is cancelled
 

This benefit is payable at policy maturity.
When a client is declined after submitting a prepaid application for life insurance:
 
A. The insurance company can keep the initial premium paid.
B. The client is still covered for 90 days on the conditional receipt.
C. The insurance company must refund the entire premium paid.
D. The client will pay an increased premium.
C. The insurance company must refund the entire premium paid.
 

Declining an application for insurance rescinds the contract, requiring a return
of all premiums paid. It is as though the contract never existed.
All of the following are characteristics of the social insurance program know as
Social Security, except:
 
A. Full retirement age is 65 for all persons born after 1937.
B. Fully insured status can be achieved by paying the FICA tax for forty
quarters/credits.
C. Retirement age is based upon the worker’s birth year.
D. The worker’s full retirement benefits are determined by their PIA.
A. Full retirement age is 65 for all persons born after 1937.
 

While 65 is commonly thought of as retirement age, the law now states that
full retirement age is based upon the worker’s year of birth.
In the insurance planning processes, the blackout period is:
 
A. The period of time in which a policy can be rescinded due to the applicants
intentional or unintentional misstatements on the application.
B. The period of time in which the policy is still in force despite non-payment.
C. The period of time after the youngest child reaches 16, but before the widow
reaches 60, in which the surviving spouse receives no Social Security benefits.
D. The period of time in which an employee is not yet eligible to join a group life
insurance plan.
C. The period of time after the youngest child reaches 16, but before the widow
reaches 60, in which the surviving spouse receives no Social Security benefits.
 

The blackout period is a feature of Social Security designating when no
benefits will be paid to the surviving spouse of the deceased worker.
A client receives a lump-sum inheritance. He’d like to use the money to create a
lifetime income since he’ll be retiring soon. He purchases an annuity and wishes to
receive payments beginning in 2 months. What did he buy?
 
A. Flexible Premium Immediate Annuity
B. Single Premium Deferred Annuity
C. Single Premium Immediate Annuity
D. Flexible Premium Deferred Annuity
C. Single Premium Immediate Annuity
 

Any annuitization in 12 months or less from the effective date is an immediate
annuity. A single premium annuity involves depositing one premium
payment.
The applicant works 2 different jobs. The underwriter will rate him according to
which job?
 
A. The job with the most hours worked each week on average.
B. The job with the highest income.
C. The job the insured is most closely trained for professionally.
D. The job that is most hazardous.
D. The job that is most hazardous.
 

Regardless of hours worked or income, the most hazardous job will be used in
the rating process.
Your policy contains the guaranteed insurability rider. When can you purchase
additional insurance on your policy?
 
A. Any time you wish once proving you are insurable for the additional coverage.
B. At specified ages or dates after providing evidence of insurance.
C. Without proof of insurability when the cost of living increases.
D. Without evidence of insurability at specified ages or dates.
D. Without evidence of insurability at specified ages or dates.
 

Contractually, you can only add to the policy when permitted, since no
medical qualification is required. Otherwise, the insured would wait for an
illness to add to their policy.
After the insured passes away, it is discovered that the policy was rated based upon an
incorrect age. The client lied about their age when filling out the application 8 years
earlier. What effect will this have on the benefit?
 
A. The policy is incontestable. Full claim will be paid.
B. The policy will be rescinded as it is contestable.
C. The proceeds payable will be adjusted.
D. The shortage of premium will be deducted from the death benefit.
C. The proceeds payable will be adjusted.
 

When the age is misstated on the application, the death benefit paid will be
adjusted to reflect the correct age.
Which of the following are common provisions found within many life insurance
policies?
 
A. Reinstatement, entire contract, incontestability
B. Aviation, suicide, incontestability
C. Pre-existing conditions, entire contract, grace period
D. Right to return, reinstatement, war clause
A. Reinstatement, entire contract, incontestability
 

This is the only answer for which all items are policy provisions.
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