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Which statement is false concerning insurance company regulations?
 
A. Insurers may not advertise their membership in the Guarantee
Association.
B. An insurer suffering from an impairment of their minimum required paid-in
capital is labeled solvent.
C. The commissioner may begin conservation proceedings against
companies who cannot meet solvency regulations.
D. An insurer may be liquidated if conservation proves to be futile.
B. An insurer suffering from an impairment of their minimum required paid-in
capital is labeled solvent.
 

Insurers suffering from an impairment of paid-in
capital are insolvent.
Which of the following transactions would most likely be declined due to lack
of insurable interest?
 
A. A parent buys insurance on their adult child
B. An employee insures their employer in the fear of losing their job
C. A spouse insures the other spouse
D. A local hospital insures its chief of surgery
B. An employee insures their employer in the fear of losing their job
 

While “blood and business” can be used as a way to
remember the insurable interest relationship; employees do not
have an insurable interest relationship with their employer.
All of the following statements about policy provisions are true, except:
 
A. Death during the grace period results in a full death benefit being paid.
B. Suicide during the policy’s first two years results in policy rescission.
C. The insuring clause states the insurer’s promise to pay a death benefit if
premiums are paid, and proof of death is received.
D. The automatic premium loan can keep a policy in force when payments
are missed and there is sufficient cash value to pay the premium.
A. Death during the grace period results in a full death benefit being paid.
 

The missed premium will be deducted from the full
death benefit if death occurs during the grace period.
A client has a history of DUIs. To his insurer, they see him as a ________
hazard.
 
A. Physical
B. Moral
C. Morale
D. Legal
C. Morale
 

Morale hazards are characterized by an indifference
towards risk. DUIs show apathy towards hurting oneself and
others.
Which statement about reinstatement is false?
 
A. Reinstatement usually requires an application with underwriting questions,
but may not require any physical exams.
B. Reinstatement requires payment of past due premium plus interest.
C. A reinstated policy’s premium is based upon the insured’s original age.
D. The reinstated policy is incontestable if the first time it was in force it
already passed the two year mark.
D. The reinstated policy is incontestable if the first time it was in force it was
already past the two year mark.
 

A reinstated policy will be contestable again for
another two years.
The person who will receive the benefit of an annuity and whose life the
payout is based upon when the contract is purchased is the:
 
A. policyowner
B. annuitant
C. beneficiary
D. insured
B. annuitant
 

This is the definition of annuitant. The owner does
not have to be the annuitant, there may not be a beneficiary, and
an annuity is a retirement plan, not insurance.
The Roth and Traditional IRAs have some similarities. Which of the following
is not true?
 
A. Both have penalties for early withdrawal
B. Both grow tax deferred
C. Both are tax deductible to the investor
D. Both allow the investor to invest for themselves and their non-income
earning spouse
C. Both are tax deductible to the investor
 

The Roth has non-deductible contributions, while the
Traditional IRA allows tax deductible contributions.
A policy pays the face amount if the insured dies before a specified date, or
lives to that specified date. This best describes:
 
A. Term Insurance
B. Social Security
C. An endowment policy
D. An annuity
C. An endowment policy
 

Endowment policies mature, or endow at any time
specified in the contract.
All of the following statements about life insurance policy illustrations and the
senior market are correct, except:
 
A. Guaranteed elements must be emphasized in bold print.
B. To be understandable, policy illustrations must follow certain formats so
the insured can make informed buying decisions.
C. Illustrations must note that they are only an illustration.
D. The illustration will note that both guaranteed and non-guaranteed
elements will remain unchanged for the years illustrated.
D. The illustration will note that both guaranteed and non-guaranteed
elements will remain unchanged for the years illustrated.
 

Non-guaranteed elements will change over time.
Guaranteed elements show the minimum, guaranteed performance
that will occur.
All of the following statements about agents are true, except:
 
A. Independent agents can be appointed by multiple insurers.
B. If an agent submits business to an insurer that the agent is not appointed
with, the insurer can submit a notice of appointment within 14 days to
validate the relationship.
C. Exclusive agents work for themselves.
D. Agents need to complete 4 hours of ethics continuing education every
license renewal as a part of their regular CE hours.
C. Exclusive agents work for themselves.
 

Exclusive agents work for or represent one insurer at
a time. Independent agents work for themselves and can be
appointed by multiple insurers.
Which statement is not true about insurance sales?
 
A. Mass marketing techniques usually involve selling insurance without the
use of an agent.
B. Brokers represent insurers in negotiating coverage with various insureds.
C. Insurance agents are not authorized to sell life insurance.
D. An agent or broker must exercise care when using apparent authority
during the sales process.
B. Brokers represent insurers in negotiating coverage with various insureds.
 

Brokers represent the insureds and can place those
clients with various insurers. Life-only agents sell life insurance on
behalf of an insurer.
In comparing the purchase of individual life insurance to acquiring group life,
which statement is not true?
 
A. Group insurance is automatic and requires less medical information than
the individual coverage.
B. Group life tends to have a lower premium per person than individual life.
C. Both provide a tax free death benefit.
D. Group insurance has a non-deductible premium while individual insurance
has a tax deductible premium to the payor.
D. Group insurance has a non-deductible premium while individual insurance
has a tax deductible premium to the payor.
 

Group insurance premium paid by the employer is tax
deductible to the employer, while individual insurance premium is
non-deductible.
Which of the following is not a personal use of life insurance?
 
A. A client buys cash value insurance to fund their children’s college
education.
B. A client buys insurance to pay off their mortgage should they pass away
prematurely.
C. A client buys insurance to fund a buy-sell agreement.
D. A client buys insurance to provide future income to a surviving spouse.
C. A client buys insurance to fund a buy-sell agreement.
 

Buy-sell agreements are typically bought by partners
in a business as a personnel/business use of insurance. The
others are examples of personal/family uses of insurance.
All of these statements about life insurance settlement options are false,
except:
 
A. Fixed amount is the default option when no option is selected.
B. Life income payments are income tax free.
C. Life income with 10 years certain provides at least 120 months of
payments.
D. Settlement options like fixed period are good ways to provide an income to
a beneficiary who cannot handle large sums of money.
C. Life income with 10 years certain provides at least 120 months of payments.
 

“Lump sum” is the default option. Life settlement
options are good for those who cannot handle large sums of
money, but the interest portion of each payment is taxable income.
Only the face amount or lump sum amount is tax free.
Under which life settlement option does the insurer retain the death benefit
but pays the beneficiary the earnings on the death benefit?
 
A. Interest only option
B. Accumulate with interest option
C. Life income option
D. Cash option
A. Interest only option
 

The “accumulate with interest” option and the “cash
option” are dividend options, not settlement options. The “interest
only” option is the settlement option that pays earnings on the
death benefit.
Any person to whom the commissioner has issued a seizure order and who
refuses to deliver any books, records, or assets of an insurer faces:
 
A. A felony punishable by a fine up to $1,000, a year in prison, or both.
B. A misdemeanor punishable by a fine up to $1,000, a year in jail, or both.
C. A misdemeanor punishable by a $5,000 fine, if unintentional, or $10,000, if
intentional.
D. Administrative fines only.
B. A misdemeanor punishable by a fine up to $1,000, a year in jail, or both.
 

Crimes of this nature are misdemeanors. There are
various levels of punishment based upon the level of damage done
to the insurer and its clients.
The insured dies 6 months after the policy issue date. Upon death of the
insured, it is determined that the applicant made a material misstatement on
the application. What is the most likely course of action for the insurer?
 
A. Rescind the policy
B. An administrative hearing by the DOI
C. A hearing by a court of law to determine the appropriate actions
D. No course of action allowed since the policy has already been issued
A. Rescind the policy
 

The contestability period is still in force so the policy can be
rescinded by the company for material misrepresentation on the
application.
All of the following describe differences between binding receipts and
conditional receipts, except:
 
A. Conditional receipts are commonly used for life insurance applications.
B. No claim is paid with either receipt until a policy is issued
C. The binding receipt always provides immediate coverage from the date of
the receipt
D. The conditional receipt can provide coverage from the date of application
once the application is later approved by underwriting
B. No claim is paid with either receipt until a policy is issued
 

Under a binding receipt a claim would be paid even if the policy
was not issued yet. Binding receipts tend to be used for property
insurance.
According to the California DOI, an insurer whose articles of incorporation are
registered in Oslo, Norway, is considered:
 
A. A domestic insurer
B. A foreign insurer
C. An alien insurer
D. An admitted insurer
C. An alien insurer
 

An insurer incorporated in a foreign country is
considered to be an alien insurer.
Which of the following riders would provide for an insured to increase the face
amount of their life insurance policy without proof of insurability?
 
A. Guaranteed insurability/future purchase option
B. Waiver of premium
C. Accelerated death benefit
D. Double indemnity rider
A. Guaranteed insurability/future purchase option
 

The guaranteed insurability rider/option allows the
insured to purchase additional amounts of insurance at specified
times, regardless of health status, but at an increased premium.
What nonforfeiture option allows a policyowner to use the existing cash value
to purchase a policy of the same face amount as the original policy but for a
reduced amount of time?
 
A. Reduced paid-up insurance
B. Cash surrender value
C. Extended term insurance
D. Extended paid-up insurance
C. Extended term insurance
 

The nonforfeiture option that results in a paid-up policy with the
same face amount as the original policy is the “Extended Term”
option.
In which type of policy does the insurer apply flexible premium to pay for the
cost of insurance and expenses and then uses the remaining balance plus
interest to build the cash value account?
 
A. Universal life
B. Adjustable life
C. Renewable term
D. Whole life
A. Universal life
 

Universal life insurance is also known as “flexible
premium” The calculation for gross premium is: Mortality risk –
Interest + Expense, any remaining premium will be applied to cash
value.
Which of the following is not a qualified 1035 exchange?
 
A. A whole life policy exchanged for a variable life policy.
B. A variable annuity exchanged for a variable universal life policy.
C. A variable annuity exchanged for a fixed annuity.
D. A universal life policy exchanged for a whole life policy.
B. A variable annuity exchanged for a variable universal life policy.
 

“A 1035 exchange includes an exchange from one life policy to
anther life policy, a life policy to an annuity, or from one annuity to
another annuity. Exchanging an annuity for a life policy is not a
“1035 exchange.”
Which of the following is not an acceptable underwriting classification?
 
A. Sub-standard
B. Preferred
C. Declined
D. Standard
C. Declined
 

Even though a sub-standard rating results in a higher premium, the
risk (insured) has been accepted by the insurer. Declined means
the risk is too high and therefore is not accepted by the insurer.
The provision that protects the proceeds of a life insurance policy from
attachment by the beneficiary’s creditors after the insured’s death is known as
the:
 
A. Spendthrift (Trust) Clause.
B. Common Disaster Clause.
C. Incontestability Clause.
D. The Beneficiary Protection Clause.
A. Spendthrift (Trust) Clause.
 

The “Spendthrift Clause” keeps the beneficiary’s creditors from
attaching the death benefit while held by the insurance company.
Which of the following is an incorrect statement about a client’s privacy
rights?
 
A. Signed consent is required before an Attending Physician’s Statement
(APS) will be completed.
B. Abuse of information found within medical records could result in a HIPAA
violation.
C. A client does not have access to their MIB report as it belongs to the
member’s life insurers.
D. Consent is required before an insurer may access an insured’s credit
history. Any entry may be disputed if in error.
C. A client does not have access to their MIB report as it belongs to the
member’s life insurers.
 
The client does have access to his/her MIB report.
In a group life policy with a death benefit of more than $50,000:
 
A. Premium cost is taxable to the employer.
B. Premium cost for insurance above $50,000 is taxable as income to the
employee.
C. Premium cost for insurance below $50,000 is taxable as income to the
insured.
D. Premium cost is tax deferred.
B. Premium cost for insurance above $50,000 is taxable as income to the
employee.
 
Any premiums paid by an employer for an employee’s coverage of
more than $50,000 are taxable to the employee. Premiums for
coverage of $50,000 or less are not taxable to the employee.
To authorize the release of an attending physician’s report, the applicant
must:
 
A. Sign a consent form.
B. Send a letter to the physician.
C. Furnish the name of the physician.
D. Submit to a physical examination.
A. Sign a consent form.

Physicians require the patient’s written authorization
to release patient information.
The Commissioner can deny an applicant for a license after a hearing:
 
A. If the applicant doesn’t lack integrity.
B. If the applicant has permitted someone in their employment to violate the
California Insurance Code.
C. For applicants holding other professional licenses.
D. For applicants seeking the license for the purpose of aiding the
enforcement of the California Insurance Code.
B. If the applicant has permitted someone in their employment to violate the
California Insurance Code.
 
Applicants allowing others to violate the insurance
code would be suspect for further violations.
At age 72, Mrs. Smith is considering applying for Medi-Cal so she can afford
her medical bills. Today Agent Charles is visiting her home and wanting to
sell her an annuity product. Which of the following is true?
 
A. It’s permissible for Agent Charles to visit Mrs. Smith for the first time
without providing her a pre-meeting notice in writing 24 hours in advance.
B. Agent Charles cannot allow Mrs. Smith to purchase an annuity if after the
purchase, Mrs. Smith wouldn’t qualify for Medi-Cal.
C. Mrs. Smith must agree to meet with Agent Charles alone.
D. Agent Charles should recommend the annuity purchase to assure he
receives the greatest commission possible from the visit.
B. Agent Charles cannot allow Mrs. Smith to purchase an annuity if after the
purchase, Mrs. Smith wouldn’t qualify for Medi-Cal.
 
Agents must be mindful of the effects of an annuity purchase on
Medi-Cal eligibility.
What is the minimum number of members required for group life insurance?
 
A. 15
B. 10
C. 25
D. 100
B. 10
 
10 is the minimum per the CIC.
Which statement below is least correct regarding the type of insurance that
fits best with the applicant’s needs?
 
A. Applicants concerned with the increasing cost of living should purchase
increasing term.
B. Applicants wishing to pay off a mortgage should they suffer a premature
death might buy a decreasing term plan.
C. Annual renewable term works well for employers looking to provide cost
effective group life insurance for their employees.
D. Convertible term can be purchased by applicants who may require a
larger death benefit in the future.
D. Convertible term can be purchased by applicants who may require a
larger death benefit in the future.
 
Convertible term converts to a cash value policy with the same
death benefit but at a higher premium.
Which of the following is considered ordinary insurance?
 
A. Renewable term insurance
B. Blanket policies
C. Mortgage redemption
D. Whole life insurance
C. Mortgage redemption
 
Mortgage redemption must be ordinary or individual insurance,
while whole life and term can be group or individual. Blanket
insurance is group insurance.
Who submits a request for life insurance to a company?
 
A. The beneficiary
B. The underwriter
C. The applicant
D. The agent
C. The applicant
 
While the agent often handles the paperwork; it’s the applicant who
is technically requesting life insurance coverage.
All of the following needs to be included on an application for life insurance except:   A. Life Insurance with other insurers B. The agent’s statement, if applicable C. Signatures of the agent, proposed insured, and the owner D. Disability income insurance
D. Disability income insurance   Disability income insurance is not material to a life insurance contract.
A partial payment of proceeds to cover final expenses is paid to someone not designated as a beneficiary but acting in a legal or fiduciary capacity. This is provided in which provision?   A. Automatic Premium Loan B. Payor Benefit C. Cost of Living D. Facility of Payment
D. Facility of Payment   Facility of payment is a process whereby someone who is not a beneficiary could make a claim for reimbursement of final expenses.
While collecting underwriting information, certain rules must be followed. Which of the following is incorrect?   A. Information contained on the non-medical application may result in the requirement for a physical exam. B. When credit is used to determine insurability, the applicant must be furnished with the name, address, and phone number of the credit agency used by the insurer. C. Post-claims underwriting is a valid and necessary means of determining the insurability of a potential applicant. D. Insurers may test for HIV after getting informed consent from the applicant, and may ask questions concerning the existence of the condition as long as they don’t reveal information about sexual orientation.
C. Post-claims underwriting is a valid and necessary means of determining the insurability of a potential applicant.   Post-claims underwriting is a prohibited process in disability insurance. All underwriting must be completed prior to issuing the policy; it is illegal to do more underwriting after a claim has been filed.
At what age does Social Security Medicare program Part B start providing benefits?   A. 60 B. 62 C. 65 D. 67
C. 65   Medicare Part B provides medical expense coverage to those 65 and older.
Which of the following statements is not included in the Entire Contract clause?   A. All statements made by the insured in the application will be considered as representations, not warranties. B. A copy of the application, if used, must be attached to the policy. C. The insurer agrees to provide life insurance protection for the named insured which will be paid to a designated beneficiary when proof of death is received by the insurer. D. Only an executive officer can make changes to the contract.
C. The insurer agrees to provide life insurance protection for the named insured which will be paid to a designated beneficiary when proof of death is received by the insurer.   Answer C describes the Insuring clause.
Which action by an insurer, or its representatives, is not considered an unfair claims violation?   A. A claims adjustor misrepresents pertinent facts or policy provisions to dissuade a client from making a claim. B. An agent does not respond to a claimant’s communication concerning a claim where a response is required. C. The claims department fails to affirm or deny coverage within a reasonable period of time after proof of loss has been submitted. D. An agent advises a claimant to obtain the services of an attorney.
D. An agent advises a claimant to obtain the services of an attorney.   It is only an unfair claims practice to advise a claimant to NOT obtain an attorney. A claimant always has the right to seek council.
All of the following statements are true about participating and nonparticipating policies, except:   A. They are sometimes referred to as par and non-par. B. Participating policies allow a policyowner to share in a mutual company’s divisible surplus in the form of dividends. C. Non-participating policies issue dividends to shareholders. D. Non-participating policies issue dividends to policyowners.
D. Non-participating policies issue dividends to policyowners.   Dividends on non-participating policies are paid to shareholders.
All of the following statements about assignments are not false, except:   A. Absolute assignments can be used for life settlement agreements. B. A lender may be repaid through the use of a collateral assignment. C. Absolute assignments involve the complete transfer of all policyowner rights in the insurance policy. D. Assignments need not be filed with the insurer if notarized and filed in county records.
D. Assignments need not be filed with the insurer if notarized and filed in county records.   Changes in ownership always need to be filed with the insurer.
How many hours of continuing education are required per renewal for a life only agent?   A. 20 hours, 4 of the hours must be in ethics B. 20 hours, 2 of the hours must be in ethics C. 24 hours, 4 of the hours must be in ethics D. 24 hours, 2 of the hours must be in ethics
C. 24 hours, 4 of the hours must be in ethics   According to the CIC, 24 hours of continuing education must be completed each renewal. Of the 24 hours, at least 4 must be in ethics.
All of the following statements about a policy grace period are false, except:   A. Death during the grace period results in the denial of the claim. B. Grace periods are typically 31 days. C. Returning the policy during the grace period results in a full refund of premiums. D. Not every insurer is required to provide a grace period.
B. Grace periods are typically 31 days.   According to the CIC, the grace period is 31 days.
A client has missed her premium payment on her cash value policy, and the grace period has also lapsed. The policy is still in force because her insurer has been deducting the cost of the premium from her cash value. What provision allows this?   A. Automatic Premium Loan B. Incontestability Clause C. Reinstatement Provision D. Over-draft Protection
A. Automatic Premium Loan   If included in a cash value policy, APLs allow insurers to subtract the missed premiums from the cash value as a loan to keep a policy from inadvertently lapsing for non-payment. This will continue until the client begins paying again or the cash value runs out. Interest will be charged on these loans.
Which insurance is known for having a level premium with a fixed rate of return resulting in guaranteed cash value?   A. Adjustable life B. Whole life C. Variable life D. Universal life
B. Whole life   Because whole life has a level premium and a fixed rate of return, the resulting cash value is predictable.
A forty-five year old investor has been laid off from his job. In order to pay bills he takes a premature distribution from his traditional IRA account. What tax penalties, if any, will he face?   A. None. Distributions during times of unemployment are not penalized. B. None. Distributions before the age of 59 1/2 are penalty-free. C. He will be required to pay a 10% tax penalty on the amount withdrawn. D. Since traditional IRA’s are often tax deductible, the client owes the normal taxes they avoided when they made their contribution.
C. He will be required to pay a 10% tax penalty on the amount withdrawn.   Early withdrawals from qualified plans before the age of 59 1/2 require the normal taxes owed, plus an additional 10% tax penalty for early distribution except for hardship withdrawals.
For a flexible premium deferred annuity, the time during which the owner makes premium payments and the time before benefit payments begin is known as the:   A. Activity period. B. Annuity period. C. Accumulation period. D. Annuitization period.
C. Accumulation period.   The time during which the account owner invests money in the annuity is known as the accumulation period.
An agent who knowingly misrepresents material information for the purpose of inducing a client to lapse, forfeit, change or surrender a life insurance policy or annuity has committed an illegal practice known as:   A. Concealment. B. Misrepresentation. C. Twisting. D. Fraud.
C. Twisting.   This is the definition of twisting, which is an unfair trade practice.
An applicant has the right to know that the insurance company will collect certain personal information about their credit, character and reputation. The insurer may gain such information from:   A. A privacy notice. B. An application for insurance. C. A consumer report. D. A pretext interview.
C. A consumer report.   A consumer report includes information about a potential client’s credit, character and reputation. This report may be obtained by the insurer during the underwriting process.
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