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A representation in an insurance contract qualifies as:
 
A. An opinion
B. An implied warranty
C. An express warranty
D. A policy provision
B. An implied warranty

A representation is a statement made that is believed to be true to the best of
the knowledge of the person making the statement. A warranty is a statement
made that is guaranteed to be true. In certain cases the law says that one party has
given a warranty (a guarantee) to another even though the warranty is not in
writing. Thus, a representation in an insurance contract may qualify as an implied
(not in writing) warranty.
An insurer owned by the parent company to provide insurance to cover the parent
company’s loss exposure only is called a:
 
A. Reciprocal insurer
B. Captive insurer
C. Mutual insurer
D. Stock insurer
B. Captive insurer
 
This is a legally recognized insurance company organized and owned by a
corporation or firm whose purpose is to use the captive to write its own insurance
exclusively. Usually it is a non-admitted insurer that has the right, under special
circumstances, to reinsure with an admitted insurer.
Which of the following best represents what the phrase “life insurance creates an
immediate estate” means?
 
A. The policy creates immediate cash value.
B. The death benefit will always be paid to the estate of the insured.
C. The face value of the policy is payable to the beneficiary upon the death of the
insured
D. None of these represent what this phrase means.
C. The face value of the policy is payable to the beneficiary upon the death of the
insured
 
Unlike a normal estate where the value of personal wealth is usually built up
over time, a life insurance policy’s face value is available immediately in one
lump-sum upon the death of the insured.
When policy illustrations are used with senior citizen clients in California, which
include non-guaranteed elements, a statement to that effect must be included with the
illustration. Which of the following is true regarding this statement?
 
A. Non-guaranteed elements must be printed in bold type.
B. Guaranteed elements must be in bold print and the non-guaranteed elements must
be in plain type.
C. Whether the print is in bold type or plain type is at the discretion of the insurer.
D. According to the code, all policy illustration statements must be uniform and in
plain type.
A. Non-guaranteed elements must be printed in bold type.
 
The statement concerning non-guaranteed elements must be in bold or
underlined capitalized print, or in any manner that makes it more prominent than
the surrounding materials.
In which of the following qualified plans are the benefits linked to the employee’s number of years of service and/or the amount of compensation they earned?   A. Tax Sheltered Account (TSA) B. Defined benefit plan C. Koegh plan D. Defined contribution plan
B. Defined benefit plan   Defined benefit or pension plans are typically based on the number of years an employee works for an employer. The amount of compensation earned may factor into the benefit. For example, if the employee works a certain number of years and retires at a certain age they will receive so much a month for life. If they work longer and retire at an older age the benefit will increase.
In a group life insurance plan, unmarried children may be covered as eligible dependants until they reach the age of:   A. 18 B. 20 C. 21 D. 25
C. 21   The CIC says that, “Dependent includes … all unmarried children from birth through 20 years of age, or through 24 years of age if the dependent child is attending an educational institution, …” Therefore, age 21 is the correct answer because the question asks “until they reach the age of:”
What happens to the insurance license of a corporation when the corporation ceases
to exist?
 
A. It becomes inactive
B. It terminates unless the corporation files an application to continue business
within 30 days.
C. It is suspended temporarily by the DOI.
D. It terminates
D. It terminates
 
The corporation ceases to exist, it has permanently dissolved and, therefore,
loses its ability as a person to hold a license.
All of the following are true about the Social Security System except:
 
A. The majority of workers in the U.S. are required to pay into the system.
B. The system is fully funded.
C. Meant to supplement other retirement income, it provides a minimum floor of
income.
D. Benefits are prescribed by law, not by contract.
B. The system is fully funded.
 
The system will shortly begin paying out more than it’s collecting in taxes.
The insured buys a non-participating whole life policy. Many years later the insured is disabled and cannot afford the premiums anymore. She exercises the Extended Term Non-forfeiture option. Which statement is not true?   A. The policy will accrue cash value, but with a lower death benefit coverage. B. No more premium payments are required. C. The coverage amount will remain the same as the original policy. D. The policy will remain in force a certain number of years, then expire.
A. The policy will accrue cash value, but with a lower death benefit coverage.   The Extended Term Non-Forfeiture results in the same death benefit, for a certain number of years, but naturally no cash value. It is now fully paid-up.
Which of the following best describes the reduced paid-up non-forfeiture option?   A. The insured can no longer afford the policy so they receive the cash value minus the surrender charge. B. The insured receives a cheaper term policy with a reduced death benefit. No evidence of insurability required. C. The insured receives a cheaper term policy with a reduced death benefit. No evidence of insurability required. D. The insured exchanges the current whole life policy for another whole life policy with a lower death benefit. A reduced premium is charged. No additional premium is required
D. The insured exchanges the current whole life policy for another whole life policy with a lower death benefit. A reduced premium is charged. No additional premium is required
When determining life insurance premium rates an insurer may not legally use which of the following?   A. Age B. Gender C. Nationality D. All of the above may be used
C. Nationality   Using nationality would be an unfair discrimination.
Group members that are covered by group life insurance policies are required to be issued which of the following?   A. A Master Policy B. A Certificate of Insurance C. An estimate of the sponsor’s premiums D. None of the above
B. A Certificate of Insurance   There is only one Master Policy and it is held by the head of the sponsoring group. Each eligible group member covered by the plan must be provided with a Certificate of Insurance / Coverage.
Agent Bill has decided to use a new time management strategy while making sales presentations. To save time he decides to not answer a client’s question the first time it is asked. Instead he answers them only if they are asked a second time. This way he can make it to his next appointment on time. Professional insurance organizations would consider this to be:   A. A smart and ethical strategy B. An unethical practice C. Not in violation of their codes of conduct D. None of the above
B. An unethical practice   Failing to answer a client’s question directly and promptly would be considered unethical behavior by most standards.
Which of the following is a true statement about contributory group life insurance?   A. The employer must pay 100% of the premiums. B. All eligible employees must be covered by the plan. C. Participating employees will contribute towards the payment of premiums. D. All of the above
C. Participating employees will contribute towards the payment of premiums.   Contributory group plans must be voluntary because the participating group members must pay for all or a part of the premiums.
All of the following are not true about the Social Security program, except:   A. It is mandatory for most workers to pay FICA taxes. B. All participants are provided with a copy of the contractual agreement. C. The retirement benefit is the same for everyone. D. The benefits received closely match the amount of the taxes paid in.
A. It is mandatory for most workers to pay FICA taxes.   Social Security is a compulsory program for most workers in the U.S. It is provided by law and not by individual contract. Benefits vary and are dependent on each person’s PIA.
Keith has purchased a variable annuity. He has not waived his rights during the freelook period. Where will the premiums be initially invested during the free-look period?   A. The policy’s separate account B. A fixed income or money market account C. A stock portfolio chosen by the insured D. The insurer’s general account for preservation of fund value
B. A fixed income or money market account   While separate accounts are associated with variable policies, during the freelook period, a fixed income or money market fund is used to keep the value stable. This will ensure a full refund of the entire premium should it be cancelled.
A variable annuity applicant invests his premiums immediately into the stock portfolio chosen for his annuity. He then returns his annuity during the free look period when the stock market drops significantly. What will the client receive?   A. His entire premium B. The policy account value on the date the returned policy is received by the insured C. The policy account value on the date the returned policy is received by the insurer D. The full premium minus the surrender charge
C. The policy account value on the date the returned policy is received by the insurer   Cancelled annuities should be returned to the insurer, or its agent. In this situation, the applicant will get the value on the date the annuity is returned to the insurance company, or its agent. Since he waived his right to use a fixed account or money market during the free-look he will not necessarily get his entire premium.
Which statement about federal income taxation of life insurance settlement payments is true?   A. Upon surrender of a whole life policy no part of the cash value is taxable because it is paid in a lump sum. B. Choosing the “life income” settlement option saves the beneficiary from paying any income taxes. C. The “interest only” option results in no taxation until the beneficiary selects one of the other options. D. A lump sum settlement is paid out tax free when paid to a natural person.
D. A lump sum settlement is paid out tax free when paid to a natural person.   Currently, no part of the face amount of a life insurance settlement is taxable when paid to a natural person. Only interest earned, if any, would be taxable as income.
Concerning federal tax treatment of life insurance payments, which of the following statements is/are correct?   A. Death benefits paid to the beneficiary are generally tax exempt. B. Ordinary life premiums are tax deductible for the owner. C. Employer paid premiums for their group life insurance plan are not tax deductible as a business expense. D. None of the above is incorrect.
A. Death benefits paid to the beneficiary are generally tax exempt.   This is true according to current federal tax laws.
All of the following are true regarding the taxation of life insurance products, except:   A. Annuity death benefits are paid out totally tax free. B. When an individual pays their own life insurance premiums they can not deduct them on their personal income taxes. C. Premiums paid by an employer on a non-contributory group plan are tax deductible as a business expense. D. All of the above are true
A. Annuity death benefits are paid out totally tax free.   Annuity death benefits are paid out tax free up to the amount of premium paid in. Anything above that is interest earnings and is taxable upon death.
Which department or division of an insurance company is responsible for the selection, evaluation, and distribution of risks?   A. Marketing and sales B. Underwriting C. Claims D. Actuarial
B. Underwriting   The underwriter’s primary purpose is to evaluate risk to determine which applicants to insure and what coverage to offer (selection). It is the underwriter’s responsibility to protect the insurer against adverse selection (too many high risks on the books) by eliminating the highest risks.
Which of the following are members of and financially supports the Medical Information Bureau?   A. Insurance companies B. National Association of Insurance Commissioners C. Licensed insurance agents D. All of the above
A. Insurance companies   The MIB was set up by and for the use of life and disability insurers and their subscriber or membership fees pay for its operation.
Cliff, who is 44 years old, falls while mountain climbing on vacation. He is left paralyzed. After a year, doctors feel he will never recover from his injuries. Which of the following programs will he be able to collect disability income?   A. Medi-Cal B. Worker’s Compensation C. Social Security D. Medicare
C. Social Security   Social Security has, as one of its four main components, a disability income section for long term disability.
The Social Security system has four main benefit programs. Disability, Retirement, & Medicare are three of them. The fourth program is:   A. Rehabilitation B. Medical C. Hospice D. Survivors
D. Survivors   DRuMS can be used to remember the four parts of Social Security. Disability, Retirement, Medicare, and Survivors.
Which of the following benefits is never included in a LTC policy?   A. Hospice B. Hospice Acute Care C. Adult Day Care D. Respite Care
B. Hospice Acute Care   Medical and health insurances provide acute care. LTC does not provide coverage for intensive medical procedures, but does provide for recuperation and personal care issues.
Which of the following statements about contingent beneficiaries is false?   A. The contingent beneficiary receives benefits equally with the primary beneficiary B. More than one contingent may be named C. They will receive the death benefit if the primary predeceases the insured D. They receive remaining installment or income payments to be made under a settlement agreement if the primary were to decease prematurely
A. The contingent beneficiary receives benefits equally with the primary beneficiary   The contingent would not share the death benefits with the primary as they only receive them if the primary dies before the insured dies.
In reinsurance, the insurance company who transfers its loss exposure to another insurer is the:   A. Reciprocal insurer B. Reinsurer C. Primary insurer D. Secondary insurer
C. Primary insurer   In reinsurance, the reinsurer accepts risks from the primary (ceding) insurer.
In group insurance, to avoid proving insurability an employee usually needs to join the group insurance plan:   A. During the probationary period B. During the enrollment period C. After the elimination period D. At anytime with group insurance
B. During the enrollment period   Sometimes called the eligibility period, the enrollment period is the time for employees to enroll without having to provide evidence of insurability.
Which of the following statements is false regarding the application for life insurance?   A. When bound to the policy, applications become part of the entire contract. B. The name of the insured person must be indicated on the application. C. Answers to application questions are considered to be representations and not warranties. D. Before a policy can be issued or changed, the beneficiary must initial the application to indicate their approval.
D. Before a policy can be issued or changed, the beneficiary must initial the application to indicate their approval.
The policy owner has the right to name the beneficiary and may do so without their knowledge. The beneficiary, as the beneficiary, is not a party to the contract and therefore does not sign or initial anything.
The owner chooses the annual mode to pay their life insurance premium. For the year, they will pay _________________   A. More as compared to the other payment modes. B. The same as compared to the other payment modes. C. Less as compared to the other payment modes. D. None of the above
C. Less as compared to the other payment modes.   Premium is calculated on an annualized basis. The more payments (semiannual, quarterly, monthly) the premium is broken into the more expensive for the year. One annual payment allows the insurer to work with all of the money up front and cuts down on their expenses.
There are four basic classes of life insurance. All of the following may be regarded
as ordinary insurance, except:
A. Term life insurance policy
B. A whole life paid-up at 65 policy.
C. A group life insurance policy.
D. An 18-year endowment policy.
C. A group life insurance policy. Ordinary is the same as “individual” insurance. Term, whole life, and
endowments may be purchased on an individual basis. Group life is always
issued on a group (not individual) basis.
Bob, the owner and insured has a non-participating whole life policy for $50,000. He
never misses a payment and has never borrowed from the cash value. Bob turned 100
years old today. How much of the cash value is he entitled to?
A. All of it, $50,000
B. About $25,000 – it depends on the actuarial tables.
C. None of it – Bob did not die, yet.
D. None of the above
A. All of it, $50,000 Whole life policies mature or endow at age 100. If the insured has not died
by that age they are guaranteed the face amount of the policy (minus any
outstanding policy loans).
A beneficiary is set to receive $2,500 a month until the lump sum amount and
interest are exhausted. Which settlement option was chosen?
A. Fixed period option
B. Interest (only) option
C. Life income option
D. Fixed amount option
D. Fixed amount option This option stresses that the beneficiary will receive a defined / set amount of
money monthly until all funds are exhausted or depleted. Since it doesn’t define
the length of time it can’t be fixed period, or life income.
Concerning the “Family Protection Policy” all of the following statements are true,
except:
A. This type of policy consists of whole life on the base insured and riders on the
others.
B. Convertible term riders cover both the spouse and all children.
C. Additional children born after the policy is issued are covered automatically at no
extra cost.
D. Children, upon reaching the age of majority are permitted to convert to an
individual policy with proof of insurability.
D. Children, upon reaching the age of majority are permitted to convert to an
individual policy with proof of insurability. Children’s coverage is converted without evidence of insurability.
The additional amount of premium paid for an accidental death benefit rider on a
whole life policy does not:
A. Cover the cost of the added protection.
B. Increase the cash values
C. Both a) and b).
D. Neither a) nor b)
B. Increase the cash values The additional premium is used only to compensate the insurer for the added
risk of the rider.
When the insured becomes disabled under the requirements of the policy, which of
the following provisions keeps the policy in force even though the owner stops
making the premium payments?
A. The guaranteed insurability provision
B. The accelerated living benefit provision
C. The waiver of premium provision
D. The spendthrift trust provision
C. The waiver of premium provision This is a type of an insurance protection on an insurance policy. WP results
in the insurance company giving up their right to premium payments during the
period of the disability. The policy remains in force, in all respects, until the
insured is no longer disabled or they die.
With a waiver of premium rider attached to a whole life policy issued by a mutual
insurer, all of the following are true, except:
A. Dividends will continue to be paid, if earned.
B. Cash values will continue to grow.
C. All features of the policy will remain in force.
D. The insurer will waive the premium payment while the policyowner will continue
to pay the cost of the WP rider.
D. The insurer will waive the premium payment while the policyowner will continue
to pay the cost of the WP rider. The waiver of premium provision exempts the owner from paying any of the
premium once the rider is triggered (usually after six months).
Which of the following policy riders is/are frequently found in life insurance policies?
A. Cost of Living rider
B. AD&D
C. Waiver of Premium
D. All of the above
D. All of the above These are all frequently found in life insurance policies.
Which of the following would an insured use to protect against the negative effect of
inflation on the future purchasing power of their life or disability income policy?
A. Guaranteed Insurability rider
B. Inflation offset rider
C. Cost of Living rider
D. Increased Benefits rider
C. Cost of Living rider The Cost of Living (COLA) rider is used to keep pace with inflation. The
amount of increase is tied to an increase in an inflation index, such as the
Consumer Price Index (CPI).
Larry is age 50, has been paying premiums on his whole life policy for more than 15
years, and now has a need to use about 1/3 of his available cash value for a short
period of time. He does not want to give up his insurance, and can afford to continue
paying premiums. What advice would you give Larry?
A. Look for other available funds. Policy cash value is unavailable for loans before
59½ due to IRS tax penalties.
B. Tell Larry he should have purchased term insurance because whole life has no
cash value.
C. The only way to access the cash value is through a surrender of the policy. He can
have up to 90% of the cash value to purchase other insurance.
D. Tell Larry to take the policy loan, continue paying premiums to prevent a lapse,
and also recommend that he repay the principal and interest on the loan.
D. Tell Larry to take the policy loan, continue paying premiums to prevent a lapse,
and also recommend that he repay the principal and interest on the loan. It would not be good advice to tell Larry to surrender his policy for the full
amount of cash value and then purchase other insurance. First, he doesn’t need the
full amount and secondly he will be older and his insurability may have changed.
By taking a policy loan and paying it back he will ultimately maintain the full
face amount of coverage and the full cash value will be restored.
All of the following statements are true about the free look provision in life insurance
policies in California, except:
A. A full refund of the premium paid is required if the policy is returned within 10
days of delivery.
B. The contract is in force during the 10 day period and any claims must be paid
even though the owner has returned the contract.
C. Senior citizens must be given a minimum of 30 days free look.
D. Death during the free look period results in a full death benefit
B. The contract is in force during the 10 day period and any claims must be paid If the policy is returned during the free look period it is treated as though it
never existed. If a claim is submitted during the free look period but after the
policy was returned the insurer has no contractual obligation to pay the claim.
Which of the following beneficiary designations would meet the policyowner’s wish
to have his children receive equal shares of his life insurance. And if any of his
children should die before he does, he wants the surviving children to receive the
deceased child’s share equally divided among them.
A. Per capita designation
B. Per stripes designation
C. Each named as contingent with equal shares.
D. Any of the above would produce the desired results.
A. Per capita designation Per capita, or per “heads,” by definition provides for the survivor(s) to share
equally the deceased beneficiary’s portion.
Life insurance settlement options provide the beneficiary several choices as to how
the insurer will pay them the death benefits of the policy. Which of the following is
not true about these options?
A. The choice can be made by the policyowner at the time of application.
B. The policyowner can change to another option any time before the death of the
insured.
C. If no pre-selection is in effect at the time the insured dies, the insurer allows the
beneficiary to choose the option.
D. The beneficiary can change to a second option if made within 6 months of the
initial payout.
D. The beneficiary can change to a second option if made within 6 months of the
initial payout. The policyowner has the right to pre-select the settlement option, if they so
desire. Otherwise, it will be left to the beneficiary. However, once the choice is
made and the insurer makes payment the option cannot be changed with the
exception of the “interest only” option.
An insurance commissioner is unable to finish their 4 year term due to death or for
some reason leaves office. How will a new commissioner be chosen?
A. A special election must be held within 120 days.
B. The NAIC appoints an interim commissioner
C. A deputy officer within the DOI is promoted
D. The governor appoints a replacement commissioner
D. The governor appoints a replacement commissioner While the Commissioner must be elected by the people, replacements are
appointed by the Governor to fill out the remainder of the term, if there is a
vacancy.
A contract or policy, which is considered a savings or investment vehicle used for the
purpose of accumulating investment funds to be paid out some time in the future
through a withdrawal provision, describes which of the following?
A. An annuity
B. A term life insurance policy
C. A long term care policy
D. All of the above
A. An annuity Of the three, only an annuity would be considered a savings or investment
vehicle.
One of the reasons that a person would purchase an annuity is that they are concerned
with the risk of:
A. Dying too soon.
B. Becoming too old to qualify for ordinary life insurance.
C. Having to pay taxes on their retirement savings.
D. Outliving their retirement income.
D. Outliving their retirement income. An annuity, issued by an insurance company, is the only investment in the
world that can guarantee a life-time income no matter how long the annuitant
lives. Therefore, an annuity would protect a person from the risk of outliving all
of their financial resources.
The annuitant is about to retire and wants to begin receiving payments from the
insurer. He has selected the “Life income with 10 years certain” option. Which of
the following is the best description of the payments the insurer will make?
A. They will be made for 120 months assuming the annuitant lives that long.
B. They will be made for 120 months and then will decrease and be paid for life.
C. They will be paid for at least 120 months or the remainder of the annuitant’s life.
D. They will be paid up to the annuitant’s death and thereafter to his named
beneficiary.
C. They will be paid for at least 120 months or the remainder of the annuitant’s life.
Answer “C” is the requirement of the “life income with 10 years certain”
option.
An individual investor is trying to decide between a bank C.D. and an insurance
company annuity. They both pay the same interest rate on an equal principal amount
invested over the same period of time. Which one will be worth the most total dollars
at the end of that period of time?
A. The C.D. and the annuity will both be the same, even after considering the taxes
paid over the years.
B. The C.D. will be worth more because of the FDIC.
C. The annuity will be worth more because of its tax deferred characteristics.
D. The C.D. will be worth more because the insurer issuing the annuity will have
paid commissions to the writing agent that must be deducted.
C. The annuity will be worth more because of its tax deferred characteristics. The investor would have had to pay taxes annually on the C.D. These tax dollars, paid out of the C.D., would have decreased the compounding effect on the
C.D. over the years.
Ron is paying into an annuity that will be used to help supplement his retirement in a
few years. His premium payments go into the insurer’s “separate account” and they
purchase “accumulation units.” What type of annuity did Ron buy?
A. Periodic premium immediate annuity
B. Fixed annuity
C. Guaranteed qualified plan annuity
D. Variable annuity
D. Variable annuity All insurers must maintain a “separate account” for their variable products.
During the accumulation phase of a variable annuity, premium payments purchase
“accumulation units.”
Any transaction in which new life insurance or a new annuity is to be purchased, and
it is known or should be known that existing life insurance or annuity will be lapsed,
forfeited, surrendered, or otherwise terminated is known as what type of transaction?
A. Absolute assignment
B. Replacement
C. Reinsurance
D. Unethical
B. Replacement According to the CIC this is a description of a replacement transaction.
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