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California Life Insurance State Exam
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In California, an insurer organized under the state laws of Oregon is called a(n) Unauthorized insurer Foreign Insurer Alien insurer Domestic insurer - Correct Answer-Foreign Insurer AAA Insurance Company has transferred a portion of its loss exposure to BBB Insurance Company. In this reinsurance transaction, what is AAA Insurance Company called? Tertiary insurer Primary insurer Secondary insurer Captive insurer - Correct Answer-Primary insurer What is a participating life insurance policy? Contract that gives beneficiaries the right to participate in any dividends Agreement that insures two or more lives Agreement that allows two or more beneficiaries to share in the death benefit Contract that allows the policyowner to receive a share of surplus in the form of policy dividends - Correct Answer-Contract that allows the policyowner to receive a share of surplus in the form of policy dividends John owns an insurance policy that gives him the right to share in the insurer's surplus. What kind of policy is this? Contributory Nonparticipating Surplus Participating - Correct Answer-Participating Victoria owns a life annuity and elects to receive annuity payments monthly for the remainder of her life with "ten years certain". Her annuity will make payments For a period of time dependent on the performance of the annuity's underlying assets For a maximum of 120 months For the remainder of her life only
For a minimum of 120 months and a maximum of the remainder of his life - Correct Answer-For a minimum of 120 months and a maximum of the remainder of his life An annuitant would life to determine the current value of her annuity. To do this, she multiplies the number of "accumulation units" she owns times the unit value of the "separate account". What kind of annuity BEST matches this description? Variable annuity Fixed annuity Immediate annuity Life annuity - Correct Answer-Variable annuity Cindy buys a 10-year annuity with an installment refund. After receiving monthly payments for 5 years, Cindy dies. How many remaining payments will the insurer make to her beneficiary? No payments 30 payments 60 payments 120 payments - Correct Answer-60 payments What is a common reason people purchase an annuity? To create an immediate estate To pay off a debt in the event of death To minimize their tax burden To protect against the risk of outliving their financial resources - Correct Answer-To protect against the risk of outliving their financial resources An annuity which is backed by a life insurer's separate account is called a(n) Equity indexed annuity Variable annuity Immediate annuity 403(b) plan - Correct Answer-Variable annuity What distinguishes a deferred annuity from an immediate annuity? The time at which benefit payments start The benefit payment amount The taxation of benefit payments The age at which the annuity can be purchased - Correct Answer-The time at which benefit payments start A savings vehicle designed to first accumulate funds and then systematically liquidates the funds is called a(n) Immediate annuity Deferred annuity Endowment Whole life policy - Correct Answer-Deferred annuity
Enables insurer to meet certain objectives - Correct Answer-Increases the unearned premium reserve One important function of an insurance company is to identify and sell to potential customers. Which of the BEST describes this function? Regulation Marketing Underwriting Reinsurance - Correct Answer-Marketing Which of the following statements regarding a life insurance policy dividend is TRUE? It is a stockholders return on his investment in the company It is the distribution of excess of funds accumulated by the insurer on participating policies It represents the built-up of cash value in a permanent insurance policy It represents a refund of overcharged premium in a non-participating whole life policy - Correct Answer-It is the distribution of excess of funds accumulated by the insurer on participating policies Which of the following is NOT a benefit of insurance? Source of investment funds Makes a loss whole again Reduces the uncertainty of loss exposures Losses due to fraud are eliminated - Correct Answer-Losses due to fraud are eliminated An insurer owned by its policyholders is called a Multi-line insurer Mutual insurer Reinsurer Stock insurer - Correct Answer-Mutual insurer Which of the following statements statements correctly describes a contract of indemnity? One party is restored to the same financial position the party was in before the loss occurred The unequal exchange of value or consideration for both parties One party (the insurance company) prepares the contract with no negotiation between the application and insurer Only one party (the insurer) makes any kind of enforceable promise - Correct Answer- One party is restored to the same financial position the party was in before the loss occurred Which of the following is NOT required in the content of a policy? Parties involved in the contract Period to which the coverage exists Probability of loss
Risk insured against - Correct Answer-Probability of loss Which of the following is NOT a requirement of a contract? Parties involved must be competent Equal consideration is required between the involved parties Contract must have a legal purpose Offer and acceptance must be involved - Correct Answer-Equal consideration is required between the involved parties Which statement is CORRECT when describing a contract of adhesion? Contract may be accepted or rejected by the insured Contract involves negotiation between insurer and insured Any confusing language in the contract would be interpreted in favor of the insurer Contract cannot be modified by the insurer - Correct Answer-Contract may be accepted or rejected by the insured Reasonably necessary acts that an agent must perform for carrying out his/her expressly authorized duties are covered by an agent's Express authority Implied authority Apparent authority Evident authority - Correct Answer-Implied authority Restoring an insured to the same condition as before a loss is an example of the principle of Utmost good faith Adhesion Legal purpose Indemnity - Correct Answer-Indemnity Which course of action is the insurer entitled to when deliberate concealment is committed by the insured? Rescinding the contract Charge a higher premium Charge a penalty Nothing - Correct Answer-Rescinding the contract Which of the following statements about aleatory contracts is NOT true? Insurance contracts are considered aleatory The insured and the insurer have the potential for unequal contributions The insured and the insurer contribute equally to the contract Aleatory contracts are conditioned upon the occurrence of an event - Correct Answer- The insured and the insurer contribute equally to the contract When handling premiums for an insured, an agent is acting in which capacity? Adhesion
When calculating life insurance premium rates, which component would an agent's commission fall under? Morbidity Mortality Insurer's expenses Occupation - Correct Answer-Insurer's expenses The probability of death, listed by year, is demonstrated in Risk tables Frequency tables Mortality tables Morbidity tables - Correct Answer-Mortality tables How are death benefits that are received by a beneficiary normally treated for tax purposes? Taxable at the beneficiary's current tax bracket Subject to state and local taxes only Exempt from federal income taxes Taxable as a capital gain - Correct Answer-Exempt from federal income taxes Which of the following is NOT an insurer policy expense? Rent Salaries Commissions Premiums - Correct Answer-Premiums What is the price of insurance for each exposure unit? Rate Premium Rating Expense - Correct Answer-Rate Which of the following is NOT a life insurance settlement option? Lump sum option Fixed amount option Life income option Extended term option - Correct Answer-Extended term option A spendthrift clause in a life insurance policy Permits the beneficiary to borrow from a policy's cash value Evenly distributes benefits among all named living beneficiaries Assigns a policy's face amount to the insured's estate if the beneficiary dies before the insured Restricts the ability of the beneficiary to assign benefits - Correct Answer-Restricts the ability of the beneficiary to assign benefits
A creditor would be allowed rights to life insurance policy proceeds if which of the following beneficiaries is chosen? The insured's mother The insured's estate The insured's children The insured's spouse - Correct Answer-The insured's estate Premiums are best described as Money paid by the insurer for settling a claim Money paid by the insured to acquire a policy's benefits The amount an insured pays per unit of coverage Commissions payable to the writing agent - Correct Answer-The amount an insured pays per unit of coverage Which of the following describes the number of deaths in a year compared to the number of people in a select group? Law of large number ratio Mortality rate Morbidity rate Risk ratio - Correct Answer-Mortality rate A beneficiary receives only the death benefit earnings in which settlement option? Interest option Life option Stock option Fixed amount option - Correct Answer-Interest option Which of these is the automatic mode of settlement for life insurance policy proceeds? Fixed period Interest only Extended term Lump-sum - Correct Answer-Lump-sum Which policy provision protects the policyowner from unintentional lapse of the contract? Grace period Free look period Incontestability Settlement options - Correct Answer-Grace period When an accidental death benefit is added to a whole life policy, how does this affect the policy's cash value? Increases the policy's cash value Decreases the policy's cash value Policy's cash value is not affected
Grace period provision - Correct Answer-Reinstatement provision Bruce is involved in an accident and becomes totally and permanently disabled. His insurance policy continues in force without payment of further premiums. Which policy provision is responsible for this? Waiver of premium provision Insuring provision Return of premium provision Automatic premium loan provision - Correct Answer-Waiver of premium provision An insurer can be protected from adverse selection with which policy provision? Insuring clause Grace period Suicide clause Reinstatement - Correct Answer-Suicide clause Which statement is true regarding policy dividends? Dividends are always guaranteed Nonparticipating policies issue dividends A dividend option is selected by the insured at the time of policy purchase - Correct Answer-A dividend option is selected by the insured at the time of policy purchase What does the guaranteed insurability option allow an insured to do? Transfer ownership of the policy Purchase additional coverage with no evidence of insurability required Provides for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness Allows the insured to convert a term life policy to whole life with no evidence of insurability required - Correct Answer-Purchase additional coverage with no evidence of insurability required When does a life insurance policy's waiver of premium take effect? Insured becomes unemployed Insured becomes totally disabled Insured has had policy in force for a specified number of years Insured has become terminally ill - Correct Answer-Insured becomes totally disabled A life insurance police can be surrendered for its cash value under which policy provision? Payor options Dividend options Settlement options Nonforfeiture options - Correct Answer-Nonforfeiture options Which of the following is NOT a common life insurance policy rider? Extended term
Automatic premium loan Waiver of premium Accidental death - Correct Answer-Extended term Jerry is an insured who understated his age on his life insurance application, paying $ per $1,000 of insurance instead of $15 per $1,000. If he dies, how will the adjusted death benefit be calculated? 12/15th of the policy's face amount 1/2 of the policy's face amount 3/4 of the policy's face amount Full face amount - Correct Answer-12/15th of the policy's face amount In a life insurance policy, the entire contract consists of Policy and conditional receipt Policy and all sales material Policy and any verbal agreements Policy and attached application - Correct Answer-Policy and attached application What is the proper order of initial life insurance premiums, from lowest to highest? Ordinary life, single premium, modified premium Modified premium, ordinary life, single premium Single premium, modified premium, ordinarylife Ordinary life, modified premium, single premium - Correct Answer-Modified premium, ordinary life, single premium Which of the following is a life insurance policy that does NOT require a physical exam? Non-medical Graded Substandard Noncancelable - Correct Answer-Non-medical In a renewable tern life insurance policy, the contract will usually Require a higher premium payable at each renewal Require a lower premium payable at each renewal Stipulate a higher cash value at each renewal - Correct Answer-Require a higher premium payable at each renewal Scott has just purchased a new house. He is now shopping for a life insurance policy that provides a death benefit that matches the projected outstanding debt of his mortgage. Which life policy would best suit his needs? Variable Universal Adjustable Mortgage redemption - Correct Answer-Mortgage redemption
Endowment - Correct Answer-Renewable term Which of the following types of life insurance combines a savings element along with a flexible premium option? Joint life Whole life Universal life Endowment - Correct Answer-Universal life John and Mary have a handicapped child that is financially dependent upon them. The death of one of the parents would not be financially disastrous, however the death of both likely would be. Which policy would be best suited for them? Payor protection policy Family income policy Second-to-die policy First-to-die policy - Correct Answer-Second-to-die In a modified endowment contract, the penalty tax imposed on premature withdrawals is 10% 20% 30% 40% - Correct Answer-10% Which of the following types of life insurance is normally associated with a mortgage loan? Adjustable term Level term Increasing term Decreasing term - Correct Answer-Decreasing term Which of the following is NOT true regarding a family policy that covers children? Additional children can be added at no cost Adopted children can be covered Conversion of child's coverage to permanent insurance requires evidence of insurability Term insurance is used for the children's rider - Correct Answer-Conversion of child's coverage to permanent insurance requires evidence of insurability A life insurance policy where the insured an choose where the cash value can be invested is called Whole life Variable life Modified life Universal life - Correct Answer-Variable life The objective of underwriting is to Assign the highest premium possible
Avoid selecting a disproportionate number of good risk Decline as many application as possible to avoid selecting a disproportionate number of bad risks - Correct Answer-to avoid selecting a disproportionate number of bad risks When an applicant applies for insurance, the process by which the insurer determines whether to issue a policy is called Issuance Underwriting Regulation Adverse selection - Correct Answer-Underwriting How does a conditional receipt differ from a binding receipt? Conditional receipts always provide insurance which starts from the date of receipt Binding receipts always require an initial premium payment Binding receipts always provide insurance which starts from the date of receipt Conditional receipts always require an initial premium payment - Correct Answer- Binding receipts always provide insurance which starts from the date of receipt When an insurance company requests an attending physician's report the request must be accompanied by a Conditional receipt Buyer's guide Copy of the signed authorization Policy illustration - Correct Answer-copy of the signed authorization Which of the following is NOT a risk classification that an underwriter would use? dividend risk Standard risk Preferred risk Substandard risk - Correct Answer-dividend risk Which of the following types of information is NOT required for a life insurance application? Health history Ethnicity Occupation Hobbies - Correct Answer-Ehtnicity The Medical Information Bureau consists of Insurance agents Health care providers Doctors Life and health insurance companies - Correct Answer-Life and health insurance companies
Law of large numbers Fiduciary retention Adverse selection Principal of indemnity - Correct Answer-Principal of indemnity Which of the following is NOT considered a definition of risk? The potential for loss The cause of a loss Exposure to danger Uncertainty - Correct Answer-The cause of a loss Which of the following refers to a condition that may increase the chance of a loss? Averse selection Hazard Risk Peril - Correct Answer-Hazard All of the following circumstances must be met for loss retention to be an effective risk management technique, EXCEPT Loss cannot be catastrophic Probability of loss is unknown Highly predictable losses Loss must be measurable - Correct Answer-Probability of loss is unknown Which of these statements correctly describes risk? Pure risk is the only insurable risk Speculative risk is the only insurable risk An example of pure risk would be a legal wager Pure and speculative risks are both insurable - Correct Answer-Pure risk is the only insurable risk Which of the following is a situation where there is a possibility of either a loss or a again? Hazard Pure risk Speculative risk Peril - Correct Answer-Speculative risk Which of the following is considered to be any situation that has the potential for loss? Law of large numbers Adverse selection Loss exposure Risk transfer - Correct Answer-Loss exposure A hazard can be best described as The potential for loss
The tendency for poorer than average risks to seek out insurance A condition that may increase the likelihood of a loss occurring A risk that has the potential for both loss and gain - Correct Answer-A condition that may increase the likelihood of a loss occurring Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies? Morale hazard Physical hazard Moral hazard Speculative hazard - Correct Answer-Moral hazard Moral hazard is described as the Increased chance of loss because of an insured's recklessness Increased ability to predict loss because of a higher exposure to loss Increased risk of adverse selection Increased chance of loss because of an insured's dishonest tendencies - Correct Answer-Increased chance of loss because of an insured's dishonest tendencies Which of the following best describes the statement "The more times an event is repeated, the more predictable the outcome becomes"? Law of large numbers Adverse selection Average variance Speculative retention - Correct Answer-Law of large numbers An insurer having a large number of similar exposure units is considered important because The insurer can decrease its reserves The greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums Its financial rating will improve The greater the number insured, the more premium it collects - Correct Answer-The greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums A situation in which there is ONLY a chance of loss or no loss is a Pure risk Particular risk Speculative risk Fundamental risk - Correct Answer-Pure risk Which of the following is NOT considered to be a definition of the term "loss"? Probability that an event will occur An insurable event that takes place which results in a payment made by the insurance company
Deductible contributions and taxable distributions Distributions taxable as capital gains Distributions taxable as income tax - Correct Answer-Non-deductible contributions and tax-free distributions According to Social Security, an individual with 6 credits of coverage during the previous 13 - quarter period is considered to be: Partially insured Currently insured Fully insured Not insured - Correct Answer-Currently insured Who is eligible for retirement benefits under Social Security? Fully insured workers Currently insured workers Partially insured workers All disabled workers - Correct Answer-Fully insured workers The reason for social insurance is to Provide more products for agents to sell Create dependents of government Grow the U.S. economy segments of the population - Correct Answer-Protect certain vulnerable segments of the population Which type of worker has Social Security benefits available to them? Fully insured Currently insured Partially insured Presently insured - Correct Answer-Fully insured Which statement is NOT true regarding Social Security benefits? Benefit eligibility is based upon fully insured status Benefits are designed to replace the entire amount of the worker's earnings Disability is expected to continue for 12 months or result in death Worker must be totally and permanently disabled for at least 5 months and unable to work again to be eligible for benefits - Correct Answer-Benefits are designed to replace the entire amount of the worker's earnings Who is NOT eligible for Social Security survivor benefits? A widow at any age who is caring for children younger than 16 A widow at full retirement age Full-time students under the age of 19 A deceased worker's dependent parents of any age - Correct Answer-A deceased worker's dependent parents of any age
Which Social Security status does a worker with 6 quarters of coverage during the last 13 - quarter period have? Partially insured Fully insured Currently insured Not insured - Correct Answer-Currently insured What determines the Social Security normal retirement age? Year in which worker is born Worker's average lifetime income Number of dependents Number of quarters employed - Correct Answer-Year in which worker is born At what age is a surviving spouse without dependents eligible for Social Security survivor benefits? 50 60 62 65 - Correct Answer- 60 The "blackout period" affects whose benefits? Employer Disabled worker Surviving spouse Surviving children - Correct Answer-Surviving spouse In order to be considered "currently insured" under Social Security, an individual must be credited with: 12 quarters of coverage during the last 26-quarter period 6 quarters of coverage during the last 13-quarter period 15 total quarters of coverage 30 total quarters of coverage - Correct Answer-6 quarters of coverage during the last 13 - quarter period An individual that has 40 quarters of coverage, for Social Security purposed, is considered to be Fully insured Currently insured PIA insured Partially insured - Correct Answer-Fully insured Buy-sell agreement are typically funded by which two insurance products? Decreasing term insurance and Worker's Compensation Life insurance and disability insurance Endowments and Medicare AD&D and Social Security - Correct Answer-Life insurance and disability insurance
