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CIC LIFE AND HEALTH ACTUAL EXAM 2026
QUESTIONS SOLUTIONS GRADED A+
◉ 3 Items that Make Up the Legal Element of a Life Insurance Contract. Answer: - Agreement (Offer; Acceptance; Consideration {premium})
- Competent Parties (Parties Must have Legal Capacity to Enter into the Contract)
- Legal Purpose (Must be an Insurable Interest @ Time of Application) ◉ 6 Steps to Implement During the Planning Phase. Answer: 1. Identify Issues by gathering information via a fact finder discussion
- Assign priorities establishing goals and objectives
- Analyze the information and suggest solutions and a plan
- Develop plan with client involvement
- Implement the plan/solution
- Periodically repeat the process to monitor & revise as needed ◉ 3 Ways to Determine the Proper Amount of Life Insurance. Answer: 1. Total Needs Analysis
- Multiple of Gross Earning Method
- Scientific Guess Method
◉ Total Needs Analysis. Answer: Method determines the present & future funds necessary to accomplish certain financial goals / income needs and required in-depth questioning on the part of the agent ◉ Disadvantages of Using Total Needs Analysis. Answer: - Time- Consuming
- Results Can Be Overwhelming
- Client May Be Reluctant to Share Information ◉ Advantages of Using Total Needs Analysis. Answer: - More Realistic Numbers
- Client Involvement ◉ Multiple of Gross Earning Method. Answer: Uses the Pre-tax Annual Earnings and multiplies them by a factor such as 6,8, or some other number ◉ Advantages of Using Multiple of Gross Earning Method. Answer: - Quick and simple for the agent
- Easy to understand for the client
◉ Term Insurance Characteristics. Answer: - Face amount payable only if death occurs during stipulated years
- protection is only for a limited # of years
- Pays nothing if insured lives past the end of the term coverage period ◉ Term Insurance Purpose and Use. Answer: - Identifiable of Specific Need (Mortgage or Loans)
- Often sold when the need is great, but the money is little
- **Protects future insurability if converted ** ◉ Features and Advantages of Term Insurance. Answer: - Easy for Buyer to Understand
- May be renewable and/or convertible
- Initial Low cost
- Return of Premium ◉ Disadvantages of Term Insurance. Answer: - No Cash Value
- Coverage is Designed to End Before Death ◉ 2 Types of Term Insurance. Answer: - Level Term
- Decreasing Term
◉ Level Term. Answer: The Premium and Face Amount Remain Level ◉ Decreasing Term. Answer: The Face Amount Decreasing as the Premium Remains Level ◉ ______ Insurance = FIXED. Answer: Whole Life Insurance ◉ ______ Insurance = FLEXIBLE. Answer: Universal Life Insurance ◉ Whole Life Insurance. Answer: - Includes those forms where the face amount is paid on the death of the insured whenever death occurs.
- Should the Owner pay all the premiums - which will contractually NEVER increase - the policy will remain in force until death ◉ Characteristics of Whole Life Insurance. Answer: - The Face Amount Will Be Paid Regardless of Insured's Age at Death
- Continuous or Limited Premium Payments
- Growth of Cash Value ◉ Proposes and Uses of Whole Life Insurance. Answer: - Permanent Protection
- College Planning
terminate the contract - Once a Non-Forfeiture Option Has Been Selected it Cannot Be Changed ◉ 3 Non-Forfeiture Options. Answer: 1. Cash
- Reduced Paid-Up Insurance
- (Cash value is used to purchase a reduced death benefit that is fully paid-up. No Future Premiums are Payable by the Owner)
- Extended Term Insurance
- (Cash Values is used to "one-pay" for a term contract ◉ Limited Payment Contracts. Answer: - Payment of the Face Amount Upon the Death of the Insured, Regardless of the Age at Death.
- Differ from Whole Life in that the Premium Payments are Contractually Charged for a Limited # of Years ◉ Universal Life Insurance. Answer: Flexible Premium, Adjustable Death Benefit Life Insurance Contract ◉ Purpose and Use of Universal Life Insurance. Answer: Contract can function just like term or whole life - A Universal Life contract can be a high premium or low premium ◉ 3 Types of Universal Life. Answer: 1. Guaranteed / Fixed
- Indexed
- Variable ◉ Guaranteed / Fixed - Universal Life. Answer: - Guarantee principal with interest credited on a fixed basis
- Although the interest earned is considered fixed, the company may adjust the rate of interest payable based on current assumptions of rate of investment return and/or mortality ◉ Indexed - Universal Life. Answer: - A form of fixed Universal Life Insurance
- The principal is guaranteed if the client holds the contract for a certain period of time.
- Gains can be attractive with minimal investment risk ◉ Variable - Universal Life. Answer: - Principal is Not Guaranteed
- The Individual investor assumes the investment risk in that he or she may lose principal if the market turns downward ◉ Features and Advantages of Universal Life. Answer: - Contract Flexibility
- Insured can assist in the design of the plan
Cost of Term Life Insurance Needed to Pay Death Benefit.. i.e. For Company to Pay Claims ◉ Policy Expenses. Answer: Part of Components of Universal Life Policy Cost to cover the Insurance Company's Administrative Costs ◉ Cash Value - Universal Life. Answer: Part of Components of Universal Life Policy What is Left After the Mortality Charge and Policy Expenses are Subtracted from the Premium Payment ◉ Interest - Universal Life. Answer: Part of Components of Universal Life Policy Credited to the cash value - Accrued Cash Value is Invested in a Combination of Bond and Other Options to Maximize Earnings so a Higher than Guaranteed Interest Rate Can Be Paid ◉ Flexible Feature of Universal Life Policy. Answer: Increase or Decrease the Face Amount Length or Shorten the Protection Period Increase or Decrease the Level of Premium Lengthen or Shorten the Premium Paying Period
Contribute or Withdrawal Lump Sums of Money and Have Either Partial Surrenders or Loans ◉ Group Term Life Insurance - Basic Term Life. Answer: Employer- Paid Features:
- varying level of available coverage
- accelerated benefit for terminal illness
- benefits for death of spouse and children ◉ Group Term Life Insurance - Supplemental Term Life. Answer: Employee-Paid Features:
- Optional Accidental Death & Dismemberment Coverage
- Accelerated Benefit for Terminal Illness
- Benefits for Death of Spouse and Children ◉ Group Term Life Benefits Schedule. Answer: - Flat Schedule
- Earnings Schedule (Most Common)
- Occupation or Position Schedule ◉ Standard Provisions of a Life Insurance Contract. Answer: - Incontestable Clause
◉ Suicide Clause. Answer: A death benefit will not be paid if suicide occurs during the first one or two years of contract ◉ Reinstatement Provision. Answer: Allows for reinstatement of a lapsed policy, generally up to 2-3 years ◉ Right to Examine Provision (Free-Look). Answer: Allows applicant a specified # of days following physical receipt of the policy to examine it ◉ Exclusions - Life Insurance Contract. Answer: Generally, an un- endorsed life contract has no exclusions Some policies allow carrier the right to invoke a war clause exclusion Other "cause-of-death" exclusions can be added at the time of issuance ◉ Ownership Rights. Answer: Named Insured Does Not Have to be the Owner of the Policy.. The Owner of the Policy has the exclusive rights to exercise certain actions (C.R.A.B.S)
◉ The Owner of the Life Ins Policy has the Exclusive Rights to Exercise: (C.R.A.B.S). Answer: C - Change Beneficiary (unless irrevocable) R - Receive Dividends A - Assignment of Policy B - Borrow Cash Value S - Surrender Policy ◉ 2 Types of Assignment. Answer: 1. Absolute
- Collateral ◉ Absolute Assignment. Answer: The Owner Gives up the Policy Irrevocably and Cannot Recover Rights [permanent] ◉ Collateral Assignment. Answer: The owner gives up some policy rights, but only temporarily, to fulfill the requirements of a loan; once the loan is satisfied, the total ownership reverts back to the owner ◉ Premium Payment Options. Answer: 1. Modal Premium Payment
- Pre-Payment
- Policy Fee - Annual Fee added to base premium of policies. This fee does not contribute to the cash values
◉ How are proceeds paid should beneficiary die before Named Insured's death? - Per Capita. Answer: Method of Paying Proceeds to those equally related to the descendent without regard to the lines of descent... meaning the deceased beneficiary's unnamed children will receive nothing This is the default method ◉ How are proceeds paid should beneficiary die before Named Insured's death? - Per Stirpes. Answer: Beneficiary's share of the proceeds will go to his or her heirs in equal percentages This method must be specifically added to the policy ◉ Contingent Beneficary. Answer: This person(s) will become the beneficiary if the primary beneficiary predeceases the named insured - Must be listed by name ◉ Common Disaster Clause. Answer: If Named Insured and Beneficiary die in a common accident and it cannot be determined who died first, this provision allows benefits to be paid directly to the contingent beneficiary regardless of the sequence of death ◉ Uniform Simultaneous Death Act (USDA). Answer: Provides rules for passage of joint property, for when death legally occurs and for exceptions to the 120 hour rule
Act also provides for a presumption of death after 5 years if a person is missing or no body can be found ◉ Revocable Beneficiary. Answer: Owner is free to change the designation as desired ◉ Irrevocable Beneficiary. Answer: Owner may change the designation ONLY with the beneficiary's consent ◉ Death Claim Settlement Options. Answer: - Cash
- Interest Income
- Fixed Period or Fixed Time
- Fixed Amounts or Installments
- Life Income or Annuity
- Life Income with Period Certain
- Installment with Refund ◉ Settlement Option - Cash. Answer: The beneficiary receives the death benefit in a lump sum ◉ Settlement Option - Interest Income. Answer: Death benefit is left with the insurance company and the interest it earns is paid to the beneficiary (this option is normally used for a short time giving the
- The amount is usually the face amount of the original policy, not to exceed a contract-set maximum ◉ Waiver of Premium Rider. Answer: If insured becomes totally disabled by bodily injury or disease, the payment of subsequent premium is waived by the insurer ◉ Accidental Death Benefit Rider. Answer: Provides for the payment of an amount in addition to the standard death benefit payable in the event of an accidental death ◉ Payor Benefit Rider. Answer: Waiver premium should the "payor" (usually mother or father) die or become totally disabled while paying the premium for an "insured" (child) - Normally terminates at the Insured's (child's) age of 25 ◉ Accelerated Death Benefit Rider. Answer: Insured can collect on their own life insured policy if diagnosed with a terminal illness (insured has one year or less to live) some companies pay up to 90% face amount ◉ Family Insurance Rider. Answer: Allows the purchase of term insurance for a spouse and/or child of insured
- Insured purchases units of coverage (i.e. $1K, $2K, $5K)
◉ Term Rider. Answer: Provides an additional amount of temporary coverage which may be attached to an existing permanent policy for a specified period of time ◉ Return of Premium Rider. Answer: Attached to term life policies - the policy owner is returned the premium paid if the insured outlives the term ◉ Are Life Insured Premiums Tax Deductible?. Answer: No ◉ Are Death Payments Subject to Federal Income Tax When Received By the Beneficiary?. Answer: Generally, No ◉ Taxation of Life Ins - Cash Value. Answer: Cash value grows income tax deferred (FIFO) and distributions are not subject to such tax until withdrawals exceed the basis ◉ Death Benefit - Federal Estate Tax. Answer: Can be arranged to avoid inclusion for federal estate tax (the insured CANNOT be the owner) If the policy is owned by the insured, the proceeds will be included in the estate and are subject to federal estate tax
