California Life Insurance Practice Exam B

1. 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?

None. Distributions during times of unemployment are not penalized.

None. Distributions before the age of 59 ½ are penalty-free.

He will be required to pay a 10% tax penalty on the amount withdrawn.

Since traditional IRA’s are often tax deductible, the client owes the normal taxes they avoided when they made their contribution.

Early withdrawals from qualified plans before the age of 59 ½ require the normal taxes owed, plus an additional 10% tax penalty for early distribution except for hardship withdrawals.

Explanation

Early withdrawals from qualified plans before the age of 59 ½ require the normal taxes owed, plus an additional 10% tax penalty for early distribution except for hardship withdrawals.

2. To authorize the release of an attending physician's report, the applicant must:

Sign a consent form

Send a letter to the physician.

Furnish the name of the physician.

Submit to a physical examination.

Physicians require the patient’s written authorization to release patient information.

Explanation

Physicians require the patient’s written authorization to release patient information.

3. Which of the following is most likely to have a TSA?

Corporate executive

Small business owner

School district employee

Employee of a blue chip corporation

Tax Sheltered Accounts (TSA) are retirement programs for not-forprofit institutions such as school districts, churches, charities, etc.

Explanation

Tax Sheltered Accounts (TSA) are retirement programs for not-forprofit institutions such as school districts, churches, charities, etc.

4. According to the CIC, life-only agents must keep records of their transactions for:

12 months

3 years

5 years

7 years

Agent records must be kept for 5 years.

Explanation

Agent records must be kept for 5 years.

5. Which of the following transactions would most likely be declined due to lack of insurable interest?

A parent buys insurance on their adult child

An employee insures their employer in the fear of losing their job

A spouse insures the other spouse

A local hospital insures its chief of surgery

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.

Explanation

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.

6. At what age does Social Security Medicare program Part B start providing benefits?

60

62

65

67

Medicare Part B provides medical expense coverage to those 65 and older.

Explanation

Medicare Part B provides medical expense coverage to those 65 and older.

7. The Commissioner can deny an applicant for a license after a hearing:

If the applicant doesn’t lack integrity.

If the applicant has permitted someone in their employment to violate the California Insurance Code.

For applicants holding other professional licenses.

For applicants seeking the license for the purpose of aiding the enforcement of the California Insurance Code.

Applicants allowing others to violate the insurance code would be suspect for further violations.

Explanation

Applicants allowing others to violate the insurance code would be suspect for further violations.

8. In insurance, the agents have authorization to represent the company. The producers may exercise this relationship through:

Express authority, implied authority and apparent authority.

Domestic authority, foreign authority and alien authority.

Underwriting department, actuarial department and claims department.

Reciprocal authority, risk retention and reinsurance.

An agent has three (3) types of authority which stem from the agency relationship. Express authority is written in the contract. Implied authority is not written, but is assumed based on common business practices. Apparent authority is action taken by the agent leading the consumer to believe the agent works for the insurer, i.e. business cards.

Explanation

An agent has three (3) types of authority which stem from the agency relationship. Express authority is written in the contract. Implied authority is not written, but is assumed based on common business practices. Apparent authority is action taken by the agent leading the consumer to believe the agent works for the insurer, i.e. business cards.

9. Ashley, the policy owner and insured, named Wendell as primary beneficiary and Barbara as contingent beneficiary. Just six (6) weeks prior to Ashley's death, Wendell and Barbara are killed in a common disaster. The insurance proceeds will be received by whom?

Ashley’s survivors

Ashley’s estate

Split equally between the estates of Wendell and Barbara

Wendell’s estate

If both the primary and the contingent beneficiaries predecease the insured and no other beneficiaries are named, the face amount distribution will be paid to the insured’s estate.

Explanation

If both the primary and the contingent beneficiaries predecease the insured and no other beneficiaries are named, the face amount distribution will be paid to the insured’s estate.

10. Which party has the legal authority to name or change the beneficiary?

Insurer

Policy owner

Insured

Agent

The policy owner/policy holder is usually the payor and has authority to decide who receives the proceeds.

Explanation

The policy owner/policy holder is usually the payor and has authority to decide who receives the proceeds.

11. According to the California DOI, an insurer whose articles of incorporation are registered in Oslo, Norway, is considered:

A domestic insurer

A foreign insurer

An alien insurer

An admitted insurer

An insurer incorporated in a foreign country is considered to be an alien insurer.

Explanation

An insurer incorporated in a foreign country is considered to be an alien insurer.

12. Which of the following is not a personal use of life insurance?

A client buys cash value insurance to fund their children’s college education.

A client buys insurance to pay off their mortgage should they pass away prematurely.

A client buys insurance to fund a buy-sell agreement.

A client buys insurance to provide future income to a surviving spouse.

Buy-sell agreements are typically bought by partners in a business as a personnel/business use of insurance. The others are examples personal/family uses of insurance.

Explanation

Buy-sell agreements are typically bought by partners in a business as a personnel/business use of insurance. The others are examples personal/family uses of insurance.

13. For an insurance contract, utmost good faith means:

The policy owner will be indemnified in case of loss.

Each party relies upon the truthfulness of the other.

The contract just involves the policy owner and the insurer.

Each party is equally responsible for the value of the policy.

This is the definition of utmost good faith.

Explanation

This is the definition of utmost good faith.

14. Which of the following is not an acceptable underwriting classification?

Sub-standard

Preferred

Declined

Standard

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.

Explanation

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.

15. A client has a history of DUIs. To his insurer, they see him as a ________ hazard.

Physical

Moral

Morale

Legal

Morale hazards are characterized by an indifference towards risk. DUIs show apathy towards hurting oneself and others.

Explanation

Morale hazards are characterized by an indifference towards risk. DUIs show apathy towards hurting oneself and others.

16. Term insurance is best described by which of the following?

Provides coverage to age 100, builds cash value, participates in dividend payments, high premium and is payable at the end of a preselected period.

Combines monthly income during a stated period with a death benefit, nonforfeiture provisions and greater flexibility during times of inflation.

Provides temporary protection, builds no cash value, is less expensive, and may be renewed.

Provides the option to adjust the face amount, change anniversary dates, and automatically increases face amount at given age.

Term insurance provides a substantial amount of coverage at a low cost. The lower price is possible due to no cash value.

Explanation

Term insurance provides a substantial amount of coverage at a low cost. The lower price is possible due to no cash value.

17. 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:

Concealment

Misrepresentation

Twisting

Fraud

This is the definition of twisting, which is an unfair trade practice.

Explanation

This is the definition of twisting, which is an unfair trade practice.

18. Profit Sharing Plans:

Are fixed liabilities to the business.

Often allow companies to delay distribution of each employee’s share.

Cannot be used along with other retirement programs.

Allow for a contribution of a specified proportion of company profits.

In profit sharing plans, companies earmark a portion of their profits to be contributed to the employee.

Explanation

In profit sharing plans, companies earmark a portion of their profits to be contributed to the employee.

19. In life insurance, beneficiary succession is the method used to determine who will receive death proceeds. If the primary beneficiary is not living upon the death of the insured who will receive the payment?

Third party beneficiary

Revocable beneficiary

Irrevocable beneficiary

Contingent beneficiary

Contingent/secondary beneficiary is the individual who has the right to receive the face amount of the policy if the primary beneficiary has died and no new primary beneficiary has been named.

Explanation

Contingent/secondary beneficiary is the individual who has the right to receive the face amount of the policy if the primary beneficiary has died and no new primary beneficiary has been named.

20. Situations where the risk is increased by slippery floors, a habit of lying, or reckless drunk driving are best described by which of the following?

A peril

A hazard

Pure risk

Cause of loss

A hazard is any factor that increases the likelihood that a loss may occur. This statement contains examples of physical hazard, moral hazard and morale hazard.

Explanation

A hazard is any factor that increases the likelihood that a loss may occur. This statement contains examples of physical hazard, moral hazard and morale hazard.

21. 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 privacy notice.

An application for insurance.

A consumer report.

A pretext interview.

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.

Explanation

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.

22. 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?

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.

Agent Charles cannot allow Mrs. Smith to purchase an annuity if after the purchase, Mrs. Smith wouldn’t qualify for Medi-Cal.

Mrs. Smith must agree to meet with Agent Charles alone.

Agent Charles should recommend the annuity purchase to assure he receives the greatest commission possible from the visit.

Agents must be mindful of the effects of an annuity purchase on Medi-Cal eligibility.

Explanation

Agents must be mindful of the effects of an annuity purchase on Medi-Cal eligibility.

23. A client has purchased an annuity with an annual bonus she received at the end of last year. She has requested annual benefit payments to start at the end of this year. What type of annuity did she purchase?

Flexible Premium Deferred Annuity

Single Premium Immediate Annuity

Flexible Premium Immediate Annuity

Single Premium Deferred Annuity

The client has purchased an annuity with one payment (single premium) and has requested that the benefit payments begin within 12 months or less of the contract date (immediate annuity).

Explanation

The client has purchased an annuity with one payment (single premium) and has requested that the benefit payments begin within 12 months or less of the contract date (immediate annuity).

24. 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?

Rescind the policy

An administrative hearing by the DOI

A hearing by a court of law to determine the appropriate actions

No course of action allowed since the policy has already been issued

The contestability period is still in force so the policy can be rescinded by the company for material misrepresentation on the application.

Explanation

The contestability period is still in force so the policy can be rescinded by the company for material misrepresentation on the application.

25. Brian purchased a variable life policy and died 25 months after the issue date. It is then discovered that Brian understated his age on the application. What will the insurer do in regard to the payment of the death benefit to the beneficiary?

The death benefit will be reduced to reflect the age discrepancy.

The policy will be rescinded and all premium paid will be refunded to the beneficiary.

The full death benefit will be paid because the policy is over 2 years old.

The death benefit will be paid to the estate of the insured for legal action.

The misstatement of age provision states that the insurer will “make it right” by adjusting the death benefit accordingly. This provision is not subject to the incontestable clause.

Explanation

The misstatement of age provision states that the insurer will “make it right” by adjusting the death benefit accordingly. This provision is not subject to the incontestable clause.

26. How many hours of continuing education are required per renewal for a life-only agent?

20 hours, 4 of the hours must be in ethics

20 hours, 2 of the hours must be in ethics

24 hours, 4 of the hours must be in ethics

24 hours, 2 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.

Explanation

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.

27. Which action by an insurer, or its representatives, is not considered an unfair claims violation?

A claims adjustor misrepresents pertinent facts or policy provisions to dissuade a client from making a claim.

An agent does not respond to a claimant’s communication concerning a claim where a response is required.

The claims department fails to affirm or deny coverage within a reasonable period of time after proof of loss has been submitted.

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.

Explanation

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.

28. All of the following statements about agents are true, except:

Independent agents can be appointed by multiple insurers.

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.

Exclusive agents work for themselves.

Agents need to complete 4 hours of ethics continuing education every license renewal as a part of their regular CE hours.

Exclusive agents work for or represent one insurer at a time. Independent agents work for themselves and can be appointed by multiple insurers.

Explanation

Exclusive agents work for or represent one insurer at a time. Independent agents work for themselves and can be appointed by multiple insurers.

29. Which of the following cannot be used in a policy illustration if nonguaranteed elements are intended to pay future premiums?

Paid up additions

Paid-up premiums

Disappearing premiums

Vanishing premiums

This is true about policy illustrations according to the California Insurance Code.

Explanation

This is true about policy illustrations according to the California Insurance Code.

30. 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:

Activity period.

Annuity period.

Accumulation period.

Annuitization period.

The time during which the account owner invests money in the annuity is known as the accumulation period.

Explanation

The time during which the account owner invests money in the annuity is known as the accumulation period.

31. 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:

Spendthrift (Trust) Clause.

Common Disaster Clause.

Incontestability Clause.

The Beneficiary Protection Clause.

The “Spendthrift Clause” keeps the beneficiary’s creditors from attaching the death benefit while held by the insurance company

Explanation

The “Spendthrift Clause” keeps the beneficiary’s creditors from attaching the death benefit while held by the insurance company

32. What is the minimum number of members required for group life insurance?

15

10

25

100

10 is the minimum per the CIC.

Explanation

10 is the minimum per the CIC.

33. Who submits a request for life insurance to a company?

The beneficiary

The underwriter

The applicant

The agent

While the agent often handles the paperwork; it’s the applicant who is technically requesting life insurance coverage.

Explanation

While the agent often handles the paperwork; it’s the applicant who is technically requesting life insurance coverage.

34. A policyowner who cannot borrow the equity, change beneficiaries, assign a policy or stop paying premiums without the beneficiary's written consent has designated the beneficiary as a(n):

Revocable beneficiary

Irrevocable beneficiary

Defined beneficiary

Primary Beneficiary

Explanation: An irrevocable beneficiary shares many vested (ownership) rights with the policyowner. Therefore, the policyowner must obtain approval from the irrevocable beneficiary to make any of these policy changes.

Explanation

Explanation: An irrevocable beneficiary shares many vested (ownership) rights with the policyowner. Therefore, the policyowner must obtain approval from the irrevocable beneficiary to make any of these policy changes.

35. Variable insurance and variable annuity products are regulated by:

SEC and FINRA.

SEC, FINRA and DOI.

DOI and FINRA.

None of the above.

Variable products are governed at the national level by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), and at the state level by the Department of Insurance (DOI).

Explanation

Variable products are governed at the national level by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), and at the state level by the Department of Insurance (DOI).

36. 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?

Automatic Premium Loan

Incontestability Clause

Reinstatement Provision

Over-Draft Protection

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.

Explanation

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.

37. Which of the following is an incorrect statement about a client's privacy rights?

Signed consent is required before an Attending Physician’s Statement (APS) will be completed.

Abuse of information found within medical records could result in a HIPAA violation.

A client does not have access to their MIB report as it belongs to the member’s life insurers.

Consent is required before an insurer may access an insured’s credit history. Any entry may be disputed if in error.

The client does have access to his/her MIB report.

Explanation

The client does have access to his/her MIB report.

38. Which of the following riders would provide for an insured to increase the face amount of their life insurance policy without proof of insurability?

Guaranteed insurability/future purchase option

Waiver of premium

Accelerated death benefit

Double indemnity rider

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.

Explanation

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.

39. All of the following statements about a policy grace period are false, except:

Death during the grace period results in the denial of the claim.

Grace periods are typically 31 days.

Returning the policy during the grace period results in a full refund of premiums.

Not every insurer is required to provide a grace period.

According to the CIC, the grace period is 31 days.

Explanation

According to the CIC, the grace period is 31 days.

40. Which statement best describes "agreement" as it relates to contracts?

The intent of the contract must be legally acceptable to both parties.

All parties must be capable of entering into a contract.

Each party must offer something of value.

One party accepts the exact terms of the other party’s offer.

Agreement includes both an offer and its acceptance.

Explanation

Agreement includes both an offer and its acceptance.

41. Which of the following are characteristics of renewable term?

Allows the insured to apply for a new contract at the end of the term but there are no guarantees.

Allows the insured to exchange the temporary protection for a form of permanent insurance without evidence of insurability.

Allows the policy owner the opportunity to provide evidence of insurability at the end of the term with reduced premiums.

Allows the policyowner the opportunity to renew the policy at the end ofterm, without evidence of insurability. The premium will increase.

Renewable term Insurance may be renewed at the end of the specified term for another term of the same length. When renewed, renewable term premiums will be higher to reflect the insured’s attained age.

Explanation

Renewable term Insurance may be renewed at the end of the specified term for another term of the same length. When renewed, renewable term premiums will be higher to reflect the insured’s attained age.

42. All of the following needs to be included on an application for life insurance except:

Life Insurance with other insurers

The agent’s statement, if applicable

Signatures of the agent, proposed insured, and the owner

Disability income insurance

Disability income insurance is not material to a life insurance contract.

Explanation

Disability income insurance is not material to a life insurance contract.

43. Which of the following becomes part of the contract, is guaranteed to be true, and if untrue, may be grounds for rescinding the policy?

Facility of payment clause

Contract of adhesion

Warranty

Consideration

A warranty must be literally true. A violation of a material warranty permits the other party to rescind the contract.

Explanation

A warranty must be literally true. A violation of a material warranty permits the other party to rescind the contract.

44. 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:

Policy owner

Annuitant

Beneficiary

Insured

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

Explanation

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

45. 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 felony punishable by a fine up to $1,000, a year in prison, or both.

A misdemeanor punishable by a fine up to $1,000, a year in jail, or both.

A misdemeanor punishable by a $5,000 fine, if unintentional, or $10,000, if intentional.

Administrative fines only.

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.

Explanation

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.

46. A policy pays the face amount if the insured dies before a specified date, or lives to that specified date. This best describes:

Term Insurance

Social Security

An endowment policy

An annuity

Endowment policies mature, or endow at any time specified in the contract.

Explanation

Endowment policies mature, or endow at any time specified in the contract.

47. In a group life policy with a death benefit of more than $50,000:

Premium cost is taxable to the employer.

Premium cost for insurance above $50,000 is taxable as income to the employee.

Premium cost for insurance below $50,000 is taxable as income to the insured.

Premium cost is tax deferred.

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.

Explanation

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.

48. An insurer invests the cash value of a fixed annuity in which of the following assets?

Index account

Blended account

General account

Separate account

An insurer guarantees the cash value in a fixed product and therefore assumes the risk of the investment. Money in fixed products is held in the general account which is invested in relatively safe and low risk instruments such as bonds, mortgages, and real estate.

Explanation

An insurer guarantees the cash value in a fixed product and therefore assumes the risk of the investment. Money in fixed products is held in the general account which is invested in relatively safe and low risk instruments such as bonds, mortgages, and real estate.

49. Which of the following statements is false in regard to a Life Paid-up at-65 whole life policy?

Premium payments will be higher than a straight whole life policy.

The policy will mature at the death of the insured or age 100, whichever occurs first.

Premium payments stop at age 65.

The policy will endow at age 65.

Limited pay policies limit the length of time for premium payment, all other features remain the same, such as length of coverage, maturity, and endowment. Because the number of premium payments is reduced in a limited pay policy, the premium must be higher than straight life.

Explanation

Limited pay policies limit the length of time for premium payment, all other features remain the same, such as length of coverage, maturity, and endowment. Because the number of premium payments is reduced in a limited pay policy, the premium must be higher than straight life.

50. Which insurance is known for having a level premium with a fixed rate of return resulting in guaranteed cash value?

Adjustable Life

Whole Life

Variable Life

Universal Life

Because whole life has a level premium and a fixed rate of return, the resulting cash value is predictable.

Explanation

Because whole life has a level premium and a fixed rate of return, the resulting cash value is predictable.

51. When an applicant makes a material statement believed to be true to the best of their knowledge, the statement is considered to be a/an

Indemnity

Estoppel

Warranty

Representation

A representation is true to the best of the applicant’s knowledge.

Explanation

A representation is true to the best of the applicant’s knowledge.

52. All of these statements about life insurance settlement options are false, except:

Fixed amount is the default option when no option is selected.

Life income payments are income tax free.

Life income with 10 years certain provides at least 120 months of payments.

Settlement options like fixed period are good ways to provide an income to a beneficiary who cannot handle large sums of money.

“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.

Explanation

“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.

53. Under which life settlement option does the insurer retain the death benefit but pays the beneficiary the earnings on the death benefit?

Interest only option

Accumulate with interest option

Life income option

Cash 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.

Explanation

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.

54. 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?

Universal life

Adjustable life

Renewable term

Whole 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.

Explanation

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.

55. Which type of insurer requires an attorney-in-fact overseen by an advisory committee of subscribers?

Fraternal insurer

Mutual insurer

Reinsurer

Reciprocal insurer

A committee of subscribers holds the attorney-in-fact accountable in reciprocal insurance agreements.

Explanation

A committee of subscribers holds the attorney-in-fact accountable in reciprocal insurance agreements.

56. All of the following are true about key person insurance, except:

The business is the applicant and owner.

The employee must give written consent by signing the application.

The business is the beneficiary.

The death benefit is taxable to the business.

Key person life insurance premium is not deductible by the business and the death benefit is not taxable to the business.

Explanation

Key person life insurance premium is not deductible by the business and the death benefit is not taxable to the business.

57. The Roth and Traditional IRAs have some similarities. Which of the following is not true?

Both have penalties for early withdrawal

Both grow tax deferred

Both are tax deductible to the investor

Both allow the investor to invest for themselves and their non-income earning spouse

The Roth has non-deductible contributions, while the Traditional IRA allows tax deductible contributions.

Explanation

The Roth has non-deductible contributions, while the Traditional IRA allows tax deductible contributions.

58. 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?

Automatic Premium Loan

Payor Benefit

Cost of Living

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

Explanation

Facility of payment is a process whereby someone who is not a beneficiary could make a claim for reimbursement of final expenses

59. All of the following statements about life insurance policy illustrations and the senior market are correct, except:

Guaranteed elements must be emphasized in bold print.

To be understandable, policy illustrations must follow certain formats so the insured can make informed buying decisions.

Illustrations must note that they are only an illustration.

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

Explanation

Non-guaranteed elements will change over time. Guaranteed elements show the minimum, guaranteed performance that will occur

60. All of the following statements about assignments are not false, except:

Absolute assignments can be used for life settlement agreements.

A lender may be repaid through the use of a collateral assignment.

Absolute assignments involve the complete transfer of all policy owner rights in the insurance policy.

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.

Explanation

Changes in ownership always need to be filed with the insurer.

61. Premiums paid into a variable annuity purchase which of the following?

Annuity units

Accumulation units

Purchased units

Paid-up units

Variable annuity premiums purchase accumulation units during the accumulation period.

Explanation

Variable annuity premiums purchase accumulation units during the accumulation period.

62. Which statement is false concerning insurance company regulations?

Insurers may not advertise their membership in the Guarantee Association.

An insurer suffering from an impairment of their minimum required paid-in capital is labeled solvent.

The commissioner may begin conservation proceedings against companies who cannot meet solvency regulations.

An insurer may be liquidated if conservation proves to be futile.

Insurers suffering from an impairment of paid-in capital are insolvent.

Explanation

Insurers suffering from an impairment of paid-in capital are insolvent.

63. In comparing the purchase of individual life insurance to acquiring group life, which statement is not true?

Group insurance is automatic and requires less medical information than the individual coverage.

Group life tends to have a lower premium per person than individual life.

Both provide a tax free death benefit.

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.

Explanation

Group insurance premium paid by the employer is tax deductible to the employer, while individual insurance premium is non-deductible.

64. Which of the following is not a qualified 1035 exchange?

A whole life policy exchanged for a variable life policy.

A variable annuity exchanged for a variable universal life policy.

A variable annuity exchanged for a fixed annuity.

A universal life policy exchanged for a whole 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.”

Explanation

“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.”

65. All of the following statements about policy provisions are true, except:

Death during the grace period results in a full death benefit being paid.

Suicide during the policy’s first two years results in policy rescission.

The insuring clause states the insurer’s promise to pay a death benefit if premiums are paid, and proof of death is received.

The automatic premium loan can keep a policy in force when payments are missed and there is sufficient cash value to pay the premium.

The missed premium will be deducted from the full death benefit if death occurs during the grace period.

Explanation

The missed premium will be deducted from the full death benefit if death occurs during the grace period.

66. All of the following describe differences between binding receipts and conditional receipts, except:

Conditional receipts are commonly used for life insurance applications.

No claim is paid with either receipt until a policy is issued

The binding receipt always provides immediate coverage from the date of the receipt

The conditional receipt can provide coverage from the date of application once the application is later approved by underwriting

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.

Explanation

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.

67. Which of the following is considered ordinary insurance?

Renewable term insurance

Blanket policies

Mortgage redemption

Whole life insurance

Mortgage redemption must be ordinary or individual insurance, while whole life and term can be group or individual. Blanket insurance is group insurance.

Explanation

Mortgage redemption must be ordinary or individual insurance, while whole life and term can be group or individual. Blanket insurance is group insurance.

68. Which statement about reinstatement is false?

Reinstatement usually requires an application with underwriting questions, but may not require any physical exams.

Reinstatement requires payment of past due premium plus interest.

A reinstated policy’s premium is based upon the insured’s original age.

The reinstated policy is incontestable if the first time it was in force it already passed the two year mark.

A reinstated policy will be contestable again for another two years.

Explanation

A reinstated policy will be contestable again for another two years.

69. While collecting underwriting information, certain rules must be followed. Which of the following is incorrect?

Information contained on the non-medical application may result in the requirement for a physical exam.

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.

Post-claims underwriting is a valid and necessary means of determining the insurability of a potential applicant.

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.

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.

Explanation

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.

70. All of the following statements are true about participating and nonparticipating policies, except:

They are sometimes referred to as par and non-par.

Participating policies allow a policy owner to share in a mutual company’s divisible surplus in the form of dividends.

Non-participating policies issue dividends to shareholders.

Non-participating policies issue dividends to policy owners.

Dividends on non-participating policies are paid to shareholders.

Explanation

Dividends on non-participating policies are paid to shareholders.

71. Which statement is not true about insurance sales?

Mass marketing techniques usually involve selling insurance without the use of an agent.

Brokers represent insurers in negotiating coverage with various insureds.

Insurance agents are not authorized to sell life insurance.

An agent or broker must exercise care when using apparent authority during the sales process.

Explanation

An agent or broker must exercise care when using apparent authority during the sales process.

72. 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?

Reduced paid-up insurance

Cash surrender value

Extended term insurance

Extended paid-up 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.

Explanation

The nonforfeiture option that results in a paid-up policy with the same face amount as the original policy is the “Extended Term” option.

73. Which of the following is not excluded from the California Life and Annuity Replacement Law?

Purchasing credit life insurance for the purchase of a second home

Purchasing group life insurance from a part-time employer

Purchasing a new policy that will take the place of an existing policy

Converting a convertible term policy to whole life insurance

Any transaction in which a client purchases a new policy with the intention of cancelling an existing policy is considered to be a replacement transaction.

Explanation

Any transaction in which a client purchases a new policy with the intention of cancelling an existing policy is considered to be a replacement transaction.

74. Which statement below is least correct regarding the type of insurance that fits best with the applicant's needs?

Applicants concerned with the increasing cost of living should purchase increasing term.

Applicants wishing to pay off a mortgage should they suffer a premature death might buy a decreasing term plan.

Annual renewable term works well for employers looking to provide cost effective group life insurance for their employees.

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.

Explanation

Convertible term converts to a cash value policy with the same death benefit but at a higher premium.

75. Which of the following statements is not included in the Entire Contract clause?

All statements made by the insured in the application will be considered as representations, not warranties.

A copy of the application, if used, must be attached to the policy.

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.

Only an executive officer can make changes to the contract.

This describes the Insuring clause.

Explanation

This describes the Insuring clause.