California Life Insurance Practice Exam B

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  • 1/75 Questions

    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.
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Practice Exam Quizzes & Trivia
About This Quiz

California Life Insurance Practice Exam B assesses knowledge on insurance regulations, insurable interest, policy provisions, risk classification, and annuity benefits. This exam is crucial for those preparing for licensure in the life insurance sector in California.

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  • 2. 

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    • He will be required to pay a 10% tax penalty on the amount withdrawn.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

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    A. He will be required to pay a 10% tax penalty on the amount withdrawn.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

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  • 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

    Correct Answer
    A. School district employee
    Explanation
    Tax Sheltered Accounts (TSA) are retirement programs for not-forprofit institutions such as school districts, churches, charities, etc.

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  • 4. 

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

    • 12 months

    • 3 years

    • 5 years

    • 7 years

    Correct Answer
    A. 5 years
    Explanation
    Agent records must be kept for 5 years.

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  • 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

    Correct Answer
    A. An employee insures their employer in the fear of losing their job
    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.

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  • 6. 

    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.

    Correct Answer
    A. If the applicant has permitted someone in their employment to violate the California Insurance Code.
    Explanation
    Applicants allowing others to violate the insurance code would be suspect for further violations.

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  • 7. 

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

    • 60

    • 62

    • 65

    • 67

    Correct Answer
    A. 65
    Explanation
    Medicare Part B provides medical expense coverage to those 65 and older.

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  • 8. 

    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

    Correct Answer
    A. An alien insurer
    Explanation
    An insurer incorporated in a foreign country is considered to be an alien insurer.

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  • 9. 

    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.

    Correct Answer
    A. Express authority, implied authority and apparent authority.
    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.

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  • 10. 

    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

    Correct Answer
    A. Ashley’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.

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  • 11. 

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

    • Insurer

    • Policy owner

    • Insured

    • Agent

    Correct Answer
    A. Policy owner
    Explanation
    The policy owner/policy holder is usually the payor and has authority to decide who receives the proceeds.

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  • 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.

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

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  • 13. 

    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

    Correct Answer
    A. Twisting
    Explanation
    This is the definition of twisting, which is an unfair trade practice.

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  • 14. 

    Which of the following is not an acceptable underwriting classification?

    • Sub-standard

    • Preferred

    • Declined

    • Standard

    Correct Answer
    A. Declined
    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.

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  • 15. 

    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.

    Correct Answer
    A. Each party relies upon the truthfulness of the other.
    Explanation
    This is the definition of utmost good faith.

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  • 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.

    Correct Answer
    A. Provides temporary protection, builds no cash value, is less expensive, and may be renewed.
    Explanation
    Term insurance provides a substantial amount of coverage at a low cost. The lower price is possible due to no cash value.

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  • 17. 

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

    • Physical

    • Moral

    • Morale

    • Legal

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

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  • 18. 

    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.

    Correct Answer
    A. Agent Charles cannot allow Mrs. Smith to purchase an annuity if after the purchase, Mrs. Smith wouldn’t qualify for Medi-Cal.
    Explanation
    Agents must be mindful of the effects of an annuity purchase on Medi-Cal eligibility.

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  • 19. 

    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.

    Correct Answer
    A. A consumer report.
    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.

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  • 20. 

    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.

    Correct Answer
    A. Allow for a contribution of a specified proportion of company profits.
    Explanation
    In profit sharing plans, companies earmark a portion of their profits to be contributed to the employee.

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  • 21. 

    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

    Correct Answer
    A. Contingent beneficiary
    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.

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  • 22. 

    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

    Correct Answer
    A. A 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.

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  • 23. 

    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

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

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  • 24. 

    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

    Correct Answer
    A. Single Premium 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).

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  • 25. 

    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

    Correct Answer
    A. 24 hours, 4 of the hours 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.

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  • 26. 

    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.

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

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  • 27. 

    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.

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

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  • 28. 

    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.

    Correct Answer
    A. Spendthrift (Trust) Clause.
    Explanation
    The “Spendthrift Clause” keeps the beneficiary’s creditors from attaching the death benefit while held by the insurance company

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  • 29. 

    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.

    Correct Answer
    A. An agent advises a claimant to obtain the services of an attorney.
    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.

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  • 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.

    Correct Answer
    A. Accumulation period.
    Explanation
    The time during which the account owner invests money in the annuity is known as the accumulation period.

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  • 31. 

    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

    Correct Answer
    A. Vanishing premiums
    Explanation
    This is true about policy illustrations according to the California Insurance Code.

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  • 32. 

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

    • 15

    • 10

    • 25

    • 100

    Correct Answer
    A. 10
    Explanation
    10 is the minimum per the CIC.

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  • 33. 

    Who submits a request for life insurance to a company?

    • The beneficiary

    • The underwriter

    • The applicant

    • The agent

    Correct Answer
    A. The applicant
    Explanation
    While the agent often handles the paperwork; it’s the applicant who is technically requesting life insurance coverage.

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  • 34. 

    Variable insurance and variable annuity products are regulated by:

    • SEC and FINRA.

    • SEC, FINRA and DOI.

    • DOI and FINRA.

    • None of the above.

    Correct Answer
    A. SEC, FINRA and 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).

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  • 35. 

    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

    Correct Answer
    A. Irrevocable beneficiary
    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.

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  • 36. 

    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

    Correct Answer
    A. Guaranteed insurability/future purchase option
    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.

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  • 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.

    Correct Answer
    A. A client does not have access to their MIB report as it belongs to the member’s life insurers.
    Explanation
    The client does have access to his/her MIB report.

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  • 38. 

    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.

    Correct Answer
    A. Grace periods are typically 31 days.
    Explanation
    According to the CIC, the grace period is 31 days.

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  • 39. 

    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

    Correct Answer
    A. Automatic Premium Loan
    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.

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  • 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.

    Correct Answer
    A. One party accepts the exact terms of the other party’s offer.
    Explanation
    Agreement includes both an offer and its acceptance.

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  • 41. 

    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

    Correct Answer
    A. Annuitant
    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

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  • 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

    Correct Answer
    A. Disability income insurance
    Explanation
    Disability income insurance is not material to a life insurance contract.

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  • 43. 

    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.

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

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  • 44. 

    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.

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

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  • 45. 

    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

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

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  • 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

    Correct Answer
    A. An endowment policy
    Explanation
    Endowment policies mature, or endow at any time specified in the contract.

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  • 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.

    Correct Answer
    A. Premium cost for insurance above $50,000 is taxable as income 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.

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  • 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

    Correct Answer
    A. General account
    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.

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  • 49. 

    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

    Correct Answer
    A. Whole Life
    Explanation
    Because whole life has a level premium and a fixed rate of return, the resulting cash value is predictable.

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  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Oct 08, 2012
    Quiz Created by
    Selidron

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