California Life And Health Insurance Exam Questions Quiz
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California Life And Health Insurance Exam Questions and Answers
- 1.
In disability insurance, the period of time between when the disability started and the commencement of benefits is the:
- A.
Cancellation Period
- B.
Elimination Period
- C.
Probationary Period
- D.
Grace Period
Correct Answer
B. Elimination PeriodExplanation
The Elimination Period, also known as the waiting period, is the time frame between the onset of a disability and when the benefit payments begin. This period can vary but typically ranges from a few days to several months, depending on the policy. It acts as a deductible, with longer elimination periods resulting in lower premiums.Rate this question:
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- 2.
Which of the following characteristics would not stop an insurance company from accepting an insurance risk?
- A.
The item to be insured faces high catastrophic loss exposure.
- B.
The item to be insured is part of a large group of homogeneous exposure units.
- C.
The item to be insured has a market value that is difficult to determine.
- D.
The item to be insured holds no hardship to the owner should it be lost or damaged.
Correct Answer
B. The item to be insured is part of a large group of homogeneous exposure units.Explanation
Insurance companies prefer risks that are part of a large group of homogeneous exposure units. This allows them to predict losses more accurately and set appropriate premiums. High catastrophic loss exposure, uncertain market value, and lack of financial hardship if the item is lost all pose challenges to underwriting.Rate this question:
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- 3.
All of the following statements about mutual insurance companies are correct, except:
- A.
If a mutual company goes public, it demutualizes.
- B.
Mutual companies issue policies referred to as participating.
- C.
Policy dividends issued by mutual companies are guaranteed and not taxable.
- D.
Dividends allow policyholders to share in a mutual company's divisible surplus.
Correct Answer
C. Policy dividends issued by mutual companies are guaranteed and not taxable.Explanation
Mutual insurance companies are owned by their policyholders rather than shareholders. Policyholders may receive dividends from the company's surplus, which are considered a return of excess premiums. These dividends are not guaranteed, as they depend on the company's profitability and financial health. While these dividends are generally not taxable because they are treated as a refund of overpaid premiums, their issuance is not assured each year. If a mutual company goes public, it converts into a stock company in a process called demutualization, allowing it to sell shares and raise capital from investors.Rate this question:
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- 4.
In a seven-year vesting schedule, what percentage of employer contributions is vested after seven years?
- A.
0%
- B.
60%
- C.
80%
- D.
100%
Correct Answer
D. 100%Explanation
In a seven-year vesting schedule, employees gradually earn the right to the employer's contributions to their retirement plan. Typically, vesting begins after two years, with employees earning a certain percentage each year thereafter. By the end of the seven-year period, the employee is fully vested, meaning they have complete ownership of the employer's contributions. If employment terminates before seven years, the employee retains only the vested portion. Full vesting at seven years ensures employees have a long-term commitment to the company while still allowing eventual full ownership of retirement contributions.Rate this question:
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- 5.
Which is a false statement? The California Insurance Commissioner is:
- A.
Elected by the people of California every four years
- B.
Selected by the Governor as an appointee
- C.
Is a representative to the National Association of Insurance Commissioners (NAIC)
- D.
Capable of becoming the conservator of a financially impaired or insolvent insurer
Correct Answer
B. Selected by the Governor as an appointeeExplanation
The California Insurance Commissioner is not selected by the Governor as an appointee. Instead, they are elected by the people of California every four years. This distinction is important because it highlights the democratic process involved in selecting the Insurance Commissioner, as opposed to being appointed by the Governor, which would give the Governor more direct influence over the position.Rate this question:
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- 6.
Which statement about the life insurance code and ethics is not true?
- A.
Marketing plans to offer free insurance as an inducement to buy or rent real property are prohibited.
- B.
Acts of fair and unfair discrimination are prohibited.
- C.
Agents are not permitted to advertise that an insurer is a member of any insurance guaranty. association
- D.
The act of twisting could result in a license suspension for up to three years.
Correct Answer
B. Acts of fair and unfair discrimination are prohibited.Explanation
In life insurance, fair discrimination is permitted as it reflects differences in risk. For example, charging older clients higher premiums is considered fair because it aligns with actuarial risk assessments. Unfair discrimination, such as refusing coverage based on race, is prohibited. Agents cannot advertise membership in guaranty associations to prevent misleading consumers about the security of their policies. Twisting, the practice of persuading a policyholder to replace an existing policy with a new one for the agent's benefit, is unethical and illegal and can lead to severe penalties, including license suspension.Rate this question:
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- 7.
Which of the following statements about a resident life-only agent licensing is incorrect?
- A.
A licensee has 30 days to update a change in address.
- B.
Licensees are required to have an in-state residential address.
- C.
Loss of a precious professional license could result in the automatic denial of the life-only license application.
- D.
A plea of nolo contendere is considered a conviction. Thus it cou ld hinder attempts to obtain a life-only license.
Correct Answer
B. Licensees are required to have an in-state residential address.Explanation
Licensees in some states are not required to have an in-state residential address. Licensing requirements vary by state, with some allowing non-residents to obtain a license if they meet specific conditions, such as having a reciprocal agreement with their home state. However, licensees must update their address within 30 days of any change and may face automatic denial if they lose a previous professional license due to misconduct. A plea of nolo contendere is treated as a conviction and can affect licensure eligibility, reflecting the importance of maintaining a clean professional record.Rate this question:
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- 8.
Tommy Greene has a CLU certification. Which of the following names would automatically be approved for use as his agency's name?
- A.
Tommy Greene and Associates
- B.
Thomas Greene, CLU, & Company
- C.
Greene Insurance Agency
- D.
None of the above would be automatically approved
Correct Answer
D. None of the above would be automatically approvedExplanation
No agency name is automatically approved without following proper procedures, including background checks and regulatory approvals. Agencies must ensure that their chosen name complies with state regulations and does not mislead the public or imply unauthorized affiliations. Names must be clear, professional, and reflective of the services provided. Even if an agent has a professional certification like CLU (Chartered Life Underwriter), they must still adhere to the naming guidelines set by their state insurance department to ensure transparency and avoid potential conflicts.Rate this question:
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- 9.
An agent follows the rules and terms of his agent contract. He is exercising his _______ authority.
- A.
Implied
- B.
Express
- C.
Apparent
- D.
Contractual
Correct Answer
B. ExpressExplanation
Express authority is explicitly granted to an agent through a written contract, detailing the agent's powers and responsibilities. This authority is clearly defined and documented, allowing the agent to perform specific acts on behalf of the insurer. Implied authority, while not explicitly stated, is assumed as necessary to carry out express authority. Apparent authority arises when a third party reasonably believes the agent has authority based on the agent's actions. Contractual authority encompasses both express and implied authority, ensuring the agent operates within the bounds of their agreement.Rate this question:
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- 10.
Any person who misappropriates fiduciary funds for personal use is guilty of:
- A.
Fraud
- B.
Theft
- C.
Misrepresentation
- D.
Pre-texting
Correct Answer
B. TheftExplanation
Misappropriating fiduciary funds for personal use constitutes theft. Agents with fiduciary responsibilities must handle clients' funds ethically and in the clients' best interests. Using these funds for personal gain violates this trust and the legal duty to manage the funds appropriately. Such actions undermine client confidence and can lead to severe legal and professional consequences, including criminal charges, fines, and loss of licensure. Maintaining fiduciary integrity is crucial for the trustworthiness and reliability of financial and insurance professionals.Rate this question:
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- 11.
According to the code, any person legally capable of making an insurance policy is considered:
- A.
An agent
- B.
A broker
- C.
An insurer
- D.
An underwriter
Correct Answer
C. An insurerExplanation
Legally, a corporation can be considered a "person" capable of making insurance policies. The insurer is responsible for creating and underwriting the policies that agents and brokers sell to clients. This distinction is important because it clarifies the roles within the insurance industry. Agents and brokers facilitate the sale of policies and provide service to clients, while insurers bear the risk and manage the financial aspects of the policies. Understanding these roles helps ensure proper regulatory compliance and ethical conduct in the industry.Rate this question:
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- 12.
Mrs. Anderson needs to invest the proceeds from her late husband's life insurance. She invests a portion of the money into an annuity. Since she is 62 and is still working, she decided to purchase a single premium deferred annuity. She won't need an income for a few more years. What should the agent make sure Mrs. Anderson understands?
- A.
As a life insurance product, future proceeds are tax-free.
- B.
She has a 30-day free look period in case she changes her mind.
- C.
Since she only has a few more years before she retires, she should invest with the objective of making as much money as possible. Her time horizon is limited.
- D.
She will have to begin taking withdrawals within six months of receiving the proceeds.
Correct Answer
B. She has a 30-day free look period in case she changes her mind.Explanation
Mrs. Anderson has a 30-day free look period for the annuity, allowing her to reconsider her investment without penalties. This period is particularly important for older clients making significant financial decisions, as it provides a safeguard against buyer's remorse or unsuitable advice. An annuity can be a suitable investment for someone who wants to defer income until retirement, offering tax-deferred growth and future income stability. However, the agent should ensure Mrs. Anderson understands the terms, including the potential penalties for early withdrawal and the tax implications of annuity distributions.Rate this question:
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- 13.
In a non-contributory group policy:
- A.
75% of eligible employees must elect to join the plan.
- B.
100% of eligible employees must participate.
- C.
75% of employees must elect to join the plan.
- D.
100% of employees must be allowed to participate.
Correct Answer
B. 100% of eligible employees must participate.Explanation
In a non-contributory group policy, the employer pays the entire premium, and all eligible employees must participate. This type of plan ensures that all employees receive coverage, simplifying administration and reducing adverse selection, where only those expecting to use the benefits enroll. The employer's full contribution also promotes employee satisfaction and loyalty, as it provides valuable benefits at no direct cost to employees. This universal participation is a critical feature of non-contributory plans, aligning with the employer's goal of comprehensive employee welfare coverage.Rate this question:
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- 14.
An employee has lost access to their group term life insurance plan, but they are allowed to convert to a new plan. Which best describes this new plan?
- A.
The new policy will be term life. The employee pays all premiums.
- B.
The new policy will be term life. The employer will pay a portion of the cost.
- C.
The new policy will be cash value. The employer will pay a portion of the cost.
- D.
The new policy will be cash value. The employee pays all the premiums.
Correct Answer
D. The new policy will be cash value. The employee pays all the premiums.Explanation
When an employee loses access to a group term life insurance plan, they are often given the option to convert to an individual policy without providing evidence of insurability. This new policy is typically a cash value policy, such as whole life or universal life, rather than term life. The conversion privilege allows the employee to maintain coverage despite changes in employment status. However, the employee will be responsible for paying all premiums, which may be higher than the group rate due to the individual nature and cash value component of the new policy.Rate this question:
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- 15.
Bob and Neal are partners in a law firm together. If one of them were to pass away, they want to make sure that their surviving family will receive a fair value for their stake in the business. What life insurance arrangement would be most suited for transitioning the business during this time of loss?
- A.
Split-Dollar Plan
- B.
Executive Bonus Plan
- C.
Buy-Sell Agreement
- D.
Deferred Compensation Plans
Correct Answer
C. Buy-Sell AgreementExplanation
A buy-sell agreement is the most suitable arrangement for ensuring business continuity and providing fair compensation to the deceased partner's family. This agreement is a legally binding contract that outlines how a partner's share of the business will be transferred in the event of their death, disability, or retirement. Typically funded by life insurance, the surviving partners use the death benefit to purchase the deceased partner's interest from their estate. This arrangement provides liquidity to the deceased's family and ensures the smooth transition of business ownership, maintaining operational stability.Rate this question:
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- 16.
Rank from lowest to highest the amount of monthly income that would result from the following annuity settlement options:
- A.
Life with refund option, life with ten years certain, straight life
- B.
Straight life, life with ten years certain, life refund option
- C.
Life with ten years certain, life with refund option, straight life
- D.
Life with refund option, straight life, life with ten years certain
Correct Answer
A. Life with refund option, life with ten years certain, straight lifeExplanation
The amount of monthly income from an annuity depends on the level of risk and guarantees associated with the settlement option. Straight life annuities provide the highest monthly income because they offer payments only for the annuitant's lifetime with no additional guarantees. Life with ten years certain offers a lower income because it guarantees payments for at least ten years, even if the annuitant dies. Life with refund option provides the lowest income because it guarantees that if the annuitant dies before receiving payments equal to the premium paid, the difference will be refunded to the beneficiary. The more guarantees provided, the lower the monthly income due to the insurer's increased risk.Rate this question:
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- 17.
All of the following are dividend options, except:
- A.
Interest only option
- B.
One-year term option
- C.
Reduce the next premium payment
- D.
Accumulate with interest
Correct Answer
A. Interest only optionExplanation
The "Interest only" option is a settlement option rather than a dividend option. Dividend options are ways policyholders can use the dividends received from a mutual insurance company. These options include using dividends to reduce the next premium payment, purchase additional one-year term insurance, or accumulate at interest within the policy. Accumulating with interest allows dividends to grow within the policy, earning interest at a rate specified by the insurer. Unlike settlement options, which pertain to the payout of policy proceeds, dividend options give policyholders flexibility in how they use their share of the insurer's surplus.Rate this question:
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- 18.
Which best describes industrial insurance?
- A.
$2,000 or less in coverage and premiums collected by the agent.
- B.
$10,000 coverage and premiums paid by mail.
- C.
$50,000 coverage and premiums paid by mail.
- D.
$100,000 coverage and premiums collected by the agent.
Correct Answer
A. $2,000 or less in coverage and premiums collected by the agent.Explanation
Industrial insurance, also known as home service or debit insurance, typically involves small face amounts (usually $2,000 or less) and premiums collected by the agent in person, often weekly or monthly. This type of insurance is designed for lower-income individuals who prefer face-to-face transactions and may not have access to traditional banking services. The personal collection method helps ensure that premiums are paid consistently and policies remain in force. Industrial insurance provides a basic level of coverage for funeral and burial expenses, making it accessible and manageable for individuals with limited financial resources.Rate this question:
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- 19.
A client's flexible premium is invested into a separate account. What type of insurance product did he purchase?
- A.
Universal Life
- B.
An Annuity
- C.
Variable Life
- D.
Variable Universal Life
Correct Answer
D. Variable Universal LifeExplanation
Variable Universal Life (VUL) insurance combines features of both universal life and variable life insurance. It offers flexible premiums, allowing policyholders to adjust their payments and death benefits. The key characteristic of VUL is that the cash value is invested in separate accounts, similar to mutual funds, which can include stocks, bonds, and other investment options. This provides the potential for higher returns compared to traditional universal life insurance, but also comes with greater risk due to market fluctuations. The policyholder bears the investment risk, and the cash value can increase or decrease based on the performance of the chosen investments.Rate this question:
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- 20.
Which rider pays a multiple of the original face amount?
- A.
Accelerated Death Benefit
- B.
Accidental Death Benefit
- C.
Accidental Death and Dismemberment
- D.
Cost of Living
Correct Answer
B. Accidental Death BenefitExplanation
The Accidental Death Benefit (ADB) rider, often referred to as "double indemnity," pays an additional death benefit if the insured dies as a result of an accident. This amount is typically a multiple of the original face amount of the policy, providing extra financial protection for beneficiaries. The rider is designed to address the increased financial needs that may arise from an unexpected and sudden death due to an accident. It’s important to note that the definition of an accident and the conditions under which the rider pays out are strictly defined in the policy, and certain exclusions may apply.Rate this question:
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- 21.
A life-only agent issues a binding receipt to his client since the client did include a check for the initial premium with his completed application. Which is true?
- A.
The client is covered during underwriting.
- B.
The agent faces potential suspension or revocation of their license.
- C.
The client is not covered during underwriting since binders only start once underwriting is complete.
- D.
Since the medical exam hasn't been completed yet, the client is not covered at all.
Correct Answer
B. The agent faces potential suspension or revocation of their license.Explanation
A life-only agent does not have the authority to issue binding receipts, which provide immediate coverage in property and casualty insurance but not in life insurance. Issuing a binding receipt in life insurance can mislead clients about their coverage status during the underwriting process. This act can result in severe disciplinary actions, including suspension or revocation of the agent’s license because it jeopardizes the integrity of the insurance process and misinforms the client about their coverage. Life insurance coverage typically begins only after the policy has been fully underwritten and approved by the insurer.Rate this question:
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- 22.
Which of the following would not be considered a speculative risk?
- A.
Every week your client plays $20 on the lotto.
- B.
Any action that could do harm to your client's well-being, such as reckless driving.
- C.
Your client invest 5% of his salary into the defined benefit plan at his work.
- D.
All of the above situations involve some risk.
Correct Answer
B. Any action that could do harm to your client's well-being, such as reckless driving.Explanation
Speculative risk involves the chance of either a loss or a gain, such as investing in the stock market or gambling. Investing 5% of a salary into a defined benefit plan at work does not involve speculative risk because it is a retirement plan with a guaranteed benefit, typically based on salary and years of service. This type of investment is considered a pure risk, where the only potential outcome is a loss if the investment does not perform as expected. Pure risks are typically insurable, while speculative risks are not.Rate this question:
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- 23.
According to the California Insurance Code, what information is the agent required to include on their business card?
- A.
Identification of their relationship to the insurance company.
- B.
The license number must appear in the same size font as the phone number.
- C.
Must not include any titles, designations, or licenses that are not currently held.
- D.
All of the above.
Correct Answer
D. All of the above.Explanation
The California Insurance Code mandates full disclosure on business cards to ensure transparency and professionalism. Agents must clearly identify their relationship with the insurance company they represent, include their license number in a font size equal to the phone number, and only list titles, designations, or licenses they currently hold. These requirements help prevent misleading information and ensure that clients have accurate and complete information about the agent's qualifications and affiliations. Properly formatted business cards support ethical business practices and build trust with clients.Rate this question:
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- 24.
How does the IRS classify the two different types of retirement accounts?
- A.
Qualified and unfunded
- B.
Fully funded and non-qualified
- C.
Qualified and non-qualified
- D.
Contributory and noncontributory
Correct Answer
C. Qualified and non-qualifiedExplanation
The IRS classifies retirement accounts into two main categories: qualified and non-qualified. Qualified retirement plans meet specific IRS guidelines and offer favorable tax treatment, such as tax-deferred growth and potential employer contributions. Examples include 401(k) and pension plans. Non-qualified plans do not meet these IRS guidelines and therefore do not receive the same tax benefits. They are often used to provide additional retirement benefits to executives and key employees. Understanding these classifications is important for financial planning and maximizing tax advantages.Rate this question:
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- 25.
An insured has a terminal illness and needs to access 1/3 of his death benefit to pay mounting medical expenses. Which rider would meet the insured's current needs?
- A.
Automatic Premium Loan
- B.
Accelerated (Living) Benefit
- C.
Assignment of Benefit
- D.
Payor Benefit
Correct Answer
B. Accelerated (Living) BenefitExplanation
The Accelerated Death Benefit (ADB) rider, also known as a living benefit rider, allows the insured to access a portion of their death benefit while still alive if diagnosed with a terminal illness. This benefit provides much-needed financial relief for medical expenses and other costs associated with terminal illnesses. The remaining death benefit is paid to beneficiaries upon the insured's death, minus the amount already advanced. This rider helps insured individuals manage their financial needs during a critical time without having to forfeit their life insurance policy.Rate this question:
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- 26.
A beneficiary decides to take the option that will have the largest amount per payment, knowing after death, no money will be paid out to any descendants. The settlement option is:
- A.
Life Guaranteed
- B.
Life with Period Certain
- C.
Life Income (Straight Life)
- D.
Life Refund Income
Correct Answer
C. Life Income (Straight Life)Explanation
The Life Income (Straight Life) settlement option provides the beneficiary with the highest monthly payment because it only pays for as long as the beneficiary lives, with no additional guarantees. This option maximizes income during the beneficiary's lifetime but ceases payments upon their death, leaving no residual benefit for descendants. The insurer can afford to pay a higher amount because there is no obligation to continue payments beyond the beneficiary's lifetime. This option is suitable for individuals seeking the highest possible income during their retirement years without needing to leave a financial legacy.Rate this question:
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Jun 03, 2024Quiz Edited by
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Oct 09, 2012Quiz Created by
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