California Life Insurance Practice Exam A

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  • 1/75 Questions

    What type of insurance would a person select as the most efficient method of paying the outstanding debt on their home in the event of death?

    • Level term
    • Family maintance
    • Mortgage redemption (decreasing term/mortgage protection)
    • Joint life (first-to-die)
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About This Quiz

California Life Insurance Practice Exam A assesses knowledge in disability insurance, insurance risk management, mutual insurance companies, and ethical practices in life insurance. It prepares candidates for state-specific regulations and industry standards.

California Life Insurance Practice Exam A - Quiz

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  • 2. 

    In a seven year vesting schedule, what percentage of employer contributions is vested after seven years?

    • 0%

    • 60%

    • 80%

    • 100%

    Correct Answer
    A. 100%
    Explanation
    If employment terminates, the employee own 100% of the employer's contributions after 7 years. They earn 20% each year for years 3 through 7. Employee contributions are immediately vested.

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  • 3. 

    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?

    • Automatic Premium Loan

    • Accelerated (Living) Benefit

    • Assignment of Benefit

    • Payor Benefit

    Correct Answer
    A. Accelerated (Living) Benefit
    Explanation
    The accelerated death benefit, or living need rider, pays a portion of the death benefit before death is the insured has a terminal illness.

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  • 4. 

    Bob and Neal are partners in a law firm together. If one of them were to pass away, the 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?

    • Executive Bonus Plan

    • Split Dollar Plan

    • Buy-Sell Agreement

    • Deferred Compensation Plans

    Correct Answer
    A. Buy-Sell Agreement
    Explanation
    Buy-sell agreements allow surviving partners to buy out the family of the deceased partner so the business may continue past the death of the insured.

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  • 5. 

    The applicant works 2 different jobs. The underwriter will rate him according to which job?

    • The job with the most hours worked each week on average.

    • The job with the highest income.

    • The job the insured is most closely trained for professionally.

    • The job that is most hazardous.

    Correct Answer
    A. The job that is most hazardous.
    Explanation
    Regardless of hours worked or income, the most hazardous job will be used in the rating process.

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  • 6. 

    Which qualified plan is characterized by having a non-deductible contribution and tax-free distribution?

    • Traditional IRA

    • Keogh

    • Roth IRA

    • TSA's

    Correct Answer
    A. Roth IRA
    Explanation
    Contributions to a Roth IRA are not tax deductible. To encourage investing for retirement, Roth IRAs allow for tax-free withdrawal after 5 years and at least age 591/2.

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  • 7. 

    Members of the MIB are required to report

    • Names of patients treated by member physicians.

    • Cause of death when death benefits are paid.

    • Medical conditions found during underwriting.

    • Amounts of life insurance applied for by all applicants.

    Correct Answer
    A. Medical conditions found during underwriting.
    Explanation
    Made up of member insurance companies, the MIB only reports medical impairments found during underwriting; not policy information nor medical record information.

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  • 8. 

    When a client is declined after submitting a prepaid application for life insurance:

    • The insurance company can keep the initial premium paid.

    • The client is still covered for 90 days on the conditional receipt.

    • The insurance company must refund the entire premium paid.

    • The client will pay an increased premium.

    Correct Answer
    A. The insurance company must refund the entire premium paid.
    Explanation
    Declining an application for insurance rescinds the contract, requiring a return of all premiums paid. It is as though the contract never existed.

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  • 9. 

    Which pair are Activities of Daily Living (ADLs)?

    • Hearing $ eating

    • Dressing & seeing

    • Speaking & sleeping

    • Mobility & bathing

    Correct Answer
    A. Mobility & bathing
    Explanation
    ADLs are personal care, nutrition, and health issues such as walking, hygiene, dressing, transferring, and eating. Seeing, hearing, speaking, and sleeping are not used as an evaluation for paying benefits.

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  • 10. 

    Tommy Greene has a CLU certification. Which of th following names would automatically approve for use as his agency's name?

    • Tommy Greene and Associates

    • Thomas Greene, CLU, & Company

    • Greene Insurance Agency

    • None of the would ever be automatically approved

    Correct Answer
    A. None of the would ever be automatically approved
    Explanation
    No name is ever automatically approved for licensee use. There are always procedures and background checks to administer.

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  • 11. 

    E&O coverage

    • Protects an agent in the case of unintentional negligence.

    • Has very low deductibles.

    • Does not protect the agent if the case against him/her is frivolous.

    • Is unlimited.

    Correct Answer
    A. Protects an agent in the case of unintentional negligence.
    Explanation
    One of the main purposes of errors and omission (E&O) coverage is to protect the agent in case of unintentional negligence.

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  • 12. 

    Any person who misappropriates fiuciary funds for personal use is guilty of:

    • Fraud

    • Theft

    • Misreperesentation

    • Pre-texting

    Correct Answer
    A. Theft
    Explanation
    A 'person' with fiduciary responsibilities is an agent. If and agent steals their clients' money, the agent is guilty of theft.

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  • 13. 

    Mrs. Anderson need 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 decides 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?

    • As a life insurance product, future proceeds are tax free.

    • She has a 30 day free look period in case she changes her mind.

    • Since she only has a few more years before she retires, she should invest with the objective tho make as much money as possible. Her time horizon is limited.

    • She will have to begin taking withdrawals within six months of receiving the proceeds.

    Correct Answer
    A. She has a 30 day free look period in case she changes her mind.
    Explanation
    As someone who is 60+, she gets the 30-day free-look period, and should invest cautiously.

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  • 14. 

    A life settlement broker

    • Places property & casualty insurance with non-admitted carriers.

    • Negotiates life settlement contracts between an owner and providers.

    • Sells single premium immediate annuities to seniors.

    • Assists beneficiaries in filing a claim on a life insurance policy.

    Correct Answer
    A. Negotiates life settlement contracts between an owner and providers.
    Explanation
    This is the definition of a life settlement broker.

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  • 15. 

    Which best describes industrial insurance?

    • $2,000 or less in coverage and premiums collected by agent.

    • $10,000 coverage and premiums paid by mail.

    • $50,000 coverage and premiums paid by mail.

    • $100,000 coverage and premiums collected by agent.

    Correct Answer
    A. $2,000 or less in coverage and premiums collected by agent.
    Explanation
    By law, industrial insurance must be paid in person. Since it involves high risk insureds, very low amounts are purchased.

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  • 16. 

    In the insurance planning processes, the blackout period is:

    • The period of time in which a policy can be rescinded due to the applicants intentional or unintentional misstatements on the application.

    • The period of time in which the policy is still in force despite non-payment.

    • The period of time after the youngest child reaches 16, but before the widow reaches 60, in which the surviving spouse receives no Social Security benefits.

    • The period of time in which an employee is not yet eligible to join a group life insurance plan.

    Correct Answer
    A. The period of time after the youngest child reaches 16, but before the widow reaches 60, in which the surviving spouse receives no Social Security benefits.
    Explanation
    The blackout period is a feature of Social Security designating when no benefits will be paid to the surviving spouse of the deceased worker.

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  • 17. 

    The definition of mortality and morbidity:

    • Odds of sickness versus odds of disability.

    • Odds of dying versus the odds of disability.

    • Odds of sickness versus the odds of dying.

    • They are virtually the same concept.

    Correct Answer
    A. Odds of dying versus the odds of disability.
    Explanation
    Mortal related to death, while morbid relates to illness/disability.

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  • 18. 

    The future account value of the annuity Alex purchased is connected to the S&P500 index. What type of annuity did he purchase?

    • Variable annuity

    • Equity-Indexed annuity

    • Deferred annuity

    • Immediate annuity

    Correct Answer
    A. Equity-Indexed annuity
    Explanation
    The S&P 500 is an index made up of the stock of 500 publicly traded companies. Stocks are an 'equity' investment. This type of annuity is indexed to the market so that. as the economy grows, so does the value of the annuity. The money in the account is not invested directly into the 500 stocks.

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  • 19. 

    According to the California Insurance Code, what information is the agent required to include on their business card?

    • Identification of their relationship to the insurance company.

    • License number must appear in the same size font as the phone number.

    • Must not include any title, designations, or licenses that are not currently held.

    • All of the above.

    Correct Answer
    A. All of the above.
    Explanation
    There are many rules related to business cards on full disclosure, clear communications, and proper identification of agent and insurer.

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  • 20. 

    How does the IRS classify the two different types of retirement accounts?

    • Qualified and unfunded

    • Fully funded and non-qualified

    • Qualified and non-qualified

    • Contributory and noncontributory

    Correct Answer
    A. Qualified and non-qualified
    Explanation
    "Qualified" means a plan meets certain IRS guidelines so it receives beneficial tax treatment, such as tax deferred. "Non-Qualified" means it does not meet those guidelines, and therefore doe not receive beneficial tax treatment.

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  • 21. 

    An applicant for an insurance license has had a previous application for a professional license denied for cause within the last five years. The insurance commissioner will:

    • Accept or deny the application after an exploratory hearing.

    • Deny the application without hearing.

    • Accept the application as other licenses have no bearing on this application.

    • Accept the application for a two year provisional license.

    Correct Answer
    A. Deny the application without hearing.
    Explanation
    The loss of a professional license, or the previous denial of an application for a license, within five years of the submission of the current application will result in the application being denied without a hearing.

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  • 22. 

    Roger, who is 35 years old, has a whole life insurance policy with a death benefit of $150,000. At the age of 65 he will no longer make premium payments. When will the cash value of his policy be $150,000?

    • 65

    • 100

    • 35

    • 70

    Correct Answer
    A. 100
    Explanation
    Whole Life, even if a limited payment plan, still matures at age 100.

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  • 23. 

    California rules for annuity sales require all agents to present a specific disclosure document in advance to any senior citizen who is not already a client whenever a sales appointment will be conducted in the person’s home. How far in advance must the prospect receive the written notice?

    • One business day

    • At least 24 hours

    • Prior to entering the home

    • Three calendar days

    Correct Answer
    A. At least 24 hours
    Explanation
    This rule is designed to protect seniors. It is written as “at least 24 hours” in advance of the first meeting in the client’s home.

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  • 24. 

    A client receives a lump-sum inheritance. He'd like to use some of the money to create a lifetime income since he'll be retiring soon. He purchases an annuity and wishes to receive payments beginning in 2 months. What did he buy?

    • Flexible Premium Immediate Annuity

    • Single Premium Deferred Annuity

    • Single Premium Immediate Annuity

    • Flexible Premium Deferred Annuity

    Correct Answer
    A. Single Premium Immediate Annuity
    Explanation
    Any annuitization in 12 months or less from the effective date is an immediate annuity. A single premium annuity involves depositing one premium payment.

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  • 25. 

    Every admitted insurer in California must maintain a unit, or department, responsible for investigating which of the following?

    • Possible arson activity

    • Ratings and claims abuses by the insurers

    • Possible fraudulent claims by the insured

    • Unfair trade practices by the insurer

    Correct Answer
    A. Possible fraudulent claims by the insured
    Explanation
    While every insurer faces possible fraudulent claims, not every insurer deals with arson. The state would investigate insurer abuses such as fraud, not the companies themselves.

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  • 26. 

    The beneficiary chooses to receive the policy proceeds in the form of monthly income at the rate of $3,000 per month, until principal and interest are exhausted. What settlement option did the beneficiary select?

    • Life-only income

    • Interest-only to age 40

    • Fixed period

    • Fixed amount

    Correct Answer
    A. Fixed amount
    Explanation
    Under the fixed amount settlement option the beneficiary receives a stated amount for each benefit payment until the original lump-sum death benefit amount, plus some interest, are paid out. It this case, $3000 a month is the stated amount of the benefit payment.

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  • 27. 

    Which settlement option provides the largest amount per payment to a beneficiary but does not make any payouts to descendants after the beneficiary's death?

    • Life Guaranteed

    • Life with Period Certain

    • Life Income (Straight Life)

    • Life Refund Income

    Correct Answer
    A. Life Income (Straight Life)
    Explanation
    The settlement option that will provide the largest amount per payment but does not provide for any payment to descendants after the beneficiary's death is:
    Life Income (Straight Life)
    Under the Life Income (Straight Life) settlement option, the beneficiary receives regular payments for the rest of their life, but once they pass away, the payments cease, and there is no further payout to beneficiaries or descendants. This option typically provides the highest periodic payment because it is based solely on the beneficiary's life expectancy, with no provision for continuing payments to heirs or beneficiaries.

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  • 28. 

    A universal life policy may be surrendered for its cash value:

    • Only when the cash value equals the death benefit

    • At any time

    • Within 30 days of an interest payment

    • Only if there are no outstanding loans

    Correct Answer
    A. At any time
    Explanation
    With universal life the cash value can always be surrendered. There might be surrender charges in the early years, or a loan to pay off, but any available cash value can always be obtained at any time by surrendering the policy.

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  • 29. 

    An agent follows the rules and terms of his agent contract. He is excersising his _______ authority.

    • Implied

    • Express

    • Apparent

    • Contractual

    Correct Answer
    A. Express
    Explanation
    Express authority is legitimate authority written into a contract.

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  • 30. 

    Per the Code, the best definitions of "shall" and "may" are:

    • Mandatory & optional

    • Permissive & mandatory

    • Mandatory & permissive

    • Mandatory & unknown

    Correct Answer
    A. Mandatory & permissive
    Explanation
    While "shall" means required or mandatory, "may" means permissible or allowed.

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  • 31. 

    Which of the following characteristics would not stop an insurance company from accepting an insurance risk? The item to be insured:

    • Faces high catastrophic loss exposure

    • Is part of a large group of homogeneous exposure units

    • Has a market value difficult to determine

    • Holds no hardship to the owner should it be lost or damaged

    Correct Answer
    A. Is part of a large group of homogeneous exposure units
    Explanation
    Insurance companies prefer insured's that are part of a large group with similar risks so they can understand the scope of the risk, and charge the appropriate premium.

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  • 32. 

    According to the code, any person legally capable of making an insurance policy is considered:

    • An agent

    • A broker

    • An insurer

    • An underwriter

    Correct Answer
    A. An insurer
    Explanation
    Legally, a corporation is a "person". The insurer makes/produces the insurance policies the agents and brokers sell.

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  • 33. 

    Upon the death of a primary breadwinner who is fully insured under Social Security, a dependent child is eligible to receive an income benefit until the age of

    • 18 or 19, if unmarried and a student in elementary or secondary school

    • 18

    • 22 or 23, if unmarried and a college student

    • 19

    Correct Answer
    A. 18 or 19, if unmarried and a student in elementary or secondary school
    Explanation
    Under Social Security the unmarried children of a “fully insured” deceased worker will receive benefits until 18, or 19 if still in elementary or secondary school.

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  • 34. 

    Gloria owns an annuity in which she has invested $5,000 a year for 10 years. She is currently receiving $8,000 annually from her annuity. By the time all of the principal and interest is paid out, Gloria will have been paid $100,000. How much of the annual benefit is taxable?

    • $0

    • $4,000

    • $2,000

    • $900

    Correct Answer
    A. $4,000
    Explanation
    Total invested amount is $50,000; total account value is $100,000. $50,000 divided by $100,000 = ½. ½ of $8,000 is $4000. That means $4000 is excluded from taxation, and $4000 is taxable.

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  • 35. 

    In disability insurance, the period of time between when the disability started and the commencement of benefits is the:

    • Cancellation Period

    • Elimination Period

    • Probationary Period

    • Grace Period

    Correct Answer
    A. Elimination Period
    Explanation
    LTC and disability income policies don't begin to pay out benefits until a certain number of days of illness have elapsed.

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  • 36. 

    Which is a false statement? The California Insurance Commissioner is:

    • Elected by the people of California every four years

    • Selected by the Governor as an appointee

    • Is a representative to the National Association of Insurance Commissioners (NAIC)

    • Capable of becoming the conservator of a financially impaired, or insolvent, insurer

    Correct Answer
    A. Selected by the Governor as an appointee
    Explanation
    The commissioner is no longer appointed by the governor. He/she has various duties and authorities.

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  • 37. 

    How does the incontestability clause benefit the insured?

    • It dictates that if the insured and beneficiary die together, and the order of death is unknown, the beneficiary is presumed to have died first.

    • It protects the death benefit from attachment by creditors after the insured passes away.

    • It keeps the policy from being cancelled if, after two years, it is discovered that there was an error, concealment, or misrepresentation by the policy owner.

    • It keeps the policy from lapsing should the premium go unpaid by borrowing from the cash value.

    Correct Answer
    A. It keeps the policy from being cancelled if, after two years, it is discovered that there was an error, concealment, or misrepresentation by the policy owner.
    Explanation
    The incontestability clause keeps the policy from being cancelled after the insured's death despite the applicant's misdeeds.

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  • 38. 

    All of the following are characteristics of the social insurance program known as Social Security, except:

    • Full retirement age is 65 for all persons born after 1937.

    • Fully insured status can be achieved by paying the FICA tax for forty quarters/credits.

    • Retirement age is based upon the worker's birth year.

    • The worker's full retirement benefits are determined by the PIA.

    Correct Answer
    A. Full retirement age is 65 for all persons born after 1937.
    Explanation
    While 65 is commonly though of as retirement age, the law now states that full retirement age is based upon the worker's year of birth.

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  • 39. 

    Of the following, which best descirbes the difference between life insuracne and annuities?

    • Annuities create an instant estate, while life insurance liquidate an estate.

    • Annuities provide a tax free income in retirement.

    • Life insurance can be funded monthly, while annuities require a lump-sum funding.

    • Life insurance creates an instant estate, while annuities liquidate a sum of money.

    Correct Answer
    A. Life insurance creates an instant estate, while annuities liquidate a sum of money.
    Explanation
    Life insurance replaces the income the insured would have earned if the insured had lived to retirement age. During the annuitant's retirement years, the annuities slowly pay out money the annuitant already owns.

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  • 40. 

    Which of the following statements about a resident life-only agent licensing is incorrect?

    • A licensee has 30 days to update a change in address

    • Licensees are required to have an in-state residential address

    • Loss of a precious professional license could result in the automatic denial of the life-only license application

    • A plea of nolo contendere is considered a conviction, thus it could hinder attempts to obtain a life-only license

    Correct Answer
    A. A licensee has 30 days to update a change in address
    Explanation
    Changes of address must be filed immediately.

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  • 41. 

    Of the following, which is not one of the three major loss exposures faced by insured?

    • Human losses

    • Liability losses

    • Financial losses

    • Property losses

    Correct Answer
    A. Financial losses
    Explanation
    According to the code, financial losses are not one of the 3 major loss exposures.

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  • 42. 

    In a non-contributory group policy:

    • 75% of eligible employees must elect to join the plan.

    • 100% of eligible employees must participate.

    • 75% of employees must elect to join the plan.

    • 100% of employees must be allowed to participate.

    Correct Answer
    A. 100% of eligible employees must participate.
    Explanation
    In a non-contributory plan, the employer pays all of the premium, so they must cover all eligible employees.

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  • 43. 

    Agent Darren offers life insurance for no cost to people buying property in a local development. When the Commissioner investigates his actions, which of the following is not a likely consequence?

    • A civil penalty of up to $5,000 if his actions were not willful and $10,000 fine they were.

    • A cease and desist order will be issued.

    • A hearing will be called.

    • Darren will be charged with a felony and/or up to 10 years in jail.

    Correct Answer
    A. Darren will be charged with a felony and/or up to 10 years in jail.
    Explanation
    Violations of the Unfair Practices Act customarily result in a hearing, a fine, and a cease and desist order.

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  • 44. 

    After the insured passes away, it is discovered that the policy was rated based upon an incorrect age. The client lied about their age when filling out the application 8 years earlier. What effect will this have on the benefit?

    • The policy is incontestable. Full claim will be paid.

    • The policy will be rescinded as it is contestable.

    • The proceeds payable will be adjusted.

    • The shortage of premium will be deducted from the death benefit.

    Correct Answer
    A. The proceeds payable will be adjusted.
    Explanation
    When the age is misstated on the application, the death benefit paid will be adjusted to reflect the correct age.

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  • 45. 

    The term aleatory is best defined by which of the following?

    • Unequal exchange in value.

    • Only one party to the contract is bound by a legally enforceable obligation.

    • If in dispute, the courts rule in favor of the insured, not the insurer.

    • Both parties to the contract are required to disclose to the other all material information.

    Correct Answer
    A. Unequal exchange in value.
    Explanation
    Insurance is designed so that those who don't make claims help pay for those who do make claims. Thus, it is possible that a policyholder could pay a small amount of premium before the insured dies, and the beneficiary would receive a large death benefit.

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  • 46. 

    The entire contract can include many components. Which of the following cannot be a part of the entire contract.

    • Any riders

    • Any document referenced by the policy

    • The policy

    • A copy of the application

    Correct Answer
    A. Any document referenced by the policy
    Explanation
    The entire contract cannot reference any "outside" documents.

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  • 47. 

    When a policy continues because of a payor benefit clause, it means

    • The insurer pays monthly disability income to the premium payor.

    • The insured is only covered to age 18, then the policy expires.

    • The owner of the policy is disabled or has died.

    • At age 21 or 25, the death benefit is reduced by up to 50%.

    Correct Answer
    A. The owner of the policy is disabled or has died.
    Explanation
    A payor benefit is a feature of a juvenile policy. If the parent/guardian (owner) dies or becomes disabled, the premium is waived until the child reaches adulthood. The child’s
    policy will continue in force during the waiver period.

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  • 48. 

    What is the usual federal income tax treatment of individual life insurance?

    • Deductibility of premiums, taxable death benefits

    • Non-deductibility of premiums, non-taxable death benefits

    • Deductibility of premiums, non-taxable death benefits

    • Non-deductibility of premiums, taxable death benefits

    Correct Answer
    A. Non-deductibility of premiums, non-taxable death benefits
    Explanation
    Because premiums are a non-deductible expense, death benefits are tax-free to the beneficiary. In a sense, the money has already been taxed when first earned and before the premium was paid.

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  • 49. 

    All of the following statements about mutual insurance companies are correct, except:

    • If a mutual company goes public, it demutualizes

    • Mutual companies issue policies referred to as participating

    • Policy dividends issued by mutual companies are guaranteed and not taxable

    • Dividends allow policyholders to share in a mutual companies divisible surplus

    Correct Answer
    A. Policy dividends issued by mutual companies are guaranteed and not taxable
    Explanation
    Insurance policy dividends are not guaranteed and are not taxable.

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  • Oct 10, 2023
    Quiz Edited by
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  • Oct 07, 2012
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