California Life Insurance Practice Exam A

Mortgage redemption insurance, structured as decreasing term life insurance, is designed to pay off a debt as it amortizes. The decreasing death benefit pays just enough to cover the balance should pre-mature death occur.

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.

The accelerated death benefit, or living need rider, pays a portion of the death benefit before death is the insured has a terminal illness.

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.

Declining an application for insurance rescinds the contract, requiring a return of all premiums paid. It is as though the contract never existed.

Regardless of hours worked or income, the most hazardous job will be used in the rating process.

Made up of member insurance companies, the MIB only reports medical impairments found during underwriting; not policy information nor medical record information.

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.

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.

One of the main purposes of errors and omission (E&O) coverage is to protect the agent in case of unintentional negligence.

No name is ever automatically approved for licensee use. There are always procedures and background checks to administer.

This is the definition of a life settlement broker.

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

As someone who is 60+, she gets the 30-day free-look period, and should invest cautiously.

The blackout period is a feature of Social Security designating when no benefits will be paid to the surviving spouse of the deceased worker.

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.

By law, industrial insurance must be paid in person. Since it involves high risk insureds, very low amounts are purchased.

Mortal related to death, while morbid relates to illness/disability.

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.

There are many rules related to business cards on full disclosure, clear communications, and proper identification of agent and insurer.

"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.

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.

Whole Life, even if a limited payment plan, still matures at age 100.

Any annuitization in 12 months or less from the effective date is an immediate annuity. A single premium annuity involves depositing one premium payment.

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.

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.

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.

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.

While "shall" means required or mandatory, "may" means permissible or allowed.

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.

The commissioner is no longer appointed by the governor. He/she has various duties and authorities.

Express authority is legitimate authority written into a contract.

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

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.

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.

The incontestability clause keeps the policy from being cancelled after the insured's death despite the applicant's misdeeds.

LTC and disability income policies don't begin to pay out benefits until a certain number of days of illness have elapsed.

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.

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.

When the age is misstated on the application, the death benefit paid will be adjusted to reflect the correct age.

Changes of address must be filed immediately.

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.

The entire contract cannot reference any "outside" documents.

In a non-contributory plan, the employer pays all of the premium, so they must cover all eligible employees.

According to the code, financial losses are not one of the 3 major loss exposures.

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.

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.

Violations of the Unfair Practices Act customarily result in a hearing, a fine, and a cease and desist order.

Insurance policy dividends are not guaranteed and are not taxable.

Any universal policy is characterized by a flexible premium. Any variable product is characterized by the use of separate accounts.