Life Insurance Practice Exam C

An inactive license is a valid license. However, the agent does not have a current appointment on file with the commissioner. The agent does not have an insurer that they are authorized to work for or represent and thus cannot transact any insurance business until they do get an appointment from an insurer.

The underwriter’s primary purpose is to evaluate risk to determine which applicants to insure and what coverage to offer (selection). It is the underwriter’s responsibility to protect the insurer against adverse selection (too many high risks on the books) by eliminating the highest risks.

Whole life policies mature or endow at age 100. If the insured has not died by that age they are guaranteed the face amount of the policy (minus any outstanding policy loans).

Failing to answer a client’s question directly and promptly would be considered unethical behavior by most standards.

The answers on a life insurance application are contestable by the insurer for two years. After that, the application becomes incontestable and it doesn’t matter what the company finds, including fraud, they are stuck with the contract. This does not apply to a misstatement of age or sex where the benefit may be adjusted accordingly.

An annuity, issued by an insurance company, is the only investment in the world that can guarantee a life-time income no matter how long the annuitant lives. Therefore, an annuity would protect a person from the risk of outliving all of their financial resources.

Using nationality would be an unfair discrimination.

The policy is the written agreement which puts the insurance coverage into effect.

A mutual insurer raises capital to operate on by selling policies and collecting premiums. Policy owners have voting rights. When the board of directors votes for a policy dividend distribution it is paid to the policy owners.

The business is indemnified for the loss of business earnings that the key employee would have brought in until the business can hire and train a replacement.

Term life insurance is pure protection. It is the least expensive form of ordinary life insurance. It has the lowest cost-to-benefit ratio.

There is only one Master Policy and it is held by the head of the sponsoring group. Each eligible group member covered by the plan must be provided with a Certificate of Insurance / Coverage.

Social Security has, as one of its four main components, a disability income section for long term disability.

Sometimes called the eligibility period, the enrollment period is the time for employees to enroll without having to provide evidence of insurability.

Premium is calculated on an annualized basis. The more payments (semiannual, quarterly, monthly) the premium is broken into the more expensive for the year. One annual payment allows the insurer to work with all of the money up front and cuts down on their expenses.

It would not be good advice to tell Larry to surrender his policy for the full amount of cash value and then purchase other insurance. First, he doesn’t need the full amount and secondly he will be older and his insurability may have changed. By taking a policy loan and paying it back he will ultimately maintain the full face amount of coverage and the full cash value will be restored.

The Law of Large Numbers or the law of averages make it easier and more accurate to predict group losses and to, therefore, set the appropriate amount of premium to cover the risk and help ensure that the company will be profitable.

There is only one actual contract and that is referred to as the Master Policy. The group members covered by the plan are issued Certificates of Insurance. The head of the sponsoring group is the Master Policyholder and is the responsible party to the contract.

Of the three, only an annuity would be considered a savings or investment vehicle.

A fiduciary is a person acting in a position of trust. For example, they may have been trusted with the funds or property of another person (handling premium for the insurance company).

The investor would have had to pay taxes annually on the C.D. These tax dollars, paid out of the C.D., would have decrease the compounding effect on the C.D. over the years.

All insurers must maintain a “separate account” for their variable products. During the accumulation phase of a variable annuity, premium payments purchase “accumulation units.”

The policy owner has the right to name the beneficiary and may do so without their knowledge. The beneficiary, as the beneficiary, is not a party to the contract and therefore does not sign or initial anything.

These are all frequently found in life insurance policies.

This option stresses that the beneficiary will receive a defined / set amount of money monthly until all funds are exhausted or depleted. Since it doesn’t define the length of time it can’t be fixed period, or life income.

According to the CIC this is a description of a replacement transaction.

This is a type of an insurance protection on an insurance policy. WP results in the insurance company giving up their right to premium payments during the period of the disability. The policy remains in force, in all respects, until the insured is no longer disabled or they die.

Vesting is defined as the ownership one has in the monies in their retirement plan.

This is true according to current federal tax laws.

While the Commissioner must be elected by the people, replacements are appointed by the Governor to fill out the remainder of the term, if there is a vacancy.

The system will shortly begin paying out more than it’s collecting in taxes.

CIC (Sec. 382.5), in part, says “For purposes of this section, ‘binder’ does not include . . . life or disability insurance.” A binder is deemed to be an insurance policy to show proof of coverage and may be issued by P&C agents with the approval of their insurer.

Life insurance is sold on a per thousand dollars per year basis. One exposure unit is $1,000 of life insurance coverage. So, the rate times the number of exposure units (or increments of $1,000) equal the annualized premium.

Currently, no part of the face amount of a life insurance settlement is taxable when paid to a natural person. Only interest earned, if any, would be taxable as income.

Having a California business address is not a prerequisite qualification for holding a license. For example, an individual could apply independently and not be sponsored by an insurance company, or an agent who is licensed and lives in another state and they apply for the California non-resident license.

The contingent would not share the death benefits with the primary as they only receive them if the primary dies before the insured dies.

Replacement laws were passed to protect the consuming public and not insurance companies and their agents.

The Cost of Living (COLA) rider is used to keep pace with inflation. The amount of increase is tied to an increase in an inflation index, such as the Consumer Price Index (CPI).

The MIB was set up by and for the use of life and disability insurers and their subscriber or membership fees pay for its operation.

The waiver of premium provision exempts the owner from paying any of the premium once the rider is triggered (usually after six months).

Per capita, or per “heads,” by definition provides for the survivor(s) to share equally the deceased beneficiary’s portion.

The additional premium is used only to compensate the insurer for the added risk of the rider.

This is a code provision allowing the agent to continue running their business while the department processes and mails out the new license.

If the person facing the loss exposure decides to retain the risk themselves and not buy insurance, to not know the probability of loss could be financially disastrous.

Ordinary is the same as “individual” insurance. Term, whole life, and endowments may be purchased on an individual basis. Group life is always issued on a group (not individual) basis.

The policyowner has the right to pre-select the settlement option, if they so desire. Otherwise, it will be left to the beneficiary. However, once the choice is made and the insurer makes payment the option cannot be changed with the exception of the “interest only” option.

The corporation ceases to exist, it has permanently dissolved and, therefore, loses its ability as a person to hold a license.

A representation may be altered or withdrawn before the insurance goes into effect, but not afterwards.

Contributory group plans must be voluntary because the participating group members must pay for all or a part of the premiums.

All rights of ownership have been totally and permanently assigned, transferred or given to the Viatical settlement company. It has been an absolute assignment.