California Life Insurance Practice Exam

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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

About This Quiz

Practice examination for Life Insurance Licensing in California. Combines exams A, B, and C with 125 questions.

Quiz Preview

2.

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)
Correct Answer

A. Mortgage redemption (decreasing term/mortgage protection)

Explanation

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.

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3.

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.
Correct Answer

A. Sign a consent form

Explanation

Physicians require the patient’s written authorization to release patient information.

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4.

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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5.

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?
- Split Dollar Plan
- Executive Bonus 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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6.

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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7.

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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1
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.

At what age does Social Security Medicare program Part B start providing benefits?
- 67
- 65
- 62
- 60
Correct Answer

A. 65

Explanation

Medicare Part B provides medical expense coverage to those 65 and older.

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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.

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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12.

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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13.

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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14.

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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1
15.

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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16.

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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17.

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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18.

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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19.

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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20.

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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21.

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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1
22.

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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23.

A beneficiary decides to take the option that will the largest amount per payment, knowing after death no monies will be paid out to any descendants. The settlement option is:
- Life Guaranteed
- Life with Period Certain
- Life Income (Straight Life)
- Life Refund Income
Correct Answer

A. Life Income (Straight Life)

Explanation

The life income settlement option pays the beneficiary an income until they die. Since no further payments will be made to their survivors, the insurer can afford to pay them a larger income versus the other options given.

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24.

According to the CIC, life-only agents must keep records of their transactions for:
- 7 years
- 5 years
- 3 years
- 12 months
Correct Answer

A. 5 years

Explanation

Agent records must be kept for 5 years.

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25.

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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26.

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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27.

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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28.

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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29.

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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30.

For an insurance contract, utmost good faith means:
- Each party is equally responsible for the value of the policy.
- The contract just involves the policy owner and the insurer.
- Each party relies upon the truthfulness of the other.
- The policy owner will be indemnified in case of loss.
Correct Answer

A. Each party relies upon the truthfulness of the other.

Explanation

The policy owner will be indemnified in case of loss.

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31.

In insurance, the agents have authorization to represent the company. The producers may exercise this relationship through:
- Domestic authority, foreign authority and alien authority.
- Underwriting department, actuarial department and claims department.
- Reciprocal authority, risk retention and reinsurance.
- Express authority, implied authority and apparent authority.
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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32.

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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33.

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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34.

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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35.

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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36.

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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37.

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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38.

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
- 18
- 22 or 23, if unmarried and a college student
- 19
Correct Answer

A. 18 or 19, if unmarried and a student

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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0
39.

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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40.

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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41.

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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42.

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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43.

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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44.

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?
- The client is covered during underwriting.
- The agent faces potential suspension or revocation of their license.
- The client is not covered during underwriting since binders only start once underwriting is complete.
- Since the medical exam hasn't been completed yet, the client is not covered at all.
Correct Answer

A. The agent faces potential suspension or revocation of their license.

Explanation

Binding receipt gives immediate coverage in the field of property insurance. Issuing a binding receipt to a life client could result in license suspension for jeopardizing and misleading the client. Life only agents do not have authority to issue binding receipts.

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45.

Which of the following would not be considered a speculative risk?
- Every week your client plays $20 on the lotto.
- Any action that could do harm to your clients well-being such as reckless driving.
- Your client invest 5% of his salary into the defined benefit plan at his work.
- All of the above situations involve some risk.
Correct Answer

A. Any action that could do harm to your clients well-being such as reckless driving.

Explanation

Any situation that could result in harm, but no chance for financial gain, is a pure risk, not a speculative risk.

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46.

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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47.

Pete, who is 35 years old, has a life insurance policy with a death benefit of $150,000. At the age of 65 the cash value of his policy will be $150,000. What policy does he have?
- Whole Life
- An Endowment to the age of 65
- Life Paid-up at 65
- A 30-Year Term Plan
Correct Answer

A. An Endowment to the age of 65

Explanation

Policy that matures at any age earlier than 100 is an endowment.

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48.

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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49.

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?
- Single Premium Immediate Annuity
- Flexible Premium Deferred Annuity
- Flexible Premium Immediate Annuity
- Single 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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California Life Insurance Practice Exam

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

Quiz Preview

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?

To authorize the release of an attending physician’s report, the applicant must:

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

Which best describes industrial insurance?

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:

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

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

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

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

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

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

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

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

Members of the MIB are required to report

E&O coverage

Which pair are Activities of Daily Living (ADLs)?

The Commissioner can deny an applicant for a license after a hearing:

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

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 beneficiary decides to take the option that will the largest amount per payment, knowing after death no monies will be paid out to any descendants. The settlement option is:

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

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

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

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

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

Which of the following transactions would most likely be declined due to lack of insurable interest?

For an insurance contract, utmost good faith means:

In insurance, the agents have authorization to represent the company. The producers may exercise this relationship through:

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?

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

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?

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?

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

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:

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

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

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?

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

In the insurance planning processes, the blackout period is:

Which of the following is not a personal use of life insurance?

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?

Which of the following would not be considered a speculative risk?

In a non-contributory group policy:

Pete, who is 35 years old, has a life insurance policy with a death benefit of $150,000. At the age of 65 the cash value of his policy will be $150,000. What policy does he have?

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?

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?