Test A

Question 1

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

Answer 1

Elimination Period

( LTC & disability income policies don’t begin to pay out benefits until a certain number of days of illness have elapsed.)

Question 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 be insured is part of a large group of homogeneous units.
C. The item to be insured has a market value difficult to be determine.
D. The item to be insured holds no hardship to the owner should it be lost or damaged.

Answer 2

B. The Item to be insured is part of a large group of homogenous exposure units.

(insurance companies prefer insurers that are a part of a large group w/ similar risks so they can understand the scope of the risk,& charge the appropriate premium)

Question 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 have policies referred to as participating
C. Policy dividends issued by mutual companies are guaranteed & not taxable
D. Dividends allow policyholders to share In mutual company’s dividends

Answer 3

C. Policy dividends issued by Mutual companies are guaranteed & not taxable

Question 4

In a 7 year vesting schedule, what percentage of employer contributions in vested after 7 years?

Answer 4

100%

(If employment terminates, the employee owns 100% of the employer’s contributions after 7 yrs. They earn 20% each yr. for 3 yrs -7. Employee contributions are immediately vested.)

Question 5

Which is a false statement?
The California commissioner is:

A. Elected by the people of CA every 4 years
B. Selected by the Governor as an appointee
C. Is a national representative of the NAIC
D. Capable of becoming the conservator of a financially impaired, or insolvent, insurer

Answer 5

B. Selected by the Governor as an appointee

The commissioner is no longer appointed by the Governor

Question 6

Which statement about life insurance code and ethics is not true?

A. Marketing plans to offer free insurance as an inducement to buy or or rent real property are prohibited.
B. Acts of fair & 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 3 yrs.

Answer 6

B. Acts of fair & unfair discrimination are prohibited.

Question 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 in-state residential address.
C. Loss of a previous professional license could result in automatic denial of life-only license applications.
D. A plea of nolo contendere is considered a conviction, thus .it could hinder attempts to obtain a life-only license.

Answer 7

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

Change of address must be filed immediately!

Question 8

Tommy Greene has a CLU certification which of the following names would be automatically approved for use as his agency’s name?

A. Tommy Greene & Associates
B. Thomas Greene, CLU & Company
C. Greene insurance agency
D. None of these would be automatically approved.

Answer 8

D. None of these would be automatically approved.

Question 9

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

Answer 9

Express Authority

Legitimate authority in a contract

Question 10

Any person who misappropriate fiduciary funds for personal use is guilty of:

Answer 10

Theft

Question 11

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

Answer 11

An insurer

marker/producer of insurance policies

Question 12

Mrs. Anderson needs to invest the proceeds from her late husband’s life insurance. She invests a portion of the morning into an annuity. Since she is 62’ & 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?

Answer 12

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

Question 13

In a non-contributory group policy:

Answer 13

100% of eligible employees must participate

Question 14

An employee has lost access to their group plan, but they are allowed to convert ,to a new plan. Which abets 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.

Answer 14

D. The new policy will be cash value. The employee pays all the premiums.

Question 15

Bob & 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 of most suited for transitioning the business during this time of loss?

Answer 15

Buy-Sell agreement

Question 16

Rank the following items from lowest to highest, the amounts of monthly income that would result for the following annuity settlement options:

Straight life
Life with refund option
Life with 10 yrs certain

Answer 16

Life with refund option, life with ten years certain, straight life

Question 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

Answer 17

A. Interest only option

Question 18

Which best describes industrial insurance?

A. $2k or less in coverage & premiums collected by agent
B. $10k coverage & premiums paid by mail
C. $50k coverage & premiums paid by mail
D. $100k coverage & premiums collected by agent

Answer 18

A. $2k or less in coverage & premiums collected by agent

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

Question 19

A clients flexible premium is invested into a separate account. What type of insurance product did he purchase?

Answer 19

Variable Universal Life

(Any universal policy is characterized by flexible premium. Any variable product is characterized by use of separate accounts.)

Question 20

Which rider pays a multiple of the original face amount?

Answer 20

Accidental death benefit

also known as “double indemnity” accident riders pay a larger death benefit if death is due to accidental means.

Question 21

A life-only agent issues a binding receipt to his client since the client did include a check for the initial premium w/his completed application. Which statement 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 medical exam hasn’t been completed yet, the client is not covered at all.

Answer 21

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

(Life-only agents do not have authority to issue binding receipts.)

Question 22

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

A. Every week you client plays $20 on the lotto.
B. Any action that could do harm to your clients well-being such as reckless driving.
C. Your client invests 5% of his salary into a defined benefit plan at his work place.
D. All of the above situations involve some risk.

Answer 22

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

(there is no chance for financial gain in a “pure risk” situation)

Question 23

According to the CA insurance code,what information is the agent required to include on their business card?

Answer 23

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

Question 24

How does the IRS classify the 2 different types of retirement accounts?

Answer 24

C. Qualified & non-qualified

Question 25

An insured has a terminal illness & needs access to 1/3 of. His death benefit to pay mounting medical expenses. Which rider would meet the insured’s current needs?

Answer 25

Accelerated (Living) Benefit

Question 26

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

Answer 26

Life income (straight life)

Question 27

After 12 yrs. the policy-owner decides she no longer needs the large death benefit on her whole life policy. She calls you, her agent & you tell her she can use the reduced paid-up non-forfeiture option. What is not true about her new policy?

Answer 27

The new policy will expire in ten years.

(The policy will still be a whole life policy. It will mature at age 100
Like the original policy and will have lower death benefit than the original.)

Question 28

What qualified plan is characterized by having a non-deductible contribution & tax-free distributions?

Answer 28

Roth IRA

Question 29

Which of the following statements about the process of replacement is incorrect?

Answer 29

Copies of any written comparisons used in the process of making the replacement do not need to be included w/the submitted application.

Question 30

Members of the MIB are required to report:

Answer 30

Medical conditions found during underwriting

Question 31

What is not true about survivorship life?

Answer 31

The face amount is payable after the first death

(survivorship life, is also referred to as “second-to-die” joint life, pays the death benefit only after the second insured dies.)

Question 32

What is true in contrasting stock insures w/mutual insurers?

Answer 32

Stock insurers are owned by the shareholders, & issue non-participating policies

Question 33

An applicant for an insurance license has had previous application for a professional license denied for cause within the last 5 years. The insurance commissioner wil:

Answer 33

Deny the application without a hearing

Question 34

In order to be financially solvent, an insurer must accomplish all the following, except:

A. Reinsure any risk in excess of state retention limits
B. Posses enough assets to cover liabilities
C. Maintain an amount at least equal to its required minimum paid-in capital.
D. Contribute a specific amount of capital reserves
To the state

Answer 34

D. Contribute a specific amount of capital reserves to the state.

Question 35

Pete is 35 yrs old, has a life insurance policy w/a death benefit of $150k. At the age of 65 the cash values of his policy will be $150k
What type of policy does he have?

Answer 35

An endowment to the age of 65

Question 36

A life settlement broker:

Answer 36

Negotiates life settlement contracts between an owner and providers

Question 37

E&O coverage:

Answer 37

Protects an agent incase of unintentional negligence.

Question 38

Candee owns a participating whole life policy & uses her policy dividends to buy more of the same type of coverage for herself. Candee has chosen the:

Answer 38

Paid-up additions option

Question 39

What is not likely to happen w/a return of premium policy?

Answer 39

The total premium paid is returned to the insured when the policy is cancelled

Question 40

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

Answer 40

Single Premium, Immediate Annuity.

Question 41

The future account value of the annuity Alex purchased is connected to S&P 500 index. What type of annuity did he purchase?

Answer 41

Equity-indexed annuity

Question 42

Which of the following can be written as a group policy?

Answer 42

Credit Life

Question 43

Every admitted insurer in CA must maintain a unit, or department, responsible for investigating:

Answer 43

Possible fraudulent claims by insureds

Question 44

What is not one of the 3 major loss exposures faced by insureds?

Answer 44

Financial losses

Question 45

What is an accurate description of life insurance policy dividends?

Answer 45

They are not taxable and are not guaranteed.

Question 46

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:

Answer 46

18 or 19, if unmarried & a student in elementary school or secondary school.

Question 47

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

Answer 47

Non-deductibility of premiums, non-taxable death benefits

Question 48

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

Answer 48

At any time

Question 49

California rules for annuity sales requires 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?

Answer 49

At least 24 hrs.

Question 50

Gloria owns an annuity in which she has invested $5k a yr for 10 yrs. she is currently receiving $8k annually from her annuity. By the time all the principal & interest is paid out, Gloria has been paid $100k. How much of the annual benefit is taxable?

Answer 50

$4000

(total investment is $50k; total account value is $100k. $50k dividend by $100k= 1/2. 1/2 of $8k is $4k. That means $ 4k is excluded from taxation, and $4k is taxable.)