Exam

Question 1

An agent’s attempt to stop the replacement of an existing life insurance policy is known as

Answer 1

Conservation

Conservation is when an insurance agent tries to stop a customer from switching to a new insurance policy when they already have one that works well.

Question 2

Life insurance surplus must be distributed to policyowners at what frequency?

Answer 2

Annually

Surplus is the extra money the insurance company makes, and they usually return it to the policyholders once a year.

Question 3

Paul has an existing annuity and is sold a new one, in which the new policy holds no greater financial benefit to him than the existing contract. This is considered a(n)

Answer 3

Unnecessary replacement

This is when Paul buys a new annuity, but the new one doesn’t offer any better benefits than the one he already has.

Question 4

The California Insurance Code allows an individual how many days to cancel a life policy for a full-refund?

Answer 4

Between 10 and 30 days

In California, you have between 10 to 30 days to cancel your life insurance policy and get a full refund.

Question 5

According to the California code governing claim settlement practices, which of the following is NOT considered to be an act of unfair discrimination?

Answer 5

Denial of a claim based on reckless behavior

If someone is reckless, like driving drunk, and gets injured, it’s fair for the insurance company to deny the claim.

Question 6

The free-look period for life insurance policyowners age 60 or older is

Answer 6

30 days

People 60 or older have 30 days to cancel their life insurance policy and get a full refund if they change their mind.

Question 7

What does the term ‘illustration’ mean when used in the phrase ‘life insurance policy illustration’, according to the California Insurance Code?

Answer 7

Presentation of policy features that includes non-guaranteed elements

An illustration shows how the policy might perform, including things like dividends, but it also includes projections that aren’t guaranteed.

Question 8

What prevents a life insurance policy from being rescinded by the insurer after being in force for two years?

Answer 8

Incontestability clause

After two years, the insurance company can’t cancel or deny a claim, even if they find out you misrepresented something on the application.

Question 9

Which of the following does NOT have to be included on life insurance policy illustrations?

Answer 9

Statement that all values and benefits are guaranteed

The illustration can’t guarantee anything, but it must show the potential benefits and features of the policy, which are not guaranteed.

Question 10

Who does a life settlement broker represent?

Answer 10

Individual wanting to sell their life policy to a third party

A life settlement broker helps someone sell their life insurance policy to someone else, usually for a lump sum of money.

Question 11

All of these are reasons the Commissioner may disapprove a licensee’s request to use a fictitious name EXCEPT

Answer 11

The name is the licensee’s actual name

If the licensee uses their actual name, there’s no issue. But if the name suggests the agent is an insurance company or could mislead the public, it might get disapproved.

Question 12

Why is a life insurance policy’s delivery date important?

Answer 12

The free-look period begins on the policy delivery date

The delivery date starts the clock on your 10-30 day free-look period, where you can cancel the policy for a full refund.

Question 13

An agent has advertised that the insurer to which the agent is appointed with is a member of the Insurance Guarantee Association. This agent has committed a(n)

Answer 13

Unauthorized trade practice

This is misleading advertising. The agent cannot claim that the insurer is a member of the Insurance Guarantee Association unless it’s true.

Question 14

Anyone employed in California to assist an insurance agent in transacting insurance is called an insurance

Answer 14

Solicitor

A solicitor helps the agent by selling or assisting with insurance policies but doesn’t have full responsibility for managing the transactions.

Question 15

Failure to report background changes within 30 days as required under section 1729.2 of the California insurance code could subject a license or applicant to

Answer 15

All of these

If you don’t report changes like a criminal conviction or other significant events within 30 days, you could face penalties such as suspension, fines, or denial of your license.

Question 16

Jim is applying to become an insurance agent and has a past misdemeanor conviction that was later expunged due to California Penal Code 1203.4. Which of the following statements is correct?

Answer 16

Jim is not required to disclose the conviction on his insurance license application

If a conviction has been expunged, it’s like it never happened. Jim doesn’t need to mention it.

Question 17

Pete is a life agent who has misappropriated fiduciary funds to his own use. What is Pete guilty of?

Answer 17

Fiduciary misappropriation

A fiduciary is someone trusted with other people’s money. If Pete takes that money for himself, it’s called fiduciary misappropriation.

Question 18

The California Insurance Code requires that an insurer must have enough assets to cover its liabilities and for reinsurance of all outstanding risks. To remain solvent, it must also possess additional assets equal to what amount?

Answer 18

$10,000,000

To remain financially healthy, the insurance company must have enough extra assets (minimum $10 million) to cover future claims and risks.

Question 19

What does the term ‘indemnity’ mean as it pertains to insurance?

Answer 19

To make whole

Indemnity means to restore someone to the position they were in before the loss happened. It’s about making up for what was lost, not giving a profit.

Question 20

What is an ‘insurance broker’ according to California Insurance Code?

Answer 20

A person compensated for transacting insurance on behalf of another person with an insurer

A broker helps clients find and buy insurance from companies, earning a commission for doing so.

Question 21

What is an insurance solicitor authorized to do?

Answer 21

Help an agent or broker sell insurance

A solicitor assists in the sale of insurance policies but doesn’t make full decisions on them.

Question 22

What type of license is required for an individual who charges a fee to review an insured’s existing life insurance policy?

Answer 22

Life and disability counselor

A life and disability counselor gives advice about insurance policies and can charge fees for reviewing policies.

Question 23

When handling premiums for an insured, an agent is acting in which capacity?

Answer 23

Fiduciary

As a fiduciary, the agent is trusted to handle the client’s money responsibly and ethically.

Question 24

When intentional concealment is involved, what course of action is the injured party entitled to

Answer 24

Rescind the contract

This action allows the injured party to void the contract due to the concealment of material facts.

Question 25

What is the responsibility of a client handler regarding money?

Answer 25

To handle the client’s money responsibly and ethically ## Footnote Think of it as being a trusted friend who borrows money from you and is expected to pay it back on time.

Question 26

What action is the injured party entitled to when intentional concealment is involved?

Answer 26

Rescission of the contract ## Footnote If someone lies about their medical history to get a lower premium, the insurer could cancel the contract after discovering the truth.

Question 27

Which of the following is NOT a primary objective of insurance regulation?

Answer 27

Interpret policy provisions ## Footnote Insurance regulation focuses on ensuring fairness and protection for policyholders, not interpreting specific provisions of policies.

Question 28

What type of annuity guarantees a stated number of income payments?

Answer 28

Life annuity certain ## Footnote This type of annuity guarantees a certain number of payments, even if the annuitant dies before receiving all payments.

Question 29

What type of annuity stops all payments upon the death of the annuitant?

Answer 29

Life annuity ## Footnote A life annuity stops payments when the annuitant dies.

Question 30

Which statement about the annuitant is CORRECT?

Answer 30

The annuitant's life expectancy determines the annuity payments ## Footnote The longer someone is expected to live, the smaller the payments will be.

Question 31

What type of annuity returns to a beneficiary the difference between the annuity value and the income payments already made?

Answer 31

Refund annuity ## Footnote If the annuitant dies early, the remaining balance will go to the beneficiary.

Question 32

Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?

Answer 32

Life income ## Footnote Life income options provide a set payment for the annuitant’s lifetime but do not leave any money to the beneficiary if the annuitant dies.

Question 33

What phase is an annuity in when it is currently experiencing tax-deferred growth?

Answer 33

Accumulation period ## Footnote The accumulation period is the time when the annuity grows, and taxes aren’t due until distribution begins.

Question 34

What is the insurer's ability to make unpredictable payouts to policyowners called?

Answer 34

Liquidity ## Footnote Liquidity refers to how easily and quickly an insurer can pay claims when needed.

Question 35

Under a group life policy, what document is issued to each person insured?

Answer 35

Certificate ## Footnote A certificate is a document given to each individual covered by a group insurance policy, outlining their coverage details.

Question 36

What is the element in an insurance contract that shows each party is giving something of value?

Answer 36

Consideration ## Footnote Consideration is the exchange of value between parties in a contract.

Question 37

How are annuities given favorable tax treatment?

Answer 37

Gains are taxed at distribution ## Footnote In an annuity, you don’t pay taxes on the growth until you withdraw the funds.

Question 38

What is the maximum penalty under the Fair Credit Reporting Act for obtaining Consumer Information Reports under false pretenses?

Answer 38

$5,000 ## Footnote This penalty applies to serious violations like fraud.

Question 39

What is the least expensive option to pay off a 30-year mortgage balance?

Answer 39

Decreasing term life ## Footnote This policy decreases the death benefit over time, making it cheaper for the policyholder.

Question 40

What type of life insurance policy is subject to a contract interest rate?

Answer 40

Universal life ## Footnote Universal life insurance offers flexible premiums and is based on a contract interest rate.

Question 41

What is the primary use of an annuity?

Answer 41

Retirement income ## Footnote An annuity is primarily used to provide a steady stream of income after retirement.

Question 42

What type of multiple protection coverage pays on the death of the last person?

Answer 42

Survivorship life policy ## Footnote A survivorship life policy pays out after both people have died.

Question 43

What right does an employee under a group insurance policy have upon termination of employment?

Answer 43

Convert to an individual policy in the event of employment termination ## Footnote Employees have the right to convert their coverage to an individual policy if they leave the company.

Question 44

What type of authority is given to an individual producer that is not specifically addressed in their contract?

Answer 44

Implied ## Footnote Implied authority allows the agent to perform actions that are reasonably necessary to carry out their duties.

Question 45

How is the taxable portion of each annuity payment calculated?

Answer 45

Exclusion Ratio ## Footnote The Exclusion Ratio is used to determine how much of an annuity payment is taxable.

Question 46

What is a single premium cash value policy?

Answer 46

A policy that is paid up after only one payment ## Footnote A single premium cash value policy is a life insurance policy where you pay the entire premium in one lump sum.

Question 47

What will the beneficiary receive if an annuitant dies during the accumulation period?

Answer 47

The greater of the accumulated cash value or the total premium paid ## Footnote If the annuity has grown to a certain amount, the beneficiary would get the higher value.

Question 48

What is the advantage of adding a children's term rider to a life insurance policy?

Answer 48

Can be

Question 49

What amount would the beneficiary receive if the policy has no cash value or premiums paid?

Answer 49

$30,000

Question 50

What is an advantage of adding a children's term rider to a life insurance policy?

Answer 50

Can be converted to permanent coverage without evidence of insurability

Question 51

What kind of rider allows a spouse and child to be added to the primary insured's coverage?

Answer 51

Family term

Question 52

Which of the following is NOT a settlement option for life insurance policies?

Answer 52

Life income annuity

Question 53

What does level premium permanent insurance accumulate over time?

Answer 53

Equal the face amount of the policy

Question 54

Which entity regulates an insurer's claim settlement practices?

Answer 54

State insurance departments

Question 55

Naming a contingent beneficiary as 'all surviving children' is an example of what?

Answer 55

Class designation

Question 56

Who is responsible for assembling the policy forms for insureds?

Answer 56

Insurance carriers

Question 57

What type of policy invests 80% to 90% of the premium in traditional fixed income securities?

Answer 57

Equity index whole life

Question 58

If Shirley has a 10-year non-renewable level term life policy and dies after 15 years, how much will her beneficiary receive?

Answer 58

Nothing

Question 59

What is the period when the accumulated value in an annuity is paid out called?

Answer 59

Annuitization phase

Question 60

What is a corridor in relation to a Universal Life insurance policy?

Answer 60

The gap between the total death benefit and the policy's cash value

Question 61

What is the nonforfeiture value of an annuity before annuitization?

Answer 61

All premiums paid, plus interest, minus any withdrawals and surrender charges

Question 62

Which type of insurance policy does NOT build cash value?

Answer 62

Term

Question 63

When the principal gives the agent authority in writing, it's referred to as?

Answer 63

Express authority

Question 64

Insurable interest does NOT occur in which of the following relationships?

Answer 64

Business owner and business client

Question 65

What are the premium payments for a Universal life policy NOT used for?

Answer 65

Separate account investments

Question 66

Which statement about whole life insurance is true?

Answer 66

When a whole life policy is surrendered, income taxes may be owed

Question 67

Which of these is NOT a valid option for an Adjustable Life Policy?

Answer 67

A nonforfeiture option can be used to increase the death benefit

Question 68

What premium payment mode results in the highest overall cost?

Answer 68

Monthly

Question 69

Why do pre-death distributions from a modified endowment contract (MEC) receive different tax treatment?

Answer 69

The MEC tends to be an investment vehicle

Question 70

What is the tax treatment of withdrawals from a Modified Endowment Contract (MEC)?

Answer 70

Withdrawals are taxed on a last-in, first-out (LIFO) basis. ## Footnote This means earnings are taxed before original premiums, unlike traditional life policies which use a first-in, first-out (FIFO) basis.

Question 71

True or False: A MEC does not accumulate cash value.

Answer 71

False ## Footnote MECs do accumulate cash value; the difference lies in IRS treatment.

Question 72

What clause ensures that life insurance policy proceeds are protected from a beneficiary's creditors?

Answer 72

Spendthrift Clause ## Footnote This clause ensures money is used as intended by the insured.

Question 73

Which type of beneficiary should be named for explicit directions on policy proceeds?

Answer 73

Individual ## Footnote Naming an individual allows for precise control over fund distribution.

Question 74

All of the following are elements of an insurance policy EXCEPT:

Answer 74

Claim forms ## Footnote Claim forms are part of the claim process, not the policy itself.

Question 75

What is the primary feature of a viatical settlement?

Answer 75

Reduced death benefit prepayment ## Footnote A viatical settlement allows policyholders to sell their life insurance for a lump sum.

Question 76

What term describes using life insurance to enable heirs to pay estate taxes?

Answer 76

Estate conservation ## Footnote This ensures liquidity for estate taxes without selling assets.

Question 77

When using the Needs Approach to calculate life insurance needs, what must be determined?

Answer 77

The family’s financial objectives if the income earner were to die or become disabled ## Footnote This includes living expenses, education costs, and debt repayment.