1.
Every licensee must indicate on which of the following documents his or her license number.
Correct Answer
D. All the above
Explanation
Every licensee must indicate their license number on print advertisements, business cards, and written price quotations. This is important for transparency and ensuring that customers and clients can easily verify the licensee's credentials. Including the license number on these documents helps to establish trust and credibility in the licensee's professional services. Therefore, the correct answer is "all the above."
2.
When any change in residence address occurs, every licensee and every applicant for a license must notify the Commissioner...
Correct Answer
D. Immediately
Explanation
When any change in residence address occurs, every licensee and every applicant for a license must notify the Commissioner immediately. This means that as soon as the change in address takes place, it is the responsibility of the licensee or applicant to inform the Commissioner without any delay. This is important in order to ensure that the Commissioner has up-to-date information and can maintain accurate records of all licensees and applicants.
3.
An agent makes a misleading comparison of a policy he is selling in order to convince a prospect to lapse an old insurance policy. What is this called?
Correct Answer
D. Twisting
Explanation
Twisting refers to the unethical practice of an insurance agent making a misleading comparison of a policy they are selling in order to persuade a prospect to cancel or lapse their existing insurance policy. This deceptive tactic is aimed at convincing the prospect to switch to the agent's policy without fully understanding the potential negative consequences or benefits of the new policy. Twisting is considered unethical and can lead to serious financial harm for the policyholder.
4.
Which of the following cannot legally be used when determining premium rates for life insurance?
Correct Answer
C. Nationality
Explanation
Nationality cannot legally be sued when determining premium rates for life insurance because it is considered discriminatory to base insurance rates on a person's nationality. Insurance companies are prohibited from using nationality as a factor in determining premiums in order to promote fairness and prevent discrimination based on a person's country of origin or citizenship. Gender and age, on the other hand, can be used as factors in determining premium rates, although some countries have implemented regulations to limit the use of these factors to prevent gender or age discrimination.
5.
Generally, it is unfair to discriminate against any one class of individuals in the business of insurance. However, the code does permit the charging of a higher premium if such premiums can be supported by mortality tables segregated by sex (gender).
Correct Answer
A. True
Explanation
The explanation for the given correct answer is that while it is generally unfair to discriminate against any one class of individuals in the business of insurance, the code does allow for the charging of higher premiums if they can be justified by mortality tables segregated by sex or gender. This means that if there is statistical evidence to show that one gender has a higher mortality rate than the other, insurance companies can charge higher premiums for that gender. This is seen as a fair and objective way to determine premiums based on risk factors.
6.
Which of the following is not a legal activity in the state of California?
Correct Answer
A. Participating in a plan to offer free insurance if a person buys some form of service
Explanation
Participating in a plan to offer free insurance if a person buys some form of service is not a legal activity in this state. This means that it is illegal to offer free insurance as an incentive for purchasing a service. The other options mentioned in the question, disregarding age in the determination of insurance rates and refusing to apply the practice of twisting in sales, are legal activities in the state of California.
7.
Employees that have group life policies covering them are required to be issued a/an...
Correct Answer
B. Certificate of Insurance
Explanation
Employees who have group life policies covering them are required to be issued a certificate of insurance. This document serves as proof of coverage and provides important information such as the policy number, coverage amount, and beneficiary details. It is typically given to the employee as evidence of their participation in the group life insurance plan.
8.
Jerry is using a new time management technique in his insurance sales presentation. In order to cut the amount of time he spends at each appointment, he no longer answers questions when they are first asked. Instead, he answers them only if they are asked twice. He feels this will allow him to get to his next meeting quicker. Most insurance professionals would consider this:
Correct Answer
A. An unethical practice
Explanation
Answering questions only if they are asked twice can be considered an unethical practice in the insurance sales industry. Insurance professionals are expected to provide accurate and complete information to their clients in order to help them make informed decisions. By intentionally withholding information until it is asked for multiple times, Jerry is not acting in the best interest of his clients and is potentially misleading them. This practice goes against the principles of transparency and trust that are essential in the insurance industry.
9.
In the life insurance planning process, the "blackout period" is considered:
Correct Answer
C. The period of time when a surviving spouse does not receive any social security benefits
Explanation
The term "blackout period" refers to a specific period of time when a surviving spouse does not receive any social security benefits. This period can occur after the death of a spouse and before the surviving spouse becomes eligible for their own social security benefits. During this time, the surviving spouse may face financial challenges as they do not have access to the social security benefits they were receiving through their deceased spouse.
10.
All of the following are reasons for an individual to purchase personal life insurance, except:
Correct Answer
D. To have cash available for emergencies.
Explanation
Personal life insurance is primarily designed to provide financial security and support to beneficiaries upon the policyholder's death. It serves purposes such as covering a buy/sell agreement in businesses, creating an immediate estate, and supplementing social security at retirement. However, life insurance is not typically intended to provide cash for emergencies during the policyholder's lifetime. While some policies can accumulate cash value that might be borrowed against, their primary purpose is not for emergency funds, making this option the incorrect reason to purchase personal life insurance.
11.
Why would a business use a key person life insurance policy?
Correct Answer
D. To protect the company from the financial consequence of the death of a vice president
Explanation
A business would use a key person's life insurance policy to protect the company from the financial consequences of the death of a vice president. This type of insurance policy provides the company with funds to cover any financial losses or expenses that may arise due to the sudden death of a key employee. By having this policy in place, the company can ensure that it can continue its operations smoothly without facing any financial hardships or disruptions. It also helps to mitigate the risks associated with the loss of a key employee and provides financial stability to the company in such a situation.
12.
Identify the statement that is true about contributory group life insurance.
Correct Answer
C. The employee will contribute to the premium payments.
Explanation
Contributory group life insurance is a type of insurance where the employee contributes to the premium payments. In this type of insurance, the employer and the employee both contribute towards the cost of the insurance coverage. This means that the employee will have a portion of their salary deducted to pay for the insurance premiums. The employer may also contribute to the premium payments, but it is not the sole responsibility of the employer. Therefore, the statement "the employee will contribute to the premium payments" is true about contributory group life insurance.
13.
Select the correct statement about the social security system:
Correct Answer
B. It is only meant to be a supplement to an individual's major income; it only supplies a minimum floor of income.
Explanation
The correct answer suggests that the social security system is designed to provide a minimum level of income to individuals and is intended to supplement their main source of income. It implies that the system is not meant to fully fund an individual's financial needs but rather acts as a safety net to ensure a minimum level of income.
14.
Which of the following is true regarding the government's social insurance program known as Social Security?
Correct Answer
A. The majority of workers in the U.S. must pay into the program.
Explanation
The correct answer is that the majority of workers in the U.S. must pay into the program. This means that a large percentage of individuals who are employed in the U.S. are required to contribute a portion of their income towards the Social Security program. This contribution is usually deducted from their wages or salary. It is a mandatory requirement for most workers, and failure to pay into the program can result in penalties or legal consequences.
15.
Choose the payments from an insurance policy that are not subject to federal income taxes:
Correct Answer
B. The death benefit paid to a beneficiary in a lump sum
Explanation
The death benefit paid to a beneficiary in a lump sum is not subject to federal income taxes because it is considered a tax-free distribution. This means that the beneficiary does not have to report the lump sum payment as income on their federal tax return. Instead, the death benefit is generally received by the beneficiary as a tax-free transfer of wealth.
16.
Which of the following is false about dividends paid from life insurance policies? A dividend is:
Correct Answer
D. None of the above
Explanation
None of the statements provided are false; they are all true about dividends paid from life insurance policies. Here's why:
Dividends are treated as a return of excess premium paid by the owner and are therefore not taxable.
If interest is earned on dividends and paid to the policy owner, it is considered taxable.
Dividends are not guaranteed to be paid to the policy owner as they depend on the financial performance of the insurance company.
17.
Which of these statements with regard to the tax treatment of life insurance is true?
Correct Answer
A. Death benefits are generally exempt from taxation
Explanation
Dividends paid from life insurance policies are not treated as a return of excess premium paid by the owner and are, therefore, not taxable. Dividends are considered a return of surplus earnings by the insurance company and are typically not subject to income tax. The other statements are true - if interest is earned on dividends and paid to the policy owner, it is considered taxable, and dividends are not guaranteed to be paid to the policy owner.
18.
Which of the following is false regarding the taxation of life insurance?
Correct Answer
A. Annuity death benefits are totally exempt from taxation.
Explanation
Annuity death benefits are generally taxable to the extent that they exceed the annuity's investment in the contract. Therefore, this statement is false.
19.
Patrick has been diligent in investing money for his retirement. He has managed to put $100,000 of after-tax money into a tax-deferred annuity. Now, he is ready to take it out, and the insurance company that issued the annuity says his guaranteed payment is $8,000 a year for the remainder of his life. This means he can expect a total amount of $200,000 back over his life. How much of each year's annuity payment is taxable?
Correct Answer
B. $4,000
Explanation
Each year's annuity payment of $8,000 is not fully taxable. The taxable portion of the annuity payment depends on the portion of the annuity that represents earnings and gains, as opposed to the original after-tax investment. Since Patrick invested $100,000 and expects a total amount of $200,000 back over his life, the difference of $100,000 represents the portion of the annuity payment that is considered a return of his original investment and is not taxable. Therefore, the taxable portion of each year's annuity payment would be $8,000 - $4,000 = $4,000.
20.
When applying for insurance, there is usually the owner of the contract, the insured, and the applicant. They may be:
1. Three different individuals
2. The same person
Correct Answer
C. Both 1 and 2
Explanation
In the context of insurance, the owner of the contract, the insured, and the applicant can be either three different individuals or the same person. This means that it is possible for the owner of the contract, the insured, and the applicant to be the same individual. It is also possible for these roles to be fulfilled by three different individuals. Therefore, both options 1 and 2 are correct.
21.
Insurance companies have several departments handling various responsibilities in the issuance of policies. Which department is involved with the selection of risks?
Correct Answer
C. The underwriting unit
Explanation
The underwriting unit is responsible for evaluating and selecting risks for insurance policies. They assess the potential risks associated with an individual or entity seeking insurance coverage and determine whether or not to provide coverage based on their analysis. This department plays a crucial role in ensuring that the insurance company only takes on risks that are manageable and align with their business objectives.
22.
Bill holds two jobs. If Bill were to apply for an insurance policy and the insurer reviews the risk exposure based on his occupation, which of the following would the insurer most likely use to classify him? The job:
Correct Answer
C. That represents the highest hazard
Explanation
The insurer would most likely use the occupation that represents the highest hazard to classify Bill. This is because the insurer wants to assess the risk exposure associated with Bill's jobs, and occupations with higher hazards are generally considered to have higher risk. By classifying Bill based on the occupation with the highest hazard, the insurer can determine the appropriate premium for his insurance policy.
23.
Which of the following supports the Medical Information Bureau?
Correct Answer
A. Insurance companies
Explanation
The Medical Information Bureau is supported by insurance companies. This is because the Medical Information Bureau is a centralized database that collects and stores medical information on individuals, which is then used by insurance companies to assess risk and make underwriting decisions. The database helps insurance companies to access and share important medical information about applicants, which allows them to make more informed decisions regarding policy approvals and pricing. Therefore, it is the insurance companies that support and utilize the services of the Medical Information Bureau.
24.
Select the incorrect statement from the choices below concerning insurance applications:
Correct Answer
A. Before the insurer can issue the policy, the beneficiary must acknowledge any changes by providing her/her original initial.
Explanation
In insurance applications, any changes made must be acknowledged by the applicant, not the beneficiary, through their initials. This ensures the accuracy and integrity of the application before the policy is issued. The application becomes part of the contract when attached, and the statements within are considered representations, meaning they are made to the best of the applicant's knowledge. The name of the insured must also appear on the application.
25.
From the following, identify what constitutes the "entire contract" in a life insurance policy. The policy:
Correct Answer
B. And a copy of application when attached
Explanation
The "entire contract" in a life insurance policy includes the policy itself, any oral statements made during the application process, a copy of the application when attached, and a brochure on the insurer including code-approved financial information. However, it does not include the application itself.
26.
Fran is comparing life insurance available through her employer and an independent life-only agent. Her employer provides automatic coverage and requires ............ medical information than the life-only agent?
Correct Answer
B. Less
Explanation
The correct answer is "less". Fran is comparing life insurance available through her employer and an independent life-only agent. Her employer provides automatic coverage, which means that she does not need to provide as much medical information compared to the life-only agent. Therefore, the medical information required would be less in the case of her employer's life insurance.
27.
Which of the following is not an acceptable risk to the underwriting department of an insurance company?
Correct Answer
D. All are acceptable risks
Explanation
All types of risks, including sub-standard, preferred, and standard, are acceptable to the underwriting department of an insurance company. The underwriting department assesses and evaluates risks to determine the premium rates and coverage for potential policyholders. While sub-standard risks may have higher chances of claims, preferred and standard risks are considered more favorable. However, the underwriting department is equipped to handle and manage all types of risks, ensuring that appropriate premiums and coverage are provided to policyholders.
28.
All of the following are used in determining life insurance rates, except:
Correct Answer
D. Policy reserves
Explanation
Policy reserves are not used in determining life insurance rates. Policy reserves refer to the funds that an insurance company sets aside to cover future claims and obligations to policyholders. These reserves are not directly related to the calculation of life insurance rates, which are typically based on factors such as the insured individual's age, health, lifestyle, and the amount of coverage desired. Therefore, policy reserves are not considered in determining life insurance rates.
29.
If the owner of a life insurance policy elects to pay an annual premium, she will:
Correct Answer
C. Pay less as compared to paying premium every 6 months
Explanation
If the owner of a life insurance policy elects to pay an annual premium, she will pay less as compared to paying premiums every 6 months. This is because insurance companies often offer a discount or lower rates for policyholders who choose to pay their premiums annually instead of semi-annually. By paying annually, the policyholder can save money in the long run and have a more convenient payment schedule.
30.
A binding receipt issued on the sale of a life insurance policy becomes effective from the date the receipt is given -- no matter what the insurability of the applicant.
Correct Answer
A. True
Explanation
A binding receipt issued on the sale of a life insurance policy means that once the receipt is given, the policy becomes effective regardless of the insurability of the applicant. This means that even if the applicant's health or other factors may affect their eligibility for the policy, the binding receipt ensures that the policy is still in effect. Therefore, the statement is true.
31.
There are four basic classes of life insurance. All of the selections listed below are regarded as ordinary insurance, except:
Correct Answer
C. Industrial life insurance policy
Explanation
Industrial life insurance, the correct exception among the options, is distinct due to its focus on covering funeral expenses with small face values. Unlike ordinary life insurance types like whole, universal, and term life, which offer broader financial protection and higher face values, industrial life aims for affordability and accessibility, often with premiums collected weekly or monthly directly from policyholders' homes.
32.
From the descriptions below, identify which one is a term policy:
Correct Answer
C. Each year the premium increases as the insured grows older. After several years the coverage and premiums end simultaneously. Cash value is not created
Explanation
This description indicates that the premium increases each year as the insured gets older, and after several years, both the coverage and premiums end at the same time. Additionally, it states that there is no cash value created. These characteristics are consistent with a term policy, where the coverage is only provided for a specific term or period of time, and there is no cash value accumulation.
33.
Decreasing term insurance is frequently used to pay the unpaid balance of a mortgage upon the death of the mortgage holder.
Correct Answer
A. True
Explanation
Decreasing term insurance is a type of life insurance that is specifically designed to cover the outstanding balance of a mortgage in the event of the policyholder's death. As the name suggests, the coverage amount decreases over time, which aligns with the decreasing balance of the mortgage. This ensures that the mortgage will be paid off in full if the policyholder passes away before the loan is fully repaid. Therefore, the statement that decreasing term insurance is frequently used to pay the unpaid balance of a mortgage upon the death of the mortgage holder is true.
34.
The owner of a non-par whole-life policy never misses a payment, never borrows from the policy's cash value, and finally reaches the age of 100. What cash value is this person entitled to in comparison to the face amount?
Correct Answer
A. 100% of cash value which is now the same as the face amount
Explanation
If the owner of a non-par whole life policy never misses a payment, never borrows from the policy's cash value, and reaches the age of 100, they are entitled to 100% of the cash value, which is now the same as the face amount. This means that the cash value of the policy has grown over time and is now equal to the face amount of the policy. Since the person has not died, they can receive the full cash value of the policy.
35.
A policy owner makes the last premium payment on his $250,000 non-par whole-life policy today. The owner is 70 years of age. When will the cash value reach $250,000?
Correct Answer
C. When he reaches the age of 100
Explanation
The cash value of a non-par whole life policy typically increases over time as premiums are paid and the policy accumulates cash value. In this case, the policy owner has made the last premium payment, so the cash value will continue to grow until the insured reaches the age of 100. At that point, the cash value will reach $250,000.
36.
Upon reaching the age of 65, the policyholder of a non-participating paid-up life insurance policy will find that the cash value matches the face amount.
Correct Answer
B. False
Explanation
The statement is false because the cash value of a non-participating paid-up at age 65 life insurance policy does not equal the face amount when the insured attains the age of 65. The cash value is the amount that the policyholder would receive if they were to surrender the policy before reaching the age of 65. The face amount, on the other hand, is the death benefit that would be paid out to the beneficiaries upon the insured's death.
37.
Assume two people apply for life insurance with exactly the same monthly premiums. One individual buys a whole policy, and the other, a 10-year renewable term plan. Both are standard risks with no difference in their age or health rating. Select the statement from below that is false:
Correct Answer
D. The whole life policy will pay a higher amount to the beneficiary should the insured die within the first 10 years.
Explanation
The statement is false because the 10-year renewable term plan will actually pay a higher death benefit to the beneficiary if the insured dies within the first 10 years. This is because term policies typically have higher death benefits compared to whole life policies, especially in the early years of the policy. Whole life policies may take some time to accumulate a significant cash value, which is why the death benefit in the first 10 years is typically lower compared to a term policy.
38.
A family life insurance policy that provides coverage for children may be converted to permanent insurance for the children, but evidence of insurability is required.
Correct Answer
B. False
Explanation
The given statement is false. A family life insurance policy that provides coverage for children can be converted to permanent insurance for the children without requiring evidence of insurability. This means that the children can convert their coverage to a permanent policy without having to prove their insurability, such as their health condition or any other factors that may affect their eligibility for insurance.
39.
Which of the following is typically a feature of "The Ultimate Life Insurance" policy?
Correct Answer
A. Guaranteed cash value growth
Explanation
"The Ultimate Life Insurance" policy often refers to a type of whole life insurance that provides guaranteed cash value growth. This feature means that a portion of the premium payments goes towards building a cash value that grows over time, which policyholders can borrow against or withdraw during their lifetime. Unlike term life insurance, which only provides death benefit coverage, whole life insurance includes this savings component, making it a popular choice for individuals seeking both protection and an investment element.
40.
Frequently, juvenile life policies contain a payor rider. This rider states that in the event the payer of premiums is disabled or dies and the juvenile has yet to reach a specific age:
Correct Answer
B. The premiums will be paid by the insurer until the child reaches the age of 21 or 25.
Explanation
The correct answer is that the premiums will be paid by the insurer until the child reaches the age of 21 or 25. This means that if the payor of premiums becomes disabled or dies before the child reaches the specified age, the insurance company will continue to pay the premiums on behalf of the child. This ensures that the policy remains in force and the child continues to receive the benefits of the insurance policy.
41.
When premiums are paid into a universal life insurance policy, insurers must make certain adjustments to the cash value. The company will add the current premium paid and:
Correct Answer
C. Deduct for expenses and mortality costs, then add current interest
Explanation
When premiums are paid into a universal life insurance policy, insurers must deduct for expenses and mortality costs from the cash value. After deducting these costs, the company then adds the current interest to the remaining amount. This adjustment ensures that the cash value reflects the necessary deductions for expenses and mortality costs, while also accounting for any interest earned on the remaining balance.
42.
Variable life insurance policies and variable annuities are primarily governed by which agency?
Correct Answer
B. SEC (Security exchange commission)
Explanation
Variable life insurance policies and variable annuities are primarily governed by the SEC (Security Exchange Commission). The SEC is responsible for regulating and overseeing the securities industry, including variable insurance products. These products involve investment components, such as stocks and bonds, and the SEC ensures that they comply with federal securities laws. The FBI (Federal Bureau of Investigation) is not involved in the regulation of insurance or annuities. EPO (Employee Plans Operations) and NAIC (National Association of Insurance Commissioners) are also not the primary governing agencies for variable life insurance policies and variable annuities.
43.
An additional amount of premium used to pay for an accidental death benefit provision does not increase the cash value of the policy.
Correct Answer
A. True
Explanation
When an additional amount of premium is used to pay for an accidental death benefit provision, it means that the policyholder is paying extra to have coverage in case of accidental death. This provision does not contribute to the cash value of the policy because it is a specific benefit that is only paid out in the event of accidental death, rather than being part of the overall policy value. Therefore, the statement that an additional amount of premium used for an accidental death benefit provision does not increase the cash value of the policy is true.
44.
When an insured individual becomes totally and permanently disabled, her condition triggers a provision that keeps the policy in force even though the insured stops making premium payments. This is a/an:
Correct Answer
C. Waiver of premium provision
Explanation
When an insured becomes totally and permanently disabled, the waiver of premium provision comes into effect. This provision allows the insured to stop making premium payments while keeping the policy in force. It provides financial relief to the insured during their disability, ensuring that they continue to receive the benefits of the policy without the burden of premium payments.
45.
The dividends and cash value continue, and all features of the policy remain in force, even though the insurance company, not the owner, is making the premiums. This is a description of a ..........................rider.
Correct Answer
C. Waiver of premium
Explanation
This is a description of a waiver of premium rider. With a waiver of premium rider, the insurance company pays the premiums on behalf of the policy owner if they become disabled or unable to work. Despite the owner not making the premiums, the policy remains active and all its features, including dividends and cash value, continue.
46.
Beth wants to purchase more life insurance through her current policy. She calls you, the agent, and asks your opinion. You know Beth has a guaranteed insurability rider on the policy. She can buy more insurance:
Correct Answer
B. Without the need to prove insurable on her life at specific ages
Explanation
Beth can purchase more life insurance without the need to prove insurability on her life at specific ages because she has a guaranteed insurability rider on her current policy. This rider allows her to increase her coverage without undergoing additional medical underwriting or proving her insurability at certain ages. This means that Beth can secure additional insurance coverage at specific ages without any requirements or restrictions based on her health or insurability.
47.
Select the policy riders frequently found in life insurance polices:
Correct Answer
D. All of the above
Explanation
The correct answer is "All of the above" because policy riders frequently found in life insurance policies include accidental death and dismemberment, waiver of premium, and cost of living. Accidental death and dismemberment rider provides additional coverage in case of death or loss of limbs due to an accident. Waiver of premium rider waives the premium payment if the policyholder becomes disabled. Cost of living rider adjusts the death benefit to keep up with inflation. Therefore, all of these riders are commonly included in life insurance policies.
48.
Choose the correct statement about a cost of living rider. The policy owner:
Correct Answer
C. Pays an additional premium for the extra protection the rider provides and will see the face amount of the contract increase according to the increase of the index
Explanation
The correct statement about a cost of living rider is that the policy owner pays an additional premium for the extra protection the rider provides and will see the face amount of the contract increase according to the increase of the index. This means that the policy owner will have to pay more for the rider, but they will also receive increased coverage as the index increases. This allows the policy owner to keep up with inflation and maintain the value of their policy over time.
49.
Inflation can have a tremendous eroding effect on the purchasing power of benefits that are received from a disability income policy. What type of supplementary benefit rider can be sued by the insured to offset the effects of inflation?
Correct Answer
C. Cost of living adjustment rider
Explanation
A cost of living adjustment rider is a type of supplementary benefit rider that can be used by the insured to offset the effects of inflation. This rider ensures that the benefits received from a disability income policy are adjusted periodically to keep up with the rising cost of living. By providing an increase in benefits based on the rate of inflation, the cost of living adjustment rider helps to maintain the purchasing power of the benefits over time. This is important because inflation can erode the value of the benefits, making it difficult for the insured to cover their expenses.
50.
Which of the following is a primary benefit of having life insurance?
Correct Answer
B. It provides financial support to your beneficiaries after your death.
Explanation
The primary benefit of life insurance is that it provides a death benefit to your beneficiaries, offering them financial support after your death. This can help cover expenses like funeral costs, debts, and living expenses. The other options do not accurately describe the main purpose of life insurance.