California Life Insurance Practice Exam

Acts of fair discrimination such as charging older clients a higher premium are legal.

In a non-contributory plan, the employer pays all of the premium, so they must cover all eligible employees.

Insurance is designed so that those who don't make claims help pay for those who do make claims. Thus, it is possible that a policyholder could pay a small amount of premium before the insured dies, and the beneficiary would receive a large death benefit.

Conversion from group to individual can be any insurance except term. The insured who lost their coverage is now paying the entire premium.

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

Mortal related to death, while morbid relates to illness/disability.

In profit sharing plans, companies earmark a portion of their profits to be contributed to the employee.

The term "vanishing premiums" can only be used if they are based on guaranteed elements.

While 65 is commonly though of as retirement age, the law now states that full retirement age is based upon the worker's year of birth.

When a client dies during the free-look period they are covered, if consideration had been given (initial premium paid with application), and the policy has not been returned
for a refund.

An insurer incorporated in a foreign country is considered to be an alien insurer.

The misstatement of age provision states that the insurer will “make it right” by adjusting the death benefit accordingly. This provision is not subject to the incontestable clause.

A representation is true to the best of the applicant’s knowledge.

Explanation: An irrevocable beneficiary shares many vested (ownership) rights with the policyowner. Therefore, the policyowner must obtain approval from the irrevocable beneficiary to make any of these policy changes.

Term insurance provides a substantial amount of coverage at a low cost. The lower price is possible due to no cash value.

Violations of the Unfair Practices Act customarily result in a hearing, a fine, and a cease and desist order.

Because premiums are a non-deductible expense, death benefits are tax-free to the beneficiary. In a sense, the money has already been taxed when first earned and before the premium was paid.

Total invested amount is $50,000; total account value is $100,000. $50,000 divided by $100,000 = ½. ½ of $8,000 is $4000. That means $4000 is excluded from taxation, and $4000 is taxable.

According to the CIC, 24 hours of continuing education must be completed each renewal. Of the 24 hours, at least 4 must be in ethics.

Tax Sheltered Accounts (TSA) are retirement programs for not-forprofit institutions such as school districts, churches, charities, etc.

With the reduced paid-up non-forfeiture option, the policy will still be a whole life policy. Therefore it will mature at age 100 life the original policy. It will have a lower death benefit than the original.

A payor benefit is a feature of a juvenile policy. If the parent/guardian (owner) dies or becomes disabled, the premium is waived until the child reaches adulthood. The child’s
policy will continue in force during the waiver period.

Agents must be mindful of the effects of an annuity purchase on Medi-Cal eligibility.

The client does have access to his/her MIB report.

It is only an unfair claims practice to advise a claimant to NOT obtain an attorney. A claimant always has the right to seek council.

This is true about policy illustrations according to the California Insurance Code.

Also known as "double indemnity," accident riders pay a larger death benefit if the death is due to accidental means.

When the age is misstated on the application, the death benefit paid will be adjusted to reflect the correct age.

According to the code, financial losses are not one of the 3 major loss exposures.

The contestability period is still in force so the policy can be rescinded by the company for material misrepresentation on the application.

The “Spendthrift Clause” keeps the beneficiary’s creditors from attaching the death benefit while held by the insurance company

Early withdrawals from qualified plans before the age of 59 ½ require the normal taxes owed, plus an additional 10% tax penalty for early distribution except for hardship withdrawals.

The client has purchased an annuity with one payment (single premium) and has requested that the benefit payments begin within 12 months or less of the contract date (immediate annuity).

Changes of address must be filed immediately.

The entire contract cannot reference any "outside" documents.

10 is the minimum per the CIC.

Life insurance replaces the income the insured would have earned if the insured had lived to retirement age. During the annuitant's retirement years, the annuities slowly pay out money the annuitant already owns.

According to the CIC, the grace period is 31 days.

This is the definition of twisting, which is an unfair trade practice.

Paid-up additions are of the same type of insurance as the base plan.

Conversion allows a term policy to be changed into a cash value policy (often whole life). While the premium will increase for the same amount of death benefit, no evidence of insurability is required.

All of the above can be written as ordinary, or individual, policies. Only credit life can also be written as a group policy.

The incontestability clause keeps the policy from being cancelled after the insured's death despite the applicant's misdeeds.

Policy dividends, considered a return of excess premium by a mutual insurer, are not taxable since the original premium was paid with after-tax dollars. Thus, these refunds are not taxable. Future dividends cannot be predicted nor guaranteed.

Morale hazards are characterized by an indifference towards risk. DUIs show apathy towards hurting oneself and others.

Exclusive agents work for or represent one insurer at a time. Independent agents work for themselves and can be appointed by multiple insurers.

ESOP's invest in the employer's stock.

Reserves are retained by the insurer to pay future claims; they are not paid to the state.

Any premiums paid by an employer for an employee’s coverage of more than $50,000 are taxable to the employee. Premiums for coverage of $50,000 or less are not taxable to the employee.

Changes in ownership always need to be filed with the insurer.

To obtain a life insurance license in California, one of the primary requirements is to complete a pre-licensing education course. This course ensures that the applicant has the necessary knowledge and understanding of insurance laws, regulations, and ethical practices. While being a resident of California, holding a college degree, or having extensive work experience might be beneficial, they are not specific requirements for obtaining the license.

Even though a sub-standard rating results in a higher premium, the risk (insured) has been accepted by the insurer. Declined means the risk is too high and therefore is not accepted by the insurer.

Variable products are governed at the national level by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), and at the state level by the Department of Insurance (DOI).

Any universal policy is characterized by a flexible premium. Any variable product is characterized by the use of separate accounts.

This is the definition of annuitant. The owner does not have to be the annuitant, there may not be a beneficiary, and an annuity is a retirement plan, not insurance

Insurance policy dividends are not guaranteed and are not taxable.

Contractually, you can only add to the policy when permitted, since no medical qualification is required. Otherwise, the insured would wait for an illness to add to their policy.

Renewable term Insurance may be renewed at the end of the specified term for another term of the same length. When renewed, renewable term premiums will be higher to reflect the insured’s attained age.

Universal life insurance is also known as “flexible premium” The calculation for gross premium is: Mortality risk – Interest + Expense, any remaining premium will be applied to cash value.

Disability income insurance is not material to a life insurance contract.

The COLA rider is tied to an inflation index, which permits the death benefit to increase periodically to offset the effects of inflation. The face amount will not decrease in times of deflation.

Facility of payment is a process whereby someone who is not a beneficiary could make a claim for reimbursement of final expenses

"Interest only" is a settlement option, not a dividend option.

Survivorship life, sometimes referred to as "second-to-die" joint life, insures two people on the same policy, but pays the death benefit only after the second insured dies.

The “accumulate with interest” option and the “cash option” are dividend options, not settlement options. The “interest only” option is the settlement option that pays earnings on the death benefit.

Because whole life has a level premium and a fixed rate of return, the resulting cash value is predictable.

To protect the client, disclosures need to be signed and left with the client, as well as submitted to all insurers involved. Anything used to make the sale should also be submitted.

“Lump sum” is the default option. Life settlement options are good for those who cannot handle large sums of money, but the interest portion of each payment is taxable income. Only the face amount or lump sum amount is tax free.

While the agent often handles the paperwork; it’s the applicant who is technically requesting life insurance coverage.

Endowment policies mature, or endow at any time specified in the contract.

The guaranteed insurability rider/option allows the insured to purchase additional amounts of insurance at specified times, regardless of health status, but at an increased premium.

If included in a cash value policy, APLs allow insurers to subtract the missed premiums from the cash value as a loan to keep a policy from inadvertently lapsing for non-payment. This will continue until the client begins paying again or the cash value runs out. Interest will be charged on these loans.

Variable annuity premiums purchase accumulation units during the accumulation period.

This benefit is payable to policy maturity.

“A 1035 exchange includes an exchange from one life policy to anther life policy, a life policy to an annuity, or from one annuity to another annuity. Exchanging an annuity for a life policy is not a “1035 exchange.”

Limited pay policies limit the length of time for premium payment, all other features remain the same, such as length of coverage, maturity, and endowment. Because the number of premium payments is reduced in a limited pay policy, the premium must be higher than straight life.

Modified whole life allows the insured to pay a lower premium than traditional/ordinary whole life for the first few years. Single premium whole life requires a large, one-time, up-front payment to begin the policy; thus, it costs more than traditional whole life.

Non-guaranteed elements will change over time. Guaranteed elements show the minimum, guaranteed performance that will occur

A warranty must be literally true. A violation of a material warranty permits the other party to rescind the contract.

The larger the guarantee of payments, or returned monies, the lower the guaranteed income,. The more risk the annuitant takes during the annuity period, the higher the monthly income.

Insurers suffering from an impairment of paid-in capital are insolvent.

The Roth has non-deductible contributions, while the Traditional IRA allows tax deductible contributions.

Group insurance premium paid by the employer is tax deductible to the employer, while individual insurance premium is non-deductible.

Crimes of this nature are misdemeanors. There are various levels of punishment based upon the level of damage done to the insurer and its clients.

Key person life insurance premium is not deductible by the business and the death benefit is not taxable to the business.

This is the only answer for which all items are policy provisions.

A reinstated policy will be contestable again for another two years.

A committee of subscribers holds the attorney-in-fact accountable in reciprocal insurance agreements.

Agreement includes both an offer and its acceptance.

An insurer guarantees the cash value in a fixed product and therefore assumes the risk of the investment. Money in fixed products is held in the general account which is invested in relatively safe and low risk instruments such as bonds, mortgages, and real estate.

Stock insurers are owned by their shareholders/stockholders. Their policies are labeled non-participating since the clients do not share in the divisible surplus (dividends).

Any transaction in which a client purchases a new policy with the intention of cancelling an existing policy is considered to be a replacement transaction.