California Life Agent Only

Front 1

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

Back 1

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.

Front 2

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

Back 2

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.

Front 3

All of the following statements about mutual insurance companies are correct, except:

Back 3

Policy dividends issued by mutual companies are guaranteed and not taxable

Explanation

Insurance policy dividends are not guaranteed and are not taxable.

Front 4

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

Back 4

100%

Explanation

If employment terminates, the employee own 100% of the employer's contributions after 7 years. They earn 20% each year for years 3through 7. Employee contributions are immediately vested.

Front 5

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

Back 5

Selected by the Governor as an appointee

Explanation

The commissioner is no longer appointed by the governor. He/she has various duties and authorities.

Front 6

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

Back 6

Acts of fair and unfair discrimination are prohibited

Explanation

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

Front 7

Which of the following statements about a resident life-only agent licensing is incorrect?

Back 7

A licensee has 30 days to update a change in address

Explanation

Changes of address must be filed immediately

Front 8

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

Back 8

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.

Front 9

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

Back 9

Express

Explanation

Express authority is legitimate authority written into a contract

Front 10

Any person whom is appropriates fiduciary funds for personal use is guilty of:

Back 10

Theft

Explanation

A 'person' with fiduciary responsibilities is an agent. If and agent steals their clients' money, the agent is guilty of theft.

Front 11

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

Back 11

An insurer

Explanation

Legally, a corporation is a "person". The insurer makes/produces the insurance policies the agents and brokers sell.

Front 12

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?

Back 12

She has a 30-day free look period incase she changes her mind.

Explanation

As someone who is 60+, she gets the 30-day free-look period, and should invest cautiously.

Front 13

In a non-contributory group policy:

Back 13

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.

Front 14

An employee has lost access to their group term life insurance plan, but they are allowed to convert to a new plan. Which best describes this new plan?

Back 14

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

Explanation

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

Front 15

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?

Back 15

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.

Front 16

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

Back 16

Life with refund option, life with10 years certain, straight life

Explanation

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.

Front 17

All of the following are dividend options, except:

Back 17

Interest only option

Explanation

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

Front 18

Which best describes industrial insurance?

Back 18

$2,000 or less in coverage andpremiums collected by agent.

Explanation

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

Front 19

A client's flexible premium is invested into a separateaccount. What type of insurance product did he purchase?

Back 19

Variable Universal Life

Explanation

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

Front 20

Which rider pays a multipleof the original face amount?

Back 20

Accidental Death Benefit

Explanation

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

Front 21

A life-only agent issues abinding receipt to his client since the client did include a check for theinitial premium with his completed application. Which is true?

Back 21

The agent faces potential suspensionor revocation of their license.

Explanation

Binding receipt gives immediate coverage in the field ofproperty insurance. Issuing a binding receipt to a life client could result inlicense suspension for jeopardizing and misleading the client. Life only agentsdo not have authority to issue binding receipts.

Front 22

Which of the following would not be considered a speculativerisk?

Back 22

Any action that could do harm toyour clients well-being such as reckless driving.

Explanation

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

Front 23

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

Back 23

A. Identification of their relationship to the insurance company.

B. License number must appear in the same size font as thephone number.

C. Must not include any title, designations, or licenses thatare not currently held.

D. All of the above.

Front 24

How does the IRS classify the two different types ofretirement accounts?

Back 24

Qualified and non-qualified

Explanation

"Qualified" means a plan meets certain IRS guidelinesso it receives beneficial tax treatment, such as tax deferred."Non-Qualified" means it does not meet those guidelines, andtherefore doe not receive beneficial tax treatment.

Front 25

An insured has a terminal illness and needs to access 1/3 ofhis death benefit to pay mounting medical expenses. Which rider would meet theinsured's current needs?

Back 25

Accelerated (Living) Benefit

Explanation

The accelerated death benefit, or living need rider, pays aportion of the death benefit before death is the insured has a terminalillness.

Front 26

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

Back 26

Life Income (Straight Life)

Explanation

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

Front 27

After 12 years, the policy owner decides she no longer needsthe large death benefit on her whole life policy. She calls you, her agent, andyou tell her she can use the reduced paid-up non-forfeiture option. Which ofthe following is not true about the new policy?

Back 27

The new policy will expire in 10years.

Explanation

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

Front 28

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

Back 28

Roth IRA

Explanation

Contributions to a Roth IRA are not tax deductible. To encourageinvesting for retirement, Roth IRAs allow for tax-free withdrawal after 5 yearsand at least age 591/2.

Front 29

Which of the followingstatements about the process of replacement is incorrect?

Back 29

Copies of any written illustrationor comparisons used in the process of making the replacement do not need to beincluded with the submitted application.

Explanation

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

Front 30

Members of the MIB are required to report

Back 30

Medical conditions found duringunderwriting.

Explanation

Made up of member insurance companies, the MIBonly reports medical impairments found during underwriting; not policyinformation nor medical record information.

Front 31

All of the following statements about survivorship life aretrue, except:

Back 31

The face amount is payable after thefirst death.

Explanation

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.

Front 32

In contrasting stock insurers with mutual insurers, whichstatement is not false?

Back 32

Stock insurers are owned by theshareholders, and issue non-participating policies.

Explanation

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

Front 33

An applicant for an insurance license has had a previousapplication for a professional license denied for cause within the last fiveyears. The insurance commissioner will:

Back 33

Deny the application withouthearing.

Explanation

The loss of a professional license, or the previous denial of anapplication for a license, within five years of the submission of the currentapplication will result in the application being denied without a hearing.

Front 34

In order to be financially solvent, an insurer mustaccomplish all of the following, except:

Back 34

Contribute a specific amount ofcapital reserves to the state.

Explanation

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

Front 35

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

Back 35

An Endowment to the age of 65

Explanation

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

Front 36

Roger, who is 35 years old, has a whole life insurancepolicy with a death benefit of $150,000. At the age of 65 he will no longermake premium payments. When will the cash value of his policy be $150,000?

Back 36

100

Explanation

Whole Life, even if a limited payment plan, still matures at age100.

Front 37

Agent Darren offers life insurance for no cost to peoplebuying property in a local development. When the Commissioner investigates hisactions, which of the following is not a likely consequence?

Back 37

Darren will be charged with a felonyand/or up to 10 years in jail.

Explanation

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

Front 38

A life settlement broker

Back 38

Negotiates life settlement contractsbetween an owner and providers.

Explanation

This is the definition of a life settlement broker.

Front 39

E&O coverage

Back 39

Protects an agent in the case ofunintentional negligence.

Explanation

One of the main purposes of errors and omission (E&O)coverage is to protect the agent in case of unintentional negligence.

Front 40

Candee owns a participating whole life policy and uses herpolicy dividends to buy more of the same type of coverage for herself. Candeehas chosen the:

Back 40

Paid-up additions option

Explanation

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

Front 41

A policy illustration may not include:

Back 41

Vanishing premiums if the policybecomes paid up with non-guaranteed elements paying future premiums.

Explanation

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

Front 42

What is not likely to happen with a return of premiumpolicy?

Back 42

The total premiums paid is returnedto the insured when the policy is cancelled.

Explanation

This benefit is payable to policy maturity.

Front 43

When a client is declined after submitting a prepaidapplication for life insurance:

Back 43

The insurance company must refundthe 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 neverexisted.

Front 44

All of the following are characteristics of the socialinsurance program known as Social Security, except:

Back 44

Full retirement age is 65 for allpersons born after 1937.

Explanation

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

Front 45

In the insurance planningprocesses, the blackout period is:

Back 45

The period of time after theyoungest child reaches 16, but before the widow reaches 60, in which thesurviving spouse receives no Social Security benefits.

Explanation

The blackout period is a feature of SocialSecurity designating when no benefits will be paid to the surviving spouse ofthe deceased worker.

Front 46

A client receives alump-sum inheritance. He'd like to use some of the money to create a lifetimeincome since he'll be retiring soon. He purchases an annuity and wishes toreceive payments beginning in 2 months. What did he buy?

Back 46

Single Premium Immediate Annuity

Explanation

Any annuitization in 12 months or less from the effective dateis an immediate annuity. A single premium annuity involves depositing onepremium payment.

Front 47

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

Back 47

The job that is most hazardous.

Explanation

Regardless of hours worked or income, the most hazardous jobwill be used in the rating process.

Front 48

Your policy contains the guaranteed insurability rider. Whencan you purchase additional insurance on your policy?

Back 48

Without evidence of insurability atspecified ages or dates.

Explanation

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

Front 49

After the insured passes away, it is discovered that thepolicy was rated based upon an incorrect age. The client lied about their agewhen filling out the application 8 years earlier. What effect will this have onthe benefit?

Back 49

The proceeds payable will beadjusted.

Explanation

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

Front 50

Which of the following are common provisions found withinmany life insurance policies?

Back 50

Reinstatement, entire contract,incontestability

Explanation

This is the only answer for which all items are policyprovisions.

Front 51

The term aleatory is best defined by which of the following?

Back 51

Unequal exchange in value.

Explanation

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

Front 52

Of the following, which best describes the differencebetween life insurance and annuities?

Back 52

Life insurance creates an instantestate, while annuities liquidate a sum of money.

Explanation

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

Front 53

Which pair are Activities of Daily Living (ADLs)?

Back 53

Mobility & bathing

Explanation

ADLs are personal care, nutrition, and health issues such aswalking, hygiene, dressing, transferring, and eating. Seeing, hearing,speaking, and sleeping are not used as an evaluation for paying benefits.

Front 54

The definition of mortality and morbidity:

Back 54

Odds of dying versus the odds ofdisability.

Explanation

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

Front 55

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

Back 55

Mandatory & permissive

Explanation

While "shall" means required or mandatory,"may" means permissible or allowed.

Front 56

Starting from lowest to highest, rank the initial premiumpaid by the client for these insurance policies below:

Back 56

Modified whole life, ordinary whole life, single premium whole life

Explanation

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

Front 57

Sam has a $200,000 convertible life insurance policy. If he chooses, he can:

Back 57

Convert to a whole life policy forthe same face amount without proof of insurability.

Explanation

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

Front 58

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

Back 58

Equity-Indexed annuity

Explanation

The S&P 500 is an index made up of the stock of 500 publiclytraded companies. Stocks are an 'equity' investment. This type of annuity isindexed to the market so that. as the economy grows, so does the value of theannuity. The money in the account is not invested directly into the 500 stocks.

Front 59

The entire contract caninclude many components. Which of the following cannot be a part of the entirecontract?

Back 59

Any document referenced by thepolicy

Explanation

The entire contract cannot reference any "outside"documents.

Front 60

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

Back 60

Credit life

Explanation

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

Front 61

How does the incontestability clause benefit the insured?

Back 61

It keeps the policy from being cancelled if, after two years, it is discovered that there was an error,concealment, or misrepresentation by the policy owner.

Explanation

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

Front 62

Under the cost of livingadjustment rider, the policy:

Back 62

Will only increase with theinflation rate. There will be an additional premium charged, but no evidence ofinsurability is required.

Explanation

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

Front 63

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

Back 63

Possible fraudulent claims by theinsured

Explanation

While every insurer faces possible fraudulent claims, not everyinsurer deals with arson. The state would investigate insurer abuses such asfraud, not the companies themselves.

Front 64

Concerning qualified plans,which statement is false?

Back 64

ESOP's invest in a portfolio ofstock selected by the employer.

Explanation

ESOP's invest in the employer's stock.

Front 65

Of the following, which is not one of the three major loss exposures faced by insured?

Back 65

Financial losses

Explanation

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

Front 66

What type of insurance would a person select as the most efficient method of paying the outstandingdebt on their home in the event of death?

Back 66

Mortgage redemption (decreasingterm/mortgage protection)

Explanation

Mortgage redemption insurance, structured as decreasing termlife insurance, is designed to pay off a debt as it amortizes. The decreasingdeath benefit pays just enough to cover the balance should pre-mature deathoccur

Front 67

Which statement is an accurate description of life insurancepolicy dividends?

Back 67

They are not taxable and are notguaranteed.

Explanation

Policy dividends, considered a return of excess premium by amutual insurer, are not taxable since the original premium was paid withafter-tax dollars. Thus, these refunds are not taxable. Future dividends cannotbe predicted nor guaranteed.

Front 68

Under the terms of the 10-day free-look period, a claim willbe paid

Back 68

If the premium has been paid and thepolicy has not been returned.

Explanation

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

Front 69

When a policy continues because of a payor benefit clause,it means

Back 69

The owner of the policy is disabledor has died.

Explanation

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

Front 70

Upon the death of a primary breadwinner who is fully insuredunder Social Security, a dependent child is eligible to receive an incomebenefit until the age of

Back 70

18 or 19, if unmarried and a studentin elementary or secondary school

Explanation

Under Social Security the unmarried childrenof a “fully insured” deceased worker will receive benefits until 18, or 19 ifstill in elementary or secondary school.

Front 71

The beneficiary chooses to receive the policy proceeds inthe form of monthly income at the rate of $3,000 per month, until principal andinterest are exhausted. What settlement option did the beneficiary select?

Back 71

Fixed amount

Explanation

Under the fixed amount settlement option the beneficiaryreceives a stated amount for each benefit payment until the original lump-sumdeath benefit amount, plus some interest, are paid out. It this case, $3000 amonth is the stated amount of the benefit payment.

Front 72

What is the usual federal income tax treatment of individuallife insurance?

Back 72

Non-deductibility of premiums,non-taxable death benefits

Explanation

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

Front 73

A universal life policy may be surrendered for its cashvalue:

Back 73

At any time

Explanation

With universal life the cash value can alwaysbe surrendered. There might be surrender charges in the early years, or a loanto pay off, but any available cash value can always be obtained at any time bysurrendering the policy.

Front 74

California rules for annuity sales require all agents to presenta specific disclosure document in advance to any senior citizen who is notalready a client whenever a sales appointment will be conducted in the person’shome. How far in advance must the prospect receive the written notice?

Back 74

At least 24 hours

Explanation

This rule is designed to protect seniors. It is written as “atleast 24 hours” in advance of the first meeting in the client’s home.

Front 75

Gloria owns an annuity in which she has invested $5,000 ayear for 10 years. She is currently receiving $8,000 annually from her annuity.By the time all of the principal and interest is paid out, Gloria will havebeen paid $100,000. How much of the annual benefit is taxable?

Back 75

$4,000

Explanation

Total invested amount is $50,000; totalaccount 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.

Front 76

Which statement is falseconcerning insurance company regulations?

Back 76

An insurer suffering from animpairment of their minimum required paid-in capital is labeled solvent.

Explanation

Insurers suffering from an impairment of paid-in capital areinsolvent.

Front 77

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

Back 77

An employee insures their employerin the fear of losing their job

Explanation

While “blood and business” can be used as a way to remember theinsurable interest relationship; employees do not have an insurable interestrelationship with their employer.

Front 78

All of the following statements about policy provisions aretrue, except:

Back 78

Death during the grace periodresults in a full death benefit being paid.

Explanation

The missed premium will be deducted from the full death benefitif death occurs during the grace period.

Front 79

A client has a history ofDUIs. To his insurer, they see him as a ________ hazard.

Back 79

Morale

Explanation

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

Front 80

Which statement about reinstatement is false?

Back 80

The reinstated policyis incontestable if the first time it was in force it already passed thetwo-year mark.

Explanation

A reinstated policy will be contestable againfor another two years.

Front 81

The person who will receive the benefit of an annuity andwhose life the payout is based upon when the contract is purchased is the:

Back 81

Annuitant

Explanation

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

Front 82

The Roth and Traditional IRAs have some similarities. Whichof the following is not true?

Back 82

Both are tax deductible to theinvestor

Explanation

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

Front 83

A policy pays the face amount if the insured dies before aspecified date, or lives to that specified date. This best describes:

Back 83

An endowment policy

Explanation

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

Front 84

All of the following statements about life insurance policyillustrations and the senior market are correct, except:

Back 84

Guaranteed elements must beemphasized in bold print.

Explanation

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

Front 85

All of the followingstatements about agents are true, except:

Back 85

Exclusive agents work forthemselves.

Explanation

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

Front 86

Which statement is not trueabout insurance sales?

Back 86

Brokers represent insurers innegotiating coverage with various insureds.

Explanation

An agent or broker must exercise care when using apparentauthority during the sales process.

Front 87

In comparing the purchase of individual life insurance toacquiring group life, which statement is not true?

Back 87

Group insurance has a non-deductiblepremium while individual insurance has a tax deductible premium to the payor.

Explanation

Group insurance premium paid by the employeris tax deductible to the employer, while individual insurance premium isnon-deductible.

Front 88

Which of the following is not a personal use of lifeinsurance?

Back 88

A client buys insurance to fund abuy-sell agreement.

Explanation

Buy-sell agreements are typically bought by partners in abusiness as a personnel/business use of insurance. The others are examplespersonal/family uses of insurance.

Front 89

All of these statements about life insurance settlementoptions are false, except:

Back 89

Life income with 10 years certainprovides at least 120 months of payments.

Explanation

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

Front 90

Under which life settlement option does the insurer retainthe death benefit but pays the beneficiary the earnings on the death benefit?

Back 90

Interest only option

Explanation

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.

Front 91

Any person to whom the commissioner has issued a seizureorder and who refuses to deliver any books, records, or assets of an insurerfaces:

Back 91

A misdemeanor punishable by a fineup to $1,000, a year in jail, or both.

Explanation

Crimes of this nature are misdemeanors. There are various levelsof punishment based upon the level of damage done to the insurer and itsclients.

Front 92

The insured dies 6 months after the policy issue date. Upondeath of the insured, it is determined that the applicant made a materialmisstatement on the application. What is the most likely course of action forthe insurer?

Back 92

Rescind the policy

Explanation

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

Front 93

All of the following describe differences between bindingreceipts and conditional receipts, except:

Back 93

No claim is paid with either receiptuntil a policy is issued

Explanation

Under a binding receipt a claim would be paid even if the policywas not issued yet. Binding receipts tend to be used for property insurance.

Front 94

According to the California DOI, an insurer whose articlesof incorporation are registered in Oslo, Norway, is considered:

Back 94

An alien insurer

Explanation

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

Front 95

Which of the following riders would provide for an insuredto increase the face amount of their life insurance policy without proof ofinsurability?

Back 95

Guaranteed insurability/futurepurchase option

Explanation

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

Front 96

What non-forfeiture option allows a policy owner to use theexisting cash value to purchase a policy of the same face amount as theoriginal policy but for a reduced amount of time?

Back 96

Extended term insurance

Explanation

The nonforfeiture option that results in a paid-up policy withthe same face amount as the original policy is the “Extended Term” option.

Front 97

In which type of policy does the insurer apply flexiblepremium to pay for the cost of insurance and expenses and then uses theremaining balance plus interest to build the cash value account?

Back 97

Universal life

Explanation

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

Front 98

Which of the following isnot a qualified 1035 exchange?

Back 98

A variable annuity exchanged for afixed annuity.

Explanation

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

Front 99

Which of the following isnot an acceptable underwriting classification?

Back 99

Declined

Explanation

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

Front 100

The provision that protects the proceeds of a life insurancepolicy from attachment by the beneficiary’s creditors after the insured’s deathis known as the:

Back 100

Spendthrift (Trust) Clause.

Explanation

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

Front 101

Which of the following is an incorrectstatement about a client’s privacy rights?

Back 101

A client does not have access totheir MIB report as it belongs to the member’s life insurers.

Explanation

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

Front 102

In a group life policy witha death benefit of more than $50,000:

Back 102

Premium cost for insurance above$50,000 is taxable as income to the employee.

Explanation

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

Front 103

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

Back 103

Sign a consent form

Explanation

Physicians require the patient’s written authorization torelease patient information.

Front 104

The Commissioner can denyan applicant for a license after a hearing:

Back 104

If the applicant has permittedsomeone in their employment to violate the California Insurance Code.

Explanation

Applicants allowing others to violate the insurance code wouldbe suspect for further violations.

Front 105

At age 72, Mrs. Smith is considering applying for Medi-Calso she can afford her medical bills. Today Agent Charles is visiting her homeand wanting to sell her an annuity product. Which of the following is true?

Back 105

Agent Charles cannot allow Mrs.Smith to purchase an annuity if after the purchase, Mrs. Smith wouldn’t qualifyfor Medi-Cal.

Explanation

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

Front 106

What is the minimum number of members required for grouplife insurance?

Back 106

10

Explanation

10 is the minimum per the CIC.

Front 107

Which statement below is least correct regarding the type ofinsurance that fits best with the applicant’s needs?

Back 107

Convertible term can be purchased byapplicants who may require a larger death benefit in the future.

Explanation

Convertible term converts to a cash value policy with the samedeath benefit but at a higher premium.

Front 108

Which of the following is considered ordinary insurance?

Back 108

Mortgage redemption

Explanation

Mortgage redemption must be ordinary or individual insurance,while whole life and term can be group or individual. Blanket insurance isgroup insurance.

Front 109

Who submits a request for life insurance to a company?

Back 109

The applicant

Explanation

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

Front 110

All of the following needs to be included on an applicationfor life insurance except:

Back 110

Disability income insurance

Explanation

Disability income insurance is not material to a life insurancecontract.

Front 111

A partial payment of proceeds to cover final expenses ispaid to someone not designated as a beneficiary but acting in a legal orfiduciary capacity. This is provided in which provision?

Back 111

Facility of Payment

Explanation

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

Front 112

While collectingunderwriting information, certain rules must be followed. Which of thefollowing is incorrect?

Back 112

Post-claims underwriting is a validand necessary means of determining the insurability of a potential applicant.

Explanation

Post-claims underwriting is a prohibited process in disabilityinsurance. All underwriting must be completed prior to issuing the policy; itis illegal to do more underwriting after a claim has been filed.

Front 113

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

Back 113

65

Explanation

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

Front 114

Which of the following statements is not included in theEntire Contract clause?

Back 114

Insurer agrees to provide lifeinsurance protection for the named insured which will be paid to a designatedbeneficiary when proof of death is received by the insurer.

Explanation

This describes the Insuring clause.

Front 115

Which action by an insurer, or its representatives, is notconsidered an unfair claims violation?

Back 115

An agent advises a claimant toobtain the services of an attorney.

Explanation

It is only an unfair claims practice to advise a claimant to NOTobtain an attorney. A claimant always has the right to seek council.

Front 116

All of the following statements are true about participatingand nonparticipating policies, except:

Back 116

Non-participating policies issuedividends to policy owners.

Explanation

Dividends on non-participating policies are paid toshareholders.

Front 117

All of the following statements about assignments are notfalse, except:

Back 117

Assignments need not be filed withthe insurer if notarized and filed in county records.

Explanation

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

Front 118

How many hours of continuing education are required perrenewal for a life-only agent?

Back 118

24 hours, 4 of the hours must be inethics

Explanation

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

Front 119

All of the following statements about a policy grace periodare false, except:

Back 119

Grace periods are typically 31 days.

Explanation

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

Front 120

A client has missed her premium payment on her cash valuepolicy, and the grace period has also lapsed. The policy is still in forcebecause her insurer has been deducting the cost of the premium from her cashvalue. What provision allows this?

Back 120

Automatic Premium Loan

Explanation

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

Front 121

Which insurance is known for having a level premium with afixed rate of return resulting in guaranteed cash value?

Back 121

Whole Life

Explanation

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

Front 122

A forty-five-year-old investor has been laid off from hisjob. In order to pay bills, he takes a premature distribution from histraditional IRA account. What tax penalties, if any, will he face?

Back 122

He will be required to pay a 10% taxpenalty on the amount withdrawn.

Explanation

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

Front 123

For a flexible premium deferred annuity, the time duringwhich the owner makes premium payments and the time before benefit paymentsbegin is known as the:

Back 123

Accumulation period.

Explanation

The time during which the account owner invests money in theannuity is known as the accumulation period.

Front 124

An agent who knowingly misrepresents material informationfor the purpose of inducing a client to lapse, forfeit, change or surrender alife insurance policy or annuity has committed an illegal practice known as:

Back 124

Twisting

Explanation

This is the definition of twisting, which is an unfair tradepractice.

Front 125

An applicant has the rightto know that the insurance company will collect certain personal informationabout their credit, character and reputation. The insurer may gain suchinformation from:

Back 125

A consumer report.

Explanation

A consumer report includes information about apotential client’s credit, character and reputation. This report may beobtained by the insurer during the underwriting process.

Front 126

A client has purchased an annuity with an annual bonus shereceived at the end of last year. She has requested annual benefit payments tostart at the end of this year. What type of annuity did she purchase?

Back 126

Single Premium Immediate Annuity

Explanation

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

Front 127

Which of the following cannot be used in a policyillustration if non-guaranteed elements are intended to pay future premiums?

Back 127

Vanishing premiums

Explanation

This is true about policy illustrations according to theCalifornia Insurance Code.

Front 128

Premiums paid into a variable annuity purchase which of thefollowing?

Back 128

Accumulation units

Explanation

Variable annuity premiums purchase accumulation units during theaccumulation period.

Front 129

Variable insuranceand variable annuity products are regulated by:

Back 129

SEC, FINRA and DOI.

Explanation

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

Front 130

Which of the following is most likely to have a TSA?

Back 130

School district employee

ExplanationTax Sheltered Accounts (TSA) are retirement programs fornot-forprofit institutions such as school districts, churches, charities, etc.

Front 131

Which of the following is not excluded from the CaliforniaLife and Annuity Replacement Law?

Back 131

Purchasing a new policy that willtake the place of an existing policy

Explanation

Any transaction in which a client purchases a new policy withthe intention of cancelling an existing policy is considered to be areplacement transaction.

Front 132

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

Back 132

5 years

Explanation

Agent records must be kept for 5 years.

Front 133

For an insurance contract,utmost good faith means:

Back 133

Each party relies upon thetruthfulness of the other.

Explanation

The policy owner will be indemnified in case of loss.

Front 134

Which type of insurer requires an attorney-in-fact overseenby an advisory committee of subscribers?

Back 134

Reciprocal insurer

Explanation

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

Front 135

Brian purchased a variable life policy and died 25 monthsafter the issue date. It is then discovered that Brian understated his age onthe application. What will the insurer do in regard to the payment of the deathbenefit to the beneficiary?

Back 135

The death benefit will be reduced toreflect the age discrepancy.

Explanation

The misstatement of age provision states that the insurer will“make it right” by adjusting the death benefit accordingly. This provision isnot subject to the incontestable clause.

Front 136

All of the following aretrue about key person insurance, except:

Back 136

The death benefit is taxable to thebusiness.

Explanation

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

Front 137

Which statement best describes “agreement” as it relates tocontracts?

Back 137

One party accepts the exact terms ofthe other party’s offer.

Explanation

Agreement includes both an offer and its acceptance.

Front 138

Profit Sharing Plans:

Back 138

Allow for a contribution of aspecified proportion of company profits.

Explanation

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

Front 139

When an applicant makes a material statement believed to betrue to the best of their knowledge, the statement is considered to be a/an

Back 139

Representation

Explanation

A representation is true to the best of the applicant’sknowledge.

Front 140

Which of the following becomes part of the contract, isguaranteed to be true, and if untrue, may be grounds for rescinding the policy?

Back 140

Warranty

Explanation

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

Front 141

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

Back 141

Express authority, implied authorityand apparent authority.

Explanation

An agent has three (3) types of authority which stem from theagency relationship. Express authority is written in the contract. Impliedauthority is not written, but is assumed based on common business practices.Apparent authority is action taken by the agent leading the consumer to believethe agent works for the insurer, i.e. business cards.

Front 142

Ashley, the policy owner and insured, named Wendell asprimary beneficiary and Barbara as contingent beneficiary. Just six (6) weeksprior to Ashley’s death, Wendell and Barbara are killed in a common disaster.The insurance proceeds will be received by whom?

Back 142

Ashley’s estate

Explanation

If both the primary and the contingent beneficiaries predeceasethe insured and no other beneficiaries are named, the face amount distributionwill be paid to the insured’s estate.

Front 143

Which of the followingstatements is false in regard to a Life Paid-up at-65 whole life policy?

Back 143

The policy will endow at age 65.

Explanation

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

Front 144

A policy owner who cannot borrow the equity, changebeneficiaries, assign a policy or stop paying premiums without thebeneficiary’s written consent has designated the beneficiary as a(n):

Back 144

Irrevocable beneficiary

Explanation

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

Front 145

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

Back 145

Policy owner

Explanation

The policy owner/policy holder is usually the payor and hasauthority to decide who receives the proceeds.

Front 146

Term insurance is best described by which of the following?

Back 146

Provides temporary protection,builds no cash value, is less expensive, and may be renewed.

Explanation

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

Front 147

An insurer invests the cash value of a fixed annuity inwhich of the following assets?

Back 147

General account

Explanation

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

Front 148

In life insurance, beneficiary succession is the method usedto determine who will receive death proceeds. If the primary beneficiary is notliving upon the death of the insured who will receive the payment?

Back 148

Contingent beneficiary

Explanation

Contingent/secondary beneficiary is the individual who has theright to receive the face amount of the policy if the primary beneficiary hasdied and no new primary beneficiary has been named.

Front 149

Situations where the riskis increased by slippery floors, a habit of lying, or reckless drunk drivingare best described by which of the following?

Back 149

A hazard

Front 150

Which of the following arecharacteristics of renewable term?

Back 150

Allows the policy owner theopportunity to renew the policy at the end of term, without evidence ofinsurability. The premium will increase.

Explanation

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