A family's need for income is greatest during the
Family Dependency Period
Time after the insured has died, leaving a surviving spouse with dependent children to support.
Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds?
Vacation travel expenses
THere are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Vacation expenses are most likely to be considered a luxury and not a need.
Which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone's life when using the needs approach?
A. Outstanding debt
B. Mortgages
C. Expenses
D. Estimated longevity
D. Estimated Longevity
There are four main types of information that an insurer needs to obtain in order to determine the value of some's life: debt status, income, mortgage, and expenses. Longevity is not a factor in the personal financial planing proces
What falls in the category of costs associated with death?
Costs would take into account final medical expenses the insured, funeral expenses, and a day to day expenses of maintaining the family including rent or mortgage payments, car payments, utilities, groceries, etc.
What is the preretirement period?
Period after children are no longer dependent upon surviving spouse for support, but before surviving spouse qualifies for social security benefits.
What is the human life Value approach?
Human Life Value Approach gives the insured an estimate of what would be lost to the family in the event of premature death of the insured. Calculates and individuals life value by looking at the insured's wages, inflation, number of years to retirement,
What is the needs approach?
Based on predicted needs of a family after the premature death of an insured.
Some factors are income, amount of debt, investments, and other ongoing expenses.
What is a Key person Insurance?
Business suffers a financial loss because of the premature death of a key employee--someone who has a specialized knowledge, skills or business contacts.
What is it when buy-sell insurance?
Buy Sell Insurance is a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. Also, referred to as business continuation agreement.
Cross Purchase
Used in partnerships when each partner buys a policy on the other
Entity Purchase
When the partnerships buy the policies on the partners
Stock Purchase
used by privately owned corporations when each stockholder buys a policy on each of the others
Stock redemption
when the corporations buys one policy on each shareholder
In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?
THE CUSTOMER'S ASSOCIATES, FRIENDS, AND NEIGHBORS PROVIDE THE REPORT'S DATA.
Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of repo
Which of the following must be disclosed in all advertisements and policies of term life insurance for individuals 55 years of age or older?
Insurance monetary value index
When a term life insurance monetary value index is adopted by the commissioner, it must be disclosed in all advertisements and policies of term life insurance for individuals age 55 and older.
Which of the following is an example of liquidity in a life insurance contract?
Cash Value available to the policy owner:
Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.
Which of the following is NOT true regarding the Needs Approach method of determining the value of an individual's life?
Need is predicted using the number of years until the insured's retirement.
NEEDS APPROACH: need is determined by the predicted needs of the family after the premature of the insured, which must be assumed will happen immediately. The policy allows for be
Why should the producer personally deliver the policy when the first premium has already been paid?
To help the insured understand all aspects of the contract.
It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.
If an insured changes his payment plan from monthly to annually, what happens to the total premium?
Decreases, because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.
If a business owner becomes totally disabled, a business overhead expense policy will pay all of the following EXCEPT
A. Utilities
B. Employee payroll
C. Loss of the owner's income
D. Rent
C. Loss of the owner's income
If business owners want coverage for the loss of their own income due to total disability, they need to purchase a separate individual disability income policy.
The mode of premium payment
Frequency and amount of the premium payment.
Refers to frequency policy owner pays the premium: monthly, quarterly, semiannually, or annually.
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?
3 days: investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?
Executive is the owner and executive pays the premium.
Exec buys policy and pays premium, employer reimburses the executive for cost. Exec receiving compensation, the amount paid by the employer would be considered taxable income.
If an insurer issued a policy based on the application that had unanswered questions, which of following will be TRUE?
The policy will be interpreted as if the insurer waived its right to have an answer on the application.
Unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interp
Stranger-originated life insurance policies are in direct opposition to the principle of
Insurable Interest
because the purchaser of a stranger originated life insurance policy doesn't know the insured, or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.
A return of premium term life policy is written as what type of term coverage?
INCREASING
Return of premium (ROP) life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.
When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy?
They can convert their coverage to permanent life insurance without evidence of insurability.
Family Members may convert their term coverage to permanent insurance if requested within the time stated in the policy.
When would a 20-pay whole life policy endow?
When the insured reaches age 100.
A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however completely paid off in 20 years.
An insured buys a 5 year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?
It will increase because the insured will be 5 years older than when the policy was originally purchased.
The premium will remain level during the entire level premium term (5 years) policy period. If the policy renews at the end of the term, the premium
A policy owner of a universal life policy may skip paying the premium and the policy will not lapse as long as
The policy contains sufficient cash value to cover the cost of insurance.
Universal Life insurance, policy owner may skip premium payment without lapsing the policy as long as the policy contains sufficient cash value at the time to cover the cost of insu
Which statement is NOT true regarding a Straight Life policy?
A. Face value of policy is paid to the insured at age 100.
B. Usually develops cash value by the end of the third policy year.
C. It has lowest annual premium of the three types of Whole Life p
D. its premium steadily decreases over time, in response to its growing cash value.
Straight Life Policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.
The type of insurance sold to a debtor and designed to pay the amount due on a loan if the debtor dies before the loan is repaid is called
Credit Life
Credit life is most often sold by lenders and is term insurance written with a face amount and term that is matched to the amount and length of the loan period.
Which policy component decreases in decreasing term insurance?
Face amount:
Face amount because decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.
Which of the following is NOT allowed in credit life insurance?
Creditor requiring that a debtor buys insurance from a certain insurer.
In credit life insurance, creditor may require that the debtor has a life insurance, but they cannot tell you who to buy the insurance from.
Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?
Option B
Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to
Which of the following is called a "second-to-die" policy?
Survivorship life
Survivorship life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.
The policy owner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?
The death benefit can be increased by providing evidence of insurability.
The policy owner (insured) would need to prove insurability for the amount of the increase.
To sell variable life insurance policies, an agent must received all of the following EXCEPT
NOT: A SEC registration
NEEDS: life insurance license, FINRA registration, Securities license.
Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SE
The following are features of the indexed universal life EXCEPT
A. Policy's cash value is dependent on the performance of the equity index.
B. Sale of this product requires a securities license.
C. Flexible premium.
D. Adjustable death Benefit
C. Sale of this product requires a securities license.
Indexed Universal Life policies have named of the same features as the Universal Life: flexible premiums, adjustable death benefits, and an investment component. However, the policy's cash value is de
All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy?
Lower
Survivorship life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivor ship life pays on the last death rather than upon the first death. Since the deat
Which of the following is TRUE about a class designation?
Beneficiaries are not identified by name.
A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the in
The ownership provisions entitles the policy owner to do all of the following EXCEPT
A. Receive a policy loan
B. Assign the policy
C. Designate a beneficiary
D. Set premium rates
D. Set premium rates
The insurer sets premium rates based upon underwriting considerations.
Which nonforfeiture options provides coverage for the longest period of time?
Reduced Paid up, is a nonforfeiture option that provides protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.
When a reduced paid up nonforfeiture option is chosen, what happens to the face amount of the policy?
It is reduced to the amount of what the cash value would buy as a single premium.
In a reduced paid up policy, the original policy's cash is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name.
The paid up addition option uses the dividend
TO purchase a smaller amount of the same type of insurance as the original policy.
Dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.
According to the entire contract provision, what document must be made part of the insurance policy
A copy of the original application must contain a copy of the original application.
Which of the following is TRUE about the 10 day free look period in a life insurance policy?
It begins when the policy is delivered
The 10 day free look provision is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid.
An insured pays $1,200 annually for her life insurance premium. the insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What options does this describe?
Reduction of Premium
The reduction of premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.
What is the other term for the cash payment settlement option?
Lump Sum
Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.
An insured wants to change from an annual premium mode to a monthly premium mode. Which of the following is true?
This change can only be made on the policy's anniversary.
The frequency of premium payments can be changed on the policy's anniversary date, provided that the payment is not less than a minimum amount that the insurer requires.
The automatic premium loan provision is activated at the end of the
Grace Period:
Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.
What happens when a policy is surrendered for its cash value?
Coverage ends and the policy cannot be reinstated.
Z falls from the roof of his house while fixing it and damages his spinal column enough to render him disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will Z receive?
Monthly premium waiver and monthly income
The Disability Income Benefit rider waives the policy premiums, just like the waiver of Premium rider. Unlike the waiver of premium rider, it also allows the insured to receive a weekly or monthly income during th
Every long term care insurer in CA must submit to the commissioner a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long term care insurance. These submitted agent lists must be updated at le
Semiannually
According to CIC10234.93, the insurer must submit an updated list semiannually of all agents to solicit long term care insurance.
A long stretch of national economic hardship causes 7% rate of inflation. A policy owner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?
Cost of living Rider
Cost of living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep
All of the following are the responsibilities of every long term care insurer in CA except
Provide enough business to solicit long-term care insurance
Long-term care insurers must maintain strict requirements. These include establishing marketing procedures to assure that comparison is fair and accurate and to assure that excessive insurance is
A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called
Cost of Living Rider adjusts the face amount of the policy to maintain the relationship of the face amount and increases in the cost of living.
What is the waiting period on a waiver of premium rider in life insurance policies?
6 months
Most insurers impose a 6 month waiting period from the time of disability until the first premium is waived.
M is the owner of a $100,000 life policy with a triple indemnity rider for accidental death. When M is killed in a car accident, it is determined that the accident was his fault. The triple indemnity rider in M's policy specifies that the death must not b
$100,000. It was the insureds fault so triple indemnity rider doesn't apply. Death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death,
All of the following are features and requirements of Living Needs Rider EXCEPT
Diagnosis must indicate that death is expected within 3 years
Living Needs Rider provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years.
At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called
Guaranteed insurability
Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called
Waiver of premium
Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insure and the waiver of cost of insurance is found in Universal
All of the following are true regarding the guaranteed insurability EXCEPT
This rider is available to all insureds with no additional premium
Guaranteed insurability may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, th
In general terms, IRA contributions
Are tax deductible
Individuals who are not covered by an employer-sponsored plan may deduct the full amount of their IRA contributions regardless of their income level.
Why is an equity indexed annuity considered to be a fixed annuity?
It has a guaranteed minimum interest rate.
While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.
All other factors being equal, which of the following types of annuities will generally provide the highest monthly income?
Straight life
Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; therefore, it has the potential to provide the highest monthly income. Any time a "period certain" option is included, it will reduce the month
All of the following statements about equity index annuities are correct EXCEPT
The annuitant receives a fixed amount of return
Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would y
All of the following employees may use a 403(b) plan for their retirement EXCEPT
CEO of a private corporation
Not all public employees are eligible for 403(b) plans, or tax sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.
Which of the following is TRUE for both equity indexed annuities and fixed annuities?
They have a guaranteed minimum interest rate.
While equity indexed annuities earn higher interest rates than fixed annuities, both types guarantee a specific minimum interest rate.
Who is eligible to purchase an IRA?
Anyone under the age of 70 1/2 who has earned income
Which of he following is NOT a legitimate use of annuities by businesses?
Creating a tax shelter
Annuities are most often used by businesses to fund employee retirement plans, to provide deferred compensation for employees or an investment vehicle.
The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE?
The beneficiary will receive the greater of the money paid into the annuity or the cash value.
If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or receives the m
Which of the following is NOT true regarding the accumulation period of an annuity?
It would not occur in a deferred annuity
Accumulation period is the period of time over which the annuitant makes payments into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case i
Which of the following is NOT true regarding the annuitant
The annuitant cannot be the same person as the annuity owner.
While they don't have to be, the annuitant and annuity owner are often the same person. The Annuitant is the person who receives benefits or payments from the annuity and for whom the annuity i
How are the contributions to a tax-sheltered annuity treated with regards to taxation?
They are not included as tax income for the employee, but are taxable upon distribution.
Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal
An insured has the right to cancel a policy by written notification to the insurer. This notification may be mailed to the insurer or returned to the original agent who made the sale. Upon receipt of the cancellation request, the insurer will
Refund any premiums and policy fees within 30 days of notice if the policy is within the cancellation period specified by the insurer.
An insurer has 30 days from notification of cancellation to refund any premiums and policy fees and return the parties t
Every individual life insurance policy must provide for a free-look provision that lasts for at least
10 days
Insurers must allow individual life insurance customers the ability to return their new policy within 10-30 days( this time period is up to the insurer) for a full refund.
During the free-look period, the premium for a variable annuity may be invested in all of the following EXCEPT
Value funds
During the 30-day cancellation (free-look) period, the premium for a variable annuity may be invested in fixed-income investments and money-market funds, unless the investor specifically requests that the premiums be invested in the mutual fun
Which of the following is true regarding a policy with a face value less than $10,000?
If it's returned during the free look period, the agreement will be void.
IF the owner returns the policy within the free look period, the agreement will be void from its beginning. All premiums and any policy fees that have already been paid must be refu
Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance
Replacement Rule
Anytime a new policy is issued that replaces or modifies existing insurance, a replacement form must be submitted to the ceding company.
To which of the following situations does the Replacement Regulation apply?
Whole life insurance
Replacement Regulation does not apply to credit life, group life and group annuities, or transactions with the same insurer.
Which of the following insureds has a right to cancel an individual policy within 30 days?
Insureds 60 years of age or older.
If the insured on the individual life policy is 60 years of age or older, the right of rescission for a full refund must last for at least 30 days.
During the cancellation period, an insurer must refund any premiums and policy fees within how many days of written cancellation notice by the insured?
30
Once the insurer receives notification of rescission , the company has 30 days to issue the refund of premiums and policy fees.
Any insurer who engages in the insurance business and violates the Code with respect to insurance replacement shall on the first violation?
Be fined a sum of $10,000
An insurance company that violates the replacement provision of the Code will be fined $10,000 for the first time offense.
An insurer has been found guilty of a Code Violation regarding replacement. The insurer then repeats the violation. What will be the minimum penalty?
$30,000
Additional violations of replacement article by an insurer will result in increased fines ($30,000 to $300,000). Commissioner may suspend or revoke the license of any person or entity that violates this article.)
Every policy of an individual life insurance must include a notice of right to cancel the policy, stating the specific time frame for the free-look period. Once the insure has cancelled the policy, within how many days must the insurer refund all premiums
30 days
All premiums and policy fees paid for the policy must be refunded by the insurer to the owner within 30 days from the date that the insurer is notified that the insured has cancelled the policy.
During replacement of life insurance, a replacing insurer must do which of the following?
Obtain a list of all life insurance policies that will be replaced
The replacing insurance company must require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to
Social security was created to protect against all of the following except
Bad investment choices
Social security is a federal program enacted in 1935, that is designed to provide protection for eligible workers and their dependents, against financial loss due to death, disability, superannuation (retirement income), and sicknes
Which of the following is NOT a factor determining qualifications for social security disability benefits?
Worker's occupation
A workers specific occupation is not a factor in determining benefits, so long as the workers has earned the required amount of work credits.
If a person is disabled at age 27 and meets social security's definition of total disability, how many work credits must he/she have earned to receive benefits?
12 work credits
Persons disable between ages 24 and 31 can qualify for benefits if they have credit for having worked half of the time between 21 and the start of the disability. For example, if joe becomes disabled at age 27, he would need 12 credits (or
A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insura
The purpose of the group was to purchase life insurance.
In order to qualify for small group life insurance, a group must be formed for a purpose other than attaining life insurance.
All of the following are general requirements of a qualified plan EXCEPT
The plan must provide an offset for social security benefits.
Plans must meet the general requirements established by the RIS
When employees are covered by group insurance, they receive
A certificate of insurance
The employer receives original contract, but employees need only be given a certificate of insurance showing their coverage and privileges.
Which of the following is the required number of participants in a contributory group plan?
75%
Under a contributory plan, an insurer will require that 75% of eligible employees be included in the plan.
For a retirement plan to be qualified, it must be designed for the benefit of
Employees.
Qualified plans are designed for the exclusive of the employees and their beneficiaries.
A employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his
Attained age
If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. The insurer will determine what types of policy an employee may convert to, but
If a retirement plan or annuity is "qualified," this means
It is approved by the IRS
A qualified retirement plan is approved by the irs, which then gives both the employer benefits such as deductible contributions and tax deferred growth
Who is a third party owner?
A policy owner who is not the insured
Legal term used to identify an individual or entity that is not an insured under the contract, but that has legal enforceable right under it.
Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policy owner?
Third Party ownership
Contracts that are owned by someone other than the insured are known as third party ownership. Most policies involving third party ownership are written in business situations or for minors in which the parent owns the policy.
What type of annuity activity will cause immediate taxation of the interest earned?
Surrendering the annuity for cash
One-sum cash surrenders give rise to immediate taxation of the interest earned.
The premiums paid by the employer in a business life insurance policy are
Tax deductible by the Employer
Premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit are tax deductible to the employer as a business expense.
Death benefits payable to a beneficiary under a life insurance policy are generally
Not subject to income taxation by the federal government
When premiums are paid with after tax dollars, the death benefit is generally not subject to federal income taxation.
What part of the internal revenue code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences?
Section 1035 Policy Exchange
As long as the funds are transferred intact and the form is filled, taxation is deferred.
What is the main purpose of the Seven-pay test?
It determines if the insurance policy is an MEC
The seven-pay test determines whether an insurance policy is "over-funded" or if it's a modified endowment contract. In other words, the cumulative premiums paid during the first seven years of a policy must
Which of the following statements regarding the taxation of modified endowment contracts (MEC) is FALSE?
Withdrawals are not taxable.
Any distributions from MEC's are taxable, including withdrawals and policy loans.
An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay
50% tax on the amount not distributed as required.
When immediate annuities are used to pay IRA benefits distributions must begin no later than age 70 1/2 in order for the annuitant to avoid penalties. The penalty is 50% of the shortfall from the required
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is
A Modified Endowment Contract (MEC)
Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract.
Which of the following is NOT an allowable 1035 exchange?
A whole life insurance policy is exchanged for a term insurance policy.
The key is that the exchange may not be from a less tax-advantaged contract to a more tax-advantaged contract. "same to same" is acceptable.
Which of the following terms is used to name the nontaxed return of unused premiums?
Dividend
The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.
In life insurance policies, cash value increases
Grow tax deferred
Generally life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid.
L as a major medical policy with a $500 deductible and 80/20 coinsurance. L is hospitalized and sustains a $2,500 loss. What is the maximum amount that L will have to pay?
$900 (deductible + 20% of the bill after deductible [20% of $2,000])
L would first pay the $500 deductible; out of the remaining $2,000, the insurer will pay 80% ($1,600) and the insured will pay 20% ($400).
In which of the following situations is it illegal for an insurer to disclose privileged information about an insured?
A researcher for marketing purposes
There are certain circumstances in which it is legal for an insurer to disclose privileged information about an insured, including law enforcement, auditing, and legal purposes.
On a health insurance application, a signature is required from all of the following individuals EXCEPT
The spouse of the policy owner
Every health insurance application requires the signature of the proposed insured, the policy owner (if different than the insured), and the agent who solicits the insurance.
Which of the following is NOT a feature of a guaranteed renewable provision?
The insurer can increase the policy premium on an individual basis.
Guaranteed renewable provision has all the same features that the noncancelable provision does, with the exception that the insurer can increase the policy premium on the policy anniversa
Which of the following describes the taxation of an annuity when money is withdrawn during the accumulation phase?
Withdrawn amounts are taxed on a last in, first out basis (LIFO)
When money is withdrawn from the annuity during the accumulation phase the amounts are taxed on a last in first out basis (LIFO). therefore, all withdrawals will be taxable until the owner's
Which of the following terms most precisely fits the definition of "the incidence or probability of sicknesses or accidents within a given group of people?
Morbidity
The incidence or probability of a sicknesses or accidents within a given group of people.
Mortality -interest + expense=
Gross premium
If "mortality" represents the cost of insured mortality, "interest" represents the interest earned by an insurer, and "expense" represents company operating costs, then the interest is subtracted from the cost of mortality, yielding the net
An insured is hospitalized with a back injury. Upon checking his disability income policy, he learns that he will not be eligible for benefits for at last 30 days. This indicates that his policy is written with a 30 day
Elimination period
The time immediately following the start of a disability when benefits are not payable. This is used to reduce the cost of providing coverage and eliminates the filing of many claims.
A husband and a wife both incur expenses that are attributed to a single major medical insurance deductible. Which type of policy do they have?
Family
IN a family deductible, expenses for two ore more family members can satisfy a common deductible in a given year, regardless of the amount of expenses incurred by other family members.
The insured's health policy only pays for medical costs related to accidents. Which of the following types of policies does the insured have?
Accident-only
Accident-only policies cover medical benefits related to an accident. Medical conditions related to sickness are not covered.
Upon the submission of a death claim under a life insurance policy, when should the insurer pay the policy benefit?
Immediately after receiving written proof of loss.
Death proceeds under a life insurance policy are due as soon as the insurer receives written proof of loss.
Health coverage becomes effective when the
First premium has been paid and the application has been approved
If the premium has been paid, coverage becomes effective when the company underwriter approves the application.
The probationary period is
A specified period of time that a person joining a group has to wait before becoming eligible for coverage.
all of the following are essential benefits required to be included in all health plans purchased in the market place EXCEPT
Adult dental care is not a required benefit
Which of the following would basic medical expense coverage NOT cover?
Surgeon's services
Not included in BASIC medical expenses
Which of the following components of dental insurance does NOT require the payment of a deductible?
Routine and preventive maintenance does not require the payment of an annual premium or coinsurance, unlike the other two types, which both require deductible payment. Insurers typically do not charge an annual premium or coinsurance in order to provide a
Which of the following is considered a qualifying event under COBRA?
DIVORCE
Other qualifying events include the voluntary termination of employment; an employee's change from full time to part time; or the death of the employee
Regarding a PPO, which of the following is correct when selecting a primary care physician?
All of the above
IN a PPO, insured does not have to select a primary care physician. Conversely, in a PPO , all network providers are considered "preferred," and you can visit any of them, even specialists, without first seeing a primary care physician. C
To be eligible for tax credits under the ACA, individuals must have income that is what percent of the federal poverty line?
Between 100% and 400%
Legal residents and citizens who have incomes between 100-400% of the federal poverty level are eligible for the tax credits
Restoration of benefits is most beneficial to the insured when they
Suffer a large loss
Restoration of Benefits allows the insured to regain their full life time benefit level over a period of time after a large or catastrophic loss.
What happens if a non-member physician is utilized under the Point-Of-Service plan?
Te attending physician will be paid a fee for service, but the member patient will have to pay a higher coinsurance amount.
A group policy used to provide accident and health coverage on a group of persons being transported by a common carrier, without naming the insured persons individually is called
A blanket policy
A single policy covering several certificate holders without naming the insured individually is a blanket policy.
How do employer contributions to a health savings account affect the insured's taxes?
The employers contributions are not included in the individuals insured's taxable income
HSA contributions made by an employer are not included in the determination of an individual's taxable income.
A woman obtains health coverage through the Marketplace on October 1. Two weeks later she finds out that sh is 3 months pregnant. Which of the following is true about coverage for pregnancy?
Pregnancy will be covered immediately.
According to the PPACA rules, what percentage of health care costs will be covered under a bronze plan
Under the bronze plan, the health plan is expected to cover 60% of the cost for an average population, and the participants would cover the remaining 40%
The minimum number of credits required for partially insured status for social security disability benefits is
6 credits
to be considered partially insured, an individual must have earned 6 credits during the last 13- quarter period
Susan has a short-term disability income policy with an "integration of benefits" provision. If she becomes disabled and is also eligible to receive benefits from the state disability insurance program, her policy will
Reduce its benefits by an amount equal to her state disability payments.
The "integration of benefits" provision is designed to prevent a duplication of benefits or "overinsurance
An insured was involved in an accident and could not perform her current job for 3 years. If the insured could reasonably perform another job utilizing similar skills after 1 month, for how long would she be receiving benefits under an "own occupation" di
2 years
Under an Own Occupation plan, if the insured cannot perform their current job for a period of up to two years, disability benefits will be issued, even if the insured would be capable of performing a similar job during that two-year period. After
How is the amount of social security disability benefits calculated?
It is based upon the worker's (PIA) primary insurance amount, which is calculate from their average indexed monthly earnings over their highest 35 years.
What is the elimination period for social security disability benefits
5 months
The elimination period for social security benefits is 5 months
Which of the following refers to "own occupation disability"?
Insured is unable to perform duties of occupation for which they were educated and trained
Under an own occupation plan, if the insured cannot perform duties for their job or the job they were educated/ trained for, disability benefits will be paid, even
All of the following benefits are available under Social Security Except?
Welfare benefits
Social Security is an entitlement program, not a welfare program.
A disability income policy is written with a 10-month benefit period, a 30-day elimination period, and a 30-day probationary period. If the insured becomes disabled due to illness 9 days after the effective date, the policy will pay benefits for a maximum
10 months
Benefit period refers to how long monthly disability benefit payments will last an elimination period has been satisfied.
In the event of a loss, business overhead insurance will pay for
Rent
Business overhead insurance is designed to pay the ongoing business expenses of a small business owner while the are disabled and unable to work. It does not pay the salary of the business owner or their loss of profits. However, it will provide the
Which agreement specifies how a business will transfer hands when one of the owners dies or becomes disabled?
Disability Buy-Sell
The Disability Buy-Sell agreement specifies how a business will pass between business owners if one of the owners dies or becomes disabled.
A small business owner is the insured under a disability policy that funds a buy sell agreement. If the owner dies or becomes disabled, the policy would provide which of the following?
Cash to the owner's business partner to accomplish a buyout.
If an owner dies or becomes disabled, the disability policy under the buy-sell agreement would provide enough cash to accomplish a buyout of the company.
All of the following are true regarding key person disability income insurance EXCEPT
Premiums are tax deductible as a business expense.
In key person disability insurance, the contract is owned by the business, the premium is paid by the business, and the business is the beneficiary. The key person is the insured, and the business must ha
The part of Medicare that helps pay for inpatient hospital care, inpatient care in a skilled nursing facility, home health care and hospice care is known as
Part A
Medicare Part A pays for these services, subject to copayments and limitations on the number of days of care.
What is a share of cost?
the amount an individual has to pay for medical expenses before Medi-cal will cover the rest.
If an individual's income exceeds the Medi-Cal limit for their family size, that individual will have to pay a certain amount, called share of cost (SOC), in the
Which of the following is NOT covered under Plan A in Medigap insurance
The medicare part A deductible
Medicare Supplement Plan A provides the core, or basic, benefits established by law. All of the above are part of the basic benefits, except for the Medicare Part A deductible, which is a benefit offered through nine other p
Which of the following persons is NOT eligible for Medicare?
A person who has been entitled to Social Security disability benefits for the last 6 months.
A person must have been entitled to social security benefits for 2 years to qualify for Medicare.
First-year commission on a medicare supplement policy may NOT exceed?
200% of the 2nd year commission on the same policy.
An agent or other representative that is involved in the sale of Medicare supplement policies may receive commissions as long as the first year commission does not exceed 200% of the commissions paid for
Which of the following is NOT covered by Medicare?
Cosmetic Surgery is excluded from coverage by medicare
If a client has purchased a long term care policy that a HICAP counselor determines to be inadequate for the needs of the client, the counselor will
Inform the client of the inadequacies in the policy
HICAP does not sell policies or recommend agents or companies. It provides free assistance in analyzing policies and explaining coverage to clients.
Which type of medicare policy requires insureds to use specific healthcare providers and hospitals (network providers), EXCEPT in emergency situations?
SELECT
Medicare SELECT policies require insureds to use specific healthcare providers and hospitals, except in emergency situations. In return, the insured pays lower premium amounts.
What is another term for the general enrollment period for Medicare Part B?
Annual enrollment period
General enrollment period, also known as the annual enrollment period, runs from January 1st through March 31st of each year.
If a Medicare insured uses a non-participating in Medicare physician, they may be asked to sign a private contract. Which of the following conditions will NOT apply when the insured signs a private contract with the provider?
Claims should be submitted to Medicare.
When an insured uses services of a non-participating in Medicare physician, the insured and the provider might need to sign a private contract. The insured will have to pay whatever the provider charges for the serv
A medicare supplement plan must have at least which of the following renewal provisions?
Guaranteed renewable
Medicare supplements must be at least guaranteed renewable.
Hospice care is intended for
The terminally ill
Under certain conditions, hospital insurance can help pay for hospice care for terminally ill insureds, if the care is provided by a medicare certified hospice.
An insured's long term care policy is scheduled to pa a fixed amount of coverage of $120 per day. The long term-care facility only charged a $100 per day. How much will the insurance company pay?
$120 a day
Most LTC policies will ay the benefit amount in a specified fixed dollar amount per day, regardless of the actual cost of care.
For which of the following reasons could an insurer terminate a long term care insurance policy?
Nonpayment of premium
An insurer that issues a long term care policy cannot cancel or decline to renew a policy based solely on the age or physical or mental deterioration of the insured.
Who can provide skilled nursing care?
Doctor
Skilled nursing care is daily nursing and rehabilitative care that can only be provided by medical personnel, under the direction of a physician. Skilled care is almost always provided in an institutional setting.
What do living benefit riders do?
They pay part of the policy death benefit to insureds in order to help them fund long-term care or nursing home care.
Living benefit riders allow part of the policy's death benefit to fund long-term care or nursing home care
Which of the following does NOT describe hospice care?
It provides care to people with life expectancies of 1 to 2 years.
Hospice provides short-term, continuous care in a home-like setting to terminally-ill people with life expectancies of 6 months or less.
Every insurer issuing long term care contracts in California must
All of the following:
Establish standards of agent conduct to prevent misleading comparisons of LTC policies.
Be certain that excessive replacements or transactions are not being made.
Notify insureds of the HICAP Program and their right to seek services
In long-term care insurance, what type of care is provided with intermediate care?
Occasional nursing or rehabilitative care
Intermediate care is nursing and rehabilitative care provided by medical personnel for stable conditions that require assistance on less frequent basis than skilled care.
What type of care is Respite care?
Relief for a major care giver
Respite Care is designed to provide relief to the family care giver, and can include a service such as someone coming to the home while the caregiver takes a nap or goes out for a while. Adult day care centers also provide th
Which renewal provision must be included in long-term care policy issued to an individual?
Noncancellable and guaranteed renewable
No long-term care policy issued to an individual may contain renewal provisions other than guaranteed renewable or noncencellable.
In which of the following locations would skilled care most likely be provided?
In an institutional setting
Skilled nursing care is performed under the direction of a physician, usually in an institutional setting.
How many long term care policies can be sold to an insured within a 12-month period before the number of policies is considered to be unnecessary?
2
If the insured buys any more than 2 policies within 12 months, this is considered to be unnecessary and excessive. The exception to this rule is when a person buys a policy that allows them to consolidate coverage.
qualified" long term care policies covering "home care" must provide benefits if the insured is impaired in at least two of the six activities of daily living (ADL). "Impaired" means
Needs substantial "hands on" or "standby" assistance with ADL's
To qualify or benefits, the requirement is for "human assistance" (hands on) or "continual substantial supervision" (standby) when performing the ADL's.
Which of the following would be considered refund of unearned premium?
Dividends
Policy dividends are the underwriting income of mutual insurance companies. They are not income or profit; they are refunds.
The insured provides a proof of claim to the
Insurer
An insured can submit a proof of claim to the insurer after a loss has occurred. This helps to notify the insurer of the loss and provide information on how large or severe the loss was.
Kelley is an "insurance agent" in the state of California. She is able to transact business in all classes of insurance EXCEPT
Life insurance
According to CA code, an insurance agent is able to transact business in all classes of insurance except life or accident and health insurance. Only a "life agent" can transact business for life insurance.
A person DOES NOT work on the behalf of the company for which they do business, but rather represents the prospect, insured, or client is called?
An insurance broker
By definition, a person that does not work on the behalf of the company for which he or she does business, but rathe represents the prospect, insured, or client is called an insurance broker. One key point: a broker is not APPOINTED as
Which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure any person engaged in the business of insurance?
Defamation
Defamation is making statements that are false as to the financial condition of any insurer and which are calculated to injure any person engaged in the business of insurance.
On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of
Misrepresentation
Issuing or circulating any sales material that is false or misleading would be considered misrepresentation and is illegal.
Which of the following can an insured submit to the insurer that would provide evidence of a claim and illustrate how severe the loss is?
Proof of claim
An insured can submit a proof of claim to the insurer after a loss has occurred. This helps to notify the insurer of the loss and provide information on how large or severe the loss was.
An insurer received a claim on May 1st. On May 31st, the claim was approved in its entity. By what date can the claimant expect the payment?
June 30th
Upon acceptance of the claim, insurers are required to provide payment within 30 days.
The commissioner performs all of the duties dictated by the CIC and
Enforces the execution of all provisions and laws
The commissioner is charged with the execution of all laws and codes associated with the insurance business.
An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming?
Foreign
A foreign insurer is domiciled in one state and transacts insurance in another. A domestic insurer transacts insurance in the domicile state (in this case, Montana). An alien insurer is domiciled in one country and transacts insurance in another.
An agent is a legal person who acts on behalf of
The principal
An agent is a legal person who acts on behalf of the principal (insurer).
What is the major difference between a stock company and a mutual company?
Ownership
Mutual companies are owned by policyholders, while stock companies are owned by stockholders.
Which of the following insurers are owned by stockholders who have the usual right of ownership, including the right of voting?
Stock
Only stock insurance companies are owned and controlled by stockholders.
The written instrument, in which a contract of insurance is set forth, is known as the
Policy
According to CIC 380, the written instrument in which a contract of insurance is set forth is the policy.
All of the following must be specified in an insurance policy EXCEPT
Financial rating of the insurer
An insurance policy has 6 requirements: it identifies the parties to the contract; the life or property of the insured; insurable interest; the risks insured against; the period during which the insurance is to continue; an
Factual statements about the insured or the risk in an insurance policy are considered
Express warranty.
Warranties can either be expressed or implied. Statements in a policy are considered express warranty. Every express warranty becomes part of the insurance contract. Implied warranty is an unwritten or unspoken guarantee presumed to be m
Insurance is the transfer of
Risk
Insurance is the transfer of financial responsibility associated with a potential of a loss( risk) to an insurance company.
All of the following are insurable events as defined in the insurance code EXCEPT
An insured loses a large sum in a poker game.
Any event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him/her, may be insured against. Speculative losses are uninsurable
In order for an insurer to legally transact insurance, it must obtain which of the following?
Certificate of authority
Required in order to transact insurance
A contract which one party undertakes to indemnify another against loss is called
Insurance
Contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.
For an insurance contract to be valid in the state of California, when must insurable interest exist?
At the time of application for a policy on the insured
Insurable interest must be established at the time of application and remains valid for the duration of the policy as long as premiums remain current.
In compliance with the California Insurance Code, Individual life insurance policies that are derived in this state must include a disclosure notice on the cover page. This notice should provide all of the following information EXCEPT
Agent's commissions
A disclosure for individual life insurance policies and annuity contracts must notify the recipient of the policy limitations, ways to return the policy, and late cancellation consequences.
Signing and dating a delivery receipt for a life insurance policy helps to establish all of the following timeframes EXCEPT
the grace period
When the customer signs and dates the policy delivery receipt, the exact date of acceptance is established, which starts the incontestability period. The client also has between 10 to 30 days to review the policy and return for a full ref
Life agents must tell applicants when their coverage will start or the conditions required for their coverage to start either a the time of application or
When the first premium is received
Either at the time of application or upon receiving the initial premium, life agents must explain to the applicant when coverage will begin or the conditions that will need to be met in order for coverage to start.
Replacement of life insurance and annuities policies requires for the replacing and existing insurers to retain evidence of all signed applications and disclosures for no less than
3 years
The replacing and existing insurers must retain evidence of all signed applications and disclosures, as well as other materials used in replacement or conversation, for no less than 3 years.
Where must agents keep records associated with insurance transactions?
At their principal place of business
Agents must keep records associated with insurance transactions for at least 5 years. The commissioner can audit these records at any time.
All insurance policies and annuity contracts delivered to senior citizens in the state of California are subject to a cancellation period of at least
30 days
All insurance policies and annuity contracts, other than variable contracts are modified guaranteed contracts, marketed to senior citizens in the state of CA are subject to a cancelation period no fewer than 30 days.
All life and disability policies issued to individuals who are age 65 or older must offer a right to return period of at least how long
30 days
Seniors must be given at least 30 days to examine the policy and, if not satisfied, return it for a full refund.
Paula has a history of severe asthma which caused her to be hospitalized in the past six months. If she discloses this on her application and is approved for her LTC policy, Paula's policy could
Exclude asthma related claims for up to six months
If a policy includes a pre existing condition provision, it cannot exclude the pre existing condition for more than six months after the policy issue date .
If an agent wants to handle workers compensation cases, what type of license must they obtain?
Accident and Health
those agents who handle workers compensation claims must obtain an accident and health agent's license.
California law permits an insured to return a long term care policy for a full refund of premiums paid for any reason
Within 30 days of receiving the policy
All long term care insurance contracts must permit an unconditional "free look" period of at least 30 days following the delivery of the policy.
When a long term care policy is replaced after it has been in effect for at least six months, the new policy may
Not exclude pre-existing conditions that would have been covered by the original contract.
Replacement policies must cover any claim that would have been paid by the original policy. If the insured was still within the six month exclusion period at the ti
All of the following are true in regards to 24 hour coverage EXCEPT
It can be distributed through a life insurance policy.
The terminology "24 hour coverage" comes from the fact that employees are covered "around the clock," i.e. 24 hours a day, 7 days a week, all year. While they are working, employees are covered under
In which Medicare supplemental policies are the core benefits found?
All plans
The benefits in Plan A are considered to be core benefits and must be included in the other types. Therefore, all types contain the core benefits offered by plan A.
Which of the following choices would define 24-hour coverage?
An employee is provided with workers compensation coverage and medical insurance coverage.
Which of the following is true regarding the regulation of providers?
Providers must be under the jurisdiction of either the department of insurance or other government agencies.
All entities that provide coverage designed to pay for health care providers services and expenses must under the jurisdiction of either the depar
Which of the following is a characteristic of a purchasing group?
It purchases liability insurance covering all members on a group basis.
The purpose of a purchasing group is the purchase liability insurance on a group basis.
Any risk retention group must submit to an examination upon the request of the commissioner within
60 days
Upon a request by the commissioner to determine its financial condition, a risk retention group must submit to an examination if, after 60days, the commissioner in the jurisdiction in which the group is chartered and licensed has not initiated the
When an insurer cancels an automobile insurance policy for a reason other than nonpayment of premium, the insurer must meet all of the following requirements EXCEPT
Offer the insured to renew the policy at a different rate
Notice of policy cancellation may be effective only if mailed or delivered by the insurer to the policy owner at least 20 days prior to the effective date of cancellation, accompanied by the reason
Bob surrenders his policy. What return of premium will he receive?
Prorated premium for the insured days in the future that he has already paid for, minus other deductions related to losses.
IF bob's policy was created for a definite period of time and he ends coverage early, he can receive a prorated refund (refund for
Which type of policy specifies the value of the insured object in the policy itself?
Valued
Valued policies specify that the insured property will be valued at a specific sum. Open policies, on the other hand, do not specify a value upfront. Te value is not determined until a loss occurs.
A type of policy that is used to provide a specific amount of replacement cost for a given risk after it has been destroyed is called a
valued policy
a valued policy provides for payment of the full policy amount in the event of a total loss WITHOUT regard to actual value or depreciation.
What type of policy only establishes the value of an insured object when a loss occurs?
Open
Valued policies specify that the insured property will be valued at a specific sum. Open policies do not specify a value upfront. The value is not determined until a loss occurs
California prohibits a risk retention group from engage in which of the following
Risk retention group many not contribute to any insurance insolvency guarantee association funds, nor are its member protected by such plans. They are also not participants in any of the insurance residual markets in the state.
During a house fire, an insured moves an antique chair listed on the policy to a storage unit. In the standard fire policy, how many days will the antique chair be covered at the new location?
5 days
In the Standard Fire Policy, if a covered property is removed rom a location to protect it from an insured peril, the property will be covered at the new location for 5 days.
Which of the following would be considered the most important factor in determining the rates premiums for an applicant for an auto policy?
The applicants driving record
rates and premiums for an automobile insurance policy shall be determined by application of the following factors in decreasing order of importance: the insured's driving safety record; the number o miles he ore she drives an
All of the following statements are TRUE regarding the California Earthquake Authority EXCEPT?
The authority is authorized to transact insurance in this state as necessary to sell policies of basic residential earthquake insurance, and is permitted to sell policies for any other line of insurance coverage.
The authority is authorized to transact in
All of the following are excluded from coverage under a standard fire policy except
Manuscripts and bullion
May be covered if specifically named in writing in the policy
Which of the following is not one of the 3 factors set by state law for determining rates and premiums on automobile insurance policies?
Type of model of vehicle.
California law states that rates and premiums for an automobile insurance policy shall be determined by application of the following factors in decreasing order of importance: (1) The insured's driving safety record; (2) The numb
The rate charged for a good driver discount policy should be at least what percent below the rate the insured would otherwise have been charged for the same coverage?
20%
The rate charged for a Good Driver Discount policy shall be at least 20% below the rate the insured would otherwise have been charged for the same coverage.
California compulsory financial responsibility law requires every driver and every owner of a motor vehicle to maintain financial responsibility (liability coverage) at all times. If you do not have acceptable financial responsibility and have an accident
4 years
Which amount is figured by subtracting depreciation from the replacement cost of a covered item?
Actual cash value
= replacement cost of that property minus depreciation