CA LIFE AND HEALTH INSURANCE EXAM KEY FACTS 77Questions with Answers
The insurance applicant is - CORRECT ANSWER the individual who is applying to
... [Show More] purchase insurance
Before making a sale, the first thing an agent should do is - CORRECT ANSWER identify the applicant's overall
financial objectives.
Key person life insurance - CORRECT ANSWER used by a business to protect itself in case a valued employee
dies. The death benefit would be paid to the company to hire and train a replacement.
Premiums paid for key person life insurance are not tax deductible, but benefits are not
taxable.
If an organization terminates a key employee, the organization will still be eligible to hold a
license as their organization will be unaffected.
Preferred risks - CORRECT ANSWER receive the lowest premium charges as they pose the lowest risk to the insurer.
who selects which risks the insurer will
take on. - CORRECT ANSWER underwriting division within the insurance company
Medical Information Bureau (MIB) - CORRECT ANSWER Life insurance companies are members of the Medical Information Bureau.
Members of the Medical Information Bureau (MIB) are required to report medical
impairments found during the underwriting process.
The HIPAA Privacy Rules - CORRECT ANSWER establish national standards for the use and disclosure of protected
health information.
physician's report. - CORRECT ANSWER When an applicant reveals medical conditions that require more information, the insurer will
usually require an attending physician's report.
- The request for an attending physician's report must be accompanied by a copy of the signed
authorization.
To authorize the release of an attending physician's report, the applicant must sign a consent
form.
nonparticipating policyowner - CORRECT ANSWER will not receive dividends. Nonparticipating policies are
issued by stock insurers. Stock insurers pay dividends to stockholders, not policyholders.
Employees that are covered under a group policy receive certificates of insurance as their
proof of coverage.
three types of ordinary life insurance: - CORRECT ANSWER whole life, endowment, term. Use the
acronym "WET" to remember them. Group insurance is not a type of ordinary life insurance.
Whole life insurance is also known as continuous premium whole life insurance.
what does insurer subtract from premium on universal life - CORRECT ANSWER -the insurer will subtract from it the
mortality and general expenses, then add the current interest and deposit it into the cash value.
The rate of return paid on the cash value of an indexed whole life policy will keep up with
the rate of inflation.
variable life - CORRECT ANSWER -life insurance policy that allows the policyowner to self-direct cash values into different
subaccounts
-Variable insurance products are regulated by the state department of insurance and the
Securities and Exchange Commission (SEC) since they are considered to meet the definition
of a securities product.
A variable/universal life policy has no fixed, guaranteed rate of return.
family policy - CORRECT ANSWER -provides life insurance for an entire family and allows the children to convert
from term to whole life coverage without a physical exam.
A family life insurance policy consists of whole life on one spouse and level, convertible
term on the other spouse and children.
If a payor benefit rider is added to a juvenile life policy, it will waive the premium for the
policy until the child reaches a certain age (often 21) if the parent dies.
joint life policy - CORRECT ANSWER -covers multiple lives and pays out when the first insured dies.
survivorship life insurance: - CORRECT ANSWER quite low compared with those that would be charged for separate policies; it is well situated
to meet the need for cash to cover estate taxes; face amounts are usually more than one
million dollars.
Annually renewable term life insurance - CORRECT ANSWER has a level face amount but an increasing premium.
Decreasing term life insurance - CORRECT ANSWER often used to pay off an outstanding mortgage upon the
death of the borrower.
If an annuitant selects the 10-year period certain annuity payout option - CORRECT ANSWER -it guarantees that if the annuitant dies within the first 120 payments, the remaining payments will be made to the
beneficiary. However, the annuitant will be paid as long as he or she lives (which could be
substantially longer than 10 years).
exclusion allowance - CORRECT ANSWER formula used to determine the amount of annuity distribution
which is taxable.
variable annuity - CORRECT ANSWER variable annuity is one in which the value of an accumulation unit can be multiplied by the
number of units owned in a separate account.
Money invested in variable annuities is held in the insurance company's separate account.
An equity-indexed annuity - CORRECT ANSWER An equity-indexed annuity has a fixed minimum interest rate, and the chance to get a higher
rate of return, like that of the stock market.
Notice Regarding Replacement. - CORRECT ANSWER Both the agent and the applicant must sign the Notice Regarding Replacement.
When replacing a policy, the agent is not required to send a copy of the replacement notice to the existing insurer. The new insurance company will provide notice to the existing insurer.
Replacement is when an agent replaces a customer's current policy with a new one and is not
illegal. However, the agent would not replace the customer's policy if the new policy is worse
and the premium is higher. This would be considered twisting and is illegal.
nonmedical application - CORRECT ANSWER allows the insurer to write a life insurance policy without a
physical exam.
entire contract clause - CORRECT ANSWER entire contract clause states the application is part of the contract if attached when
issued.
conditional receipt - CORRECT ANSWER There is no coverage under a conditional receipt until all conditions are satisfied.
insurance binder - CORRECT ANSWER An insurance binder always creates immediate coverage (which is the main difference
between a binder and a conditional receipt).
A binding receipt provides a limited amount of coverage right away.
Under the California Insurance Code (CIC), life insurance agents cannot issue binders.
If an agent issues a binder for a company for which he or she is not appointed, the
Commissioner can suspend or revoke the agent's license.
A written binder is deemed a valid insurance policy for the purpose of proving that the
insured has insurance coverage. This excludes life insurance.
illustration - CORRECT ANSWER An illustration is a presentation or depiction that includes nonguaranteed elements of a policy
of life insurance over a period of years.
Life insurance policy illustration regulations were not created to eliminate disclosure.
cheaptest mode of premium payments - CORRECT ANSWER annual
Free Look Period - CORRECT ANSWER The free look on life insurance and annuities is also known as the right to return.
Life insurance companies are required to give the policyholder a minimum 10-day free look
Policyholders who are age 60 or older are considered a senior citizen and must receive a 30-
day minimum free look).
If the owner of a variable annuity returns it during the right-to-return period, he or she will
receive a full refund of all premiums paid.
absolute assignment - CORRECT ANSWER An absolute assignment is a permanent transfer of ownership rights.
conversion feature - CORRECT ANSWER The conversion feature allows an employee to go from group coverage to an individual
policy.
who declares dividends - CORRECT ANSWER Dividends are declared by the board of directors and cannot be guaranteed.
contingent beneficiary - CORRECT ANSWER An insured would name a contingent beneficiary to ensure where the policy proceeds will go
if the primary beneficiary dies prior to the insured.
common disaster clause - CORRECT ANSWER When insured and primary die at the same time, it is assumed that the primary died first so contingent can get the money
Spendthrift Clause - CORRECT ANSWER The spendthrift clause protects the policy proceeds from the creditors of the beneficiary.
However, the spendthrift clause will not apply if the proceeds are paid out in a lump sum.
The insured can change the beneficiary at any time if the beneficiary designation is
revocable.
Automatic Premium Loan - CORRECT ANSWER Automatic premium loan is a rider than can be added to a cash value life insurance policy in
case the insured forgets to pay the premium. It takes effect at the end of the grace period (take money out of cash value to keep the policy going)
Collateral Assignment - CORRECT ANSWER A collateral assignment can be utilized to obtain a loan
suicide coverage - CORRECT ANSWER In California, life insurance premiums are refunded to the beneficiary if death occurs due to
suicide within the first 2 years of the effective date of coverage.
misstatement of age clause - CORRECT ANSWER The misstatement of age clause allows the insurance company to adjust the face amount at
the time of death to what the premium the insured paid would have purchased had the truth
about the insured's age been told when the policy was purchased.
Cash surrender of an annuity prior to age 59 and 1/2 will result in.... - CORRECT ANSWER Cash surrender of an annuity prior to age 59 and 1/2 will result in ordinary income tax and a
10% premature distribution penalty, both of which apply to the earnings portion.
The reduced paid-up nonforfeiture option will provide a new whole life policy with a reduced
face amount of protection.
Extended Term Insurance - CORRECT ANSWER Extended term is a nonforfeiture option that provides a new term life insurance policy with
the same face amount of coverage as the original policy. Extended term is not a settlement
option.
Extended term is a life insurance nonforfeiture provision, not a rider or a settlement option.
Extended term insurance is the nonforfeiture option that uses cash surrender values to
purchase paid-up term insurance for the full face amount of the policy.
settlement option - CORRECT ANSWER -settlement option can be predetermined by the owner of the policy prior to death, but is
usually selected by the beneficiary upon the insured's death.
If a policy loan is outstanding when the insured dies and the beneficiary selects the fixed
period settlement option, the outstanding loan will affect the amount of the payments
received, not the length for which they are received.
The interest settlement option will allow only the death benefit earnings to be paid to the
beneficiary.
-If a beneficiary wants to leave the life insurance proceeds with the insurer and receive
investment income, the beneficiary should select the interest option.
disability income rider - CORRECT ANSWER A disability income rider that is added to a life insurance policy will pay a replacement of the
insured's lost income if the insured becomes disabled.
waiver of premium rider - CORRECT ANSWER The waiver of premium rider will waive the insured's premium if the insured becomes
disabled.
accidental death benefit rider - CORRECT ANSWER The accidental death benefit rider will pay double the face amount if the insured dies as a
result of an accident as defined in the policy.
Cost of Living Rider - CORRECT ANSWER If an insured purchases a cost of living rider, this rider will automatically increase their
policy limits tied to the consumer price index. However, if the policy limit increases, so will
the underlying premium.
Guaranteed Insurability Rider - CORRECT ANSWER The guaranteed insurability rider allows the insured to adjust benefits upwards at specified
future option dates.
group coverage - CORRECT ANSWER Group coverage is usually less expensive than individual coverage.
California requires a minimum of 2 employees be covered in a group life contract.
If an employee wants to enroll without any restrictions, the employee would enroll during the
eligibility period (open enrollment period).
A group contract is between the insurer and the employer.
Insurance agents must keep records regarding policies sold in this state for a minimum of 5
years.
Sole proprietors without any employees are not eligible for group life coverage.
If a dependent child covered by a group life plan is incapable of self-support, coverage under
the plan may continue without any age limitation.
In a group life plan, a dependent child attending an educational institution may be covered
until age 26.
Group life policies may exclude aviation, suicide and military action, but not death due to
other accidents.
contributory group policy - CORRECT ANSWER In a contributory group policy, the premium is shared between the employer and employee.
The employee contributes toward the premium.
The employee pays all or part of the costs in a contributory group insurance plan.
noncontributory plan - CORRECT ANSWER A group contract where the employer pays 100% of the premium
All eligible employees must participate
Social Security - CORRECT ANSWER Most workers contribute to Social Security through taxes levied on their earnings. Benefits
are based on contributions, but are not equal to contributions.
Social Security full retirement age is based upon the year in which an individual was born.
Retirement benefits under Social Security are only available to workers who are fully
insured.
Fully insured status in Social Security requires 40 quarters of coverage.
Eligibility for Social Security retirement benefits is based upon the number of quarters
earned.
An individual that has contributed to Social Security for 6 of the last 13 quarters who
becomes disabled is currently insured under the system.
Social Security blackout period - CORRECT ANSWER the period of time when surviving family members are
not eligible for Social Security survivors benefits. Survivors benefits stop during this period.
The Social Security blackout period begins when the youngest child reaches age 16.
The Social Security blackout period ends when the surviving spouse reaches age 60.
widow w/no children eligibility age for social security survivors benifit - CORRECT ANSWER age 60.
tax on annuity vs life insurance death beneifits - CORRECT ANSWER Annuity death benefits are not tax deductible or tax free. Life insurance death benefits are tax
free.
modified endowment contract - CORRECT ANSWER has a 10% IRS early withdrawal penalty.
accident and health policy with an accidental means clause - CORRECT ANSWER both the cause and the
result must be accidental in order for coverage to apply.
Coinsurance - CORRECT ANSWER feature of medical insurance and is defined as a sharing of the loss after the
deductible has been satisfied. Coinsurance is usually expressed as a percentage sharing of the
loss between the insurer and the insured, with the insurer paying the larger percentage, such
as 90/10.
can gatekeeper be a specialist? - CORRECT ANSWER A gatekeeper (primary care physician) cannot be a specialist; the gatekeeper must be a
general practice doctor.
Waiver of Premium Rider - CORRECT ANSWER The waiver of premium rider will waive the insured's premium if the insured becomes
disabled.
A guaranteed renewable health insurance policy - CORRECT ANSWER would have the highest premium.
must offer renewal and cannot be changed in
any way EXCEPT for rates by class only.
can an insurer change a noncancellable health insurance policy in any way? - CORRECT ANSWER no
specified disease policy - CORRECT ANSWER covers only certain dread diseases like cancer
HMOs and PPOs are referred to as - CORRECT ANSWER service providers since the doctors and hospitals get paid
directly for those services provided.
A capitation fee - CORRECT ANSWER per-head (capitation) fee that is paid to doctors that treat subscribers of
HMOs.
can A subscriber of an HMO receive emergency medical attention without prior
authorization of the primary care physician (gatekeeper). - CORRECT ANSWER yes
Out-of-network coverage - CORRECT ANSWER only available from an HMO in an emergency situation.
HMO stands for - CORRECT ANSWER Health maintenance organizations
are HMOs required to provide coverage for prescriptions
drugs. - CORRECT ANSWER no
PPO (Preferred Provider Organization) - CORRECT ANSWER A type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You pay less if you use providers that belong to the plan's network.
if services are provided by a preferred provider, will PPO cover the services - CORRECT ANSWER PPO may cover 100% of the services,
less a nominal copayment.
EPOS - CORRECT ANSWER exclusive provider organization (EPO) is a type of PPO that utilizes a select group of
exclusive preferred providers who are paid on a fee-for-service basis.
Most EPOs utilize the gatekeeper concept where enrollees are assigned to a primary care
physician who makes referrals to the various exclusive providers.
EPOs provide an alternative to traditional HMOs and PPOs.
Consumer-driven health plans include - CORRECT ANSWER 1. point of service (POS) plans
2. medical savings accounts(MSAs)
3. high-deductible health plans (HDHPs).
FSA - CORRECT ANSWER -set up by the employer
-owned by the employer, but the employee gets to decide which medical expenses to
pay for with the FSA
-can be used with most employer-sponsored health plans.
HRA (Health Reimbursement Arrangement) - CORRECT ANSWER -benefit account set up by an employer.
The employer makes contributions into the HRA each year for the employee.
The employee can use the balance in the HRA toward medical expenses not covered by the
health plan, such as deductibles and coinsurance.
An HRA can only be funded by the employer. Employee contributions are not permitted.
HSA (Health Savings Account) - CORRECT ANSWER Health insurance that includes a savings account that allows you to pay for healthcare on tax-free basis- like a retirement account for healthcare [Show Less]