California Life Insurance State Exam Simulator 199 Questions with Answers
Exclusion ratio - CORRECT ANSWER An annuitant would life to determine the
... [Show More] amount of an annuity distribution that is exempt from taxation. What is used to calculate this?
Mortality rate,
Exclusion ratio,
Morbidity rate,
Debt-to-Equity ration
Offers a maximum interest rate that increases annually - CORRECT ANSWER Which of the following is NOT a feature of equity-indexed annuities?
Offers long term inflation protection, Offers a minimum guaranteed rate, Offers a maximum interest rate that increases annually, Offers protection during a decline in the stock market
Joint and survivor annuity - CORRECT ANSWER What kind of annuity pays income to two annuitants until their deaths?
Period certain annuity
Joint and survivor annuity
Straight life annuity
Installment refund
For a minimum of 120 months and a maximum of the remainder of his life - CORRECT ANSWER Victoria owns a life annuity and elects to receive annuity payments monthly for the remainder of her life with "ten years certain". Her annuity will make payments
For a period of time dependent on the performance of the annuity's underlying assets
For a maximum of 120 months
For the remainder of her life only
For a minimum of 120 months and a maximum of the remainder of his life
Variable annuity - CORRECT ANSWER An annuitant would life to determine the current value of her annuity. To do this, she multiplies the number of "accumulation units" she owns times the unit value of the "separate account". What kind of annuity BEST matches this description?
Variable annuity
Fixed annuity
Immediate annuity
Life annuity
60 payments - CORRECT ANSWER Cindy buys a 10-year annuity with an installment refund. After receiving monthly payments for 5 years, Cindy dies. How many remaining payments will the insurer make to her beneficiary?
No payments
30 payments
60 payments
120 payments
To protect against the risk of outliving their financial resources - CORRECT ANSWER What is a common reason people purchase an annuity?
To create an immediate estate
To pay off a debt in the event of death
To minimize their tax burden
To protect against the risk of outliving their financial resources
Variable annuity - CORRECT ANSWER An annuity which is backed by a life insurer's separate account is called a(n)
Equity indexed annuity
Variable annuity
Immediate annuity
403(b) plan
The time at which benefit payments start - CORRECT ANSWER What distinguishes a deferred annuity from an immediate annuity?
The time at which benefit payments start
The benefit payment amount
The taxation of benefit payments
The age at which the annuity can be purchased
Deferred annuity - CORRECT ANSWER A savings vehicle designed to first accumulate funds and then systematically liquidates the funds is called a(n)
Immediate annuity
Deferred annuity
Endowment
Whole life policy
Insurance policy - CORRECT ANSWER Which of the following is a contract that involves one party which indemnifies another when a loss arises from an unknown event?
Insurance policy
Loss contract
Warranty arrangement
Indemnification arrangement
Mutual insurer - CORRECT ANSWER A participating company is also referred to as which type of insurer?
Reciprocal insurer
Re-insurer
Mutual insurer
Domestic insurer
Reinsurance - CORRECT ANSWER An insurer enters into a contract with a third party to insure itself against losses from insurance policies it issues. What is this agreement called?
Reinsurance
Mutual
Multi-line
Reserves
Primary insurer - CORRECT ANSWER AAA Insurance Company has transferred a portion of its loss exposure to BBB Insurance Company. In this reinsurance transaction, what is AAA Insurance Company called?
Tertiary insurer
Primary insurer
Secondary insurer
Captive insurer
Contract that allows the policyowner to receive a share of surplus in the form of policy dividends - CORRECT ANSWER What is a participating life insurance policy?
Contract that gives beneficiaries the right to participate in any dividends
Agreement that insures two or more lives
Agreement that allows two or more beneficiaries to share in the death benefit
Contract that allows the policyowner to receive a share of surplus in the form of policy dividends
Participating - CORRECT ANSWER John owns an insurance policy that gives him the right to share in the insurer's surplus. What kind of policy is this?
Contributory
Nonparticipating
Surplus
Participating
Increases the unearned premium reserve - CORRECT ANSWER Which of the following is NOT a characteristic of reinsurance?
Protects against a very large claim
Increases the unearned premium reserve
A specialized branch of the insurance industry
Enables insurer to meet certain objectives
Marketing - CORRECT ANSWER One important function of an insurance company is to identify and sell to potential customers. Which of the BEST describes this function?
Regulation
Marketing
Underwriting
Reinsurance
It is the distribution of excess of funds accumulated by the insurer on participating policies - CORRECT ANSWER Which of the following statements regarding a life insurance policy dividend is TRUE?
It is a stockholders return on his investment in the company
It is the distribution of excess of funds accumulated by the insurer on participating policies
It represents the built-up of cash value in a permanent insurance policy
It represents a refund of overcharged premium in a non-participating whole life policy
Losses due to fraud are eliminated - CORRECT ANSWER Which of the following is NOT a benefit of insurance?
Source of investment funds
Makes a loss whole again
Reduces the uncertainty of loss exposures
Losses due to fraud are eliminated
Mutual insurer - CORRECT ANSWER An insurer owned by its policyholders is called a
Multi-line insurer
Mutual insurer
Reinsurer
Stock insurer
One party is restored to the same financial position the party was in before the loss occurred - CORRECT ANSWER Which of the following statements statements correctly describes a contract of indemnity?
One party is restored to the same financial position the party was in before the loss occurred
The unequal exchange of value or consideration for both parties
One party (the insurance company) prepares the contract with no negotiation between the application and insurer
Only one party (the insurer) makes any kind of enforceable promise
Probability of loss - CORRECT ANSWER Which of the following is NOT required in the content of a policy?
Parties involved in the contract
Period to which the coverage exists
Probability of loss
Risk insured against
Equal consideration is required between the involved parties - CORRECT ANSWER Which of the following is NOT a requirement of a contract?
Parties involved must be competent
Equal consideration is required between the involved parties
Contract must have a legal purpose
Offer and acceptance must be involved
Contract may be accepted or rejected by the insured - CORRECT ANSWER Which statement is CORRECT when describing a contract of adhesion?
Contract may be accepted or rejected by the insured
Contract involves negotiation between insurer and insured
Any confusing language in the contract would be interpreted in favor of the insurer
Contract cannot be modified by the insurer
Implied authority - CORRECT ANSWER Reasonably necessary acts that an agent must perform for carrying out his/her expressly authorized duties are covered by an agent's
Express authority
Implied authority
Apparent authority
Evident authority
Indemnity - CORRECT ANSWER Restoring an insured to the same condition as before a loss is an example of the principle of
Utmost good faith
Adhesion
Legal purpose
Indemnity
Rescinding the contract - CORRECT ANSWER Which course of action is the insurer entitled to when deliberate concealment is committed by the insured?
Rescinding the contract
Charge a higher premium
Charge a penalty
Nothing
The insured and the insurer contribute equally to the contract - CORRECT ANSWER Which of the following statements about aleatory contracts is NOT true?
Insurance contracts are considered aleatory
The insured and the insurer have the potential for unequal contributions
The insured and the insurer contribute equally to the contract
Aleatory contracts are conditioned upon the occurrence of an event
Fiduciary - CORRECT ANSWER When handling premiums for an insured, an agent is acting in which capacity?
Adhesion
Fiduciary
Conditional
Aleatory
Indemnity - CORRECT ANSWER Which principle is accurately described with the statement "Insureds are entitled to recover an amount NOT greater than the amount of their loss"?
Unilateral
Indemnity
Aleatory
Utmost good faith
Only one party (the insurer) makes any kind of legally enforceable promise - CORRECT ANSWER A unilateral contract is one in which
There is an element of chance and potential for unequal exchange of value or consideration for both parties
Only one party (the insurer) makes any kind of legally enforceable promise
The contract has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer
Both the policyowner and the insurer must know all material facts and relevant information
Rescind the policy - CORRECT ANSWER If a material warranty violation on the part of the insured is found, what recourse does an insurer have?
Sue the insured
Rescind the policy
Charge more premium
Terminate the agent
Materiality of concealment - CORRECT ANSWER The importance of a representation is demonstrated in what rule?
Insurable interest
Law of adhesion
Materiality of concealment
Consideration clause
An offer and acceptance of the contract terms - CORRECT ANSWER A contract requires
Implied authority
An offer and acceptance of the contract terms
Negotiation between the involved parties
An offer and acceptance of the contract terms
Dividends - CORRECT ANSWER Which of the following is NOT a component of determining policy premiums?
Dividends
Mortality
Interest
Expenses
Insurer's expenses - CORRECT ANSWER When calculating life insurance premium rates, which component would an agent's commission fall under?
Morbidity
Mortality
Insurer's expenses
Occupation
Mortality tables - CORRECT ANSWER The probability of death, listed by year, is demonstrated in
Risk tables
Frequency tables
Mortality tables
Morbidity tables
Exempt from federal income taxes - CORRECT ANSWER How are death benefits that are received by a beneficiary normally treated for tax purposes?
Taxable at the beneficiary's current tax bracket
Subject to state and local taxes only
Exempt from federal income taxes
Taxable as a capital gain
Premiums - CORRECT ANSWER Which of the following is NOT an insurer policy expense?
Rent
Salaries
Commissions
Premiums
Rate - CORRECT ANSWER What is the price of insurance for each exposure unit?
Rate
Premium
Rating
Expense
Extended term option - CORRECT ANSWER Which of the following is NOT a life insurance settlement option?
Lump sum option
Fixed amount option
Life income option
Extended term option
Restricts the ability of the beneficiary to assign benefits - CORRECT ANSWER A spendthrift clause in a life insurance policy
Permits the beneficiary to borrow from a policy's cash value
Evenly distributes benefits among all named living beneficiaries
Assigns a policy's face amount to the insured's estate if the beneficiary dies before the insured
Restricts the ability of the beneficiary to assign benefits
The insured's estate - CORRECT ANSWER A creditor would be allowed rights to life insurance policy proceeds if which of the following beneficiaries is chosen?
The insured's mother
The insured's estate
The insured's children
The insured's spouse
The amount an insured pays per unit of coverage - CORRECT ANSWER Premiums are best described as
Money paid by the insurer for settling a claim
Money paid by the insured to acquire a policy's benefits
The amount an insured pays per unit of coverage
Commissions payable to the writing agent
Mortality rate - CORRECT ANSWER Which of the following describes the number of deaths in a year compared to the number of people in a select group?
Law of large number ratio
Mortality rate
Morbidity rate
Risk ratio
Interest option - CORRECT ANSWER A beneficiary receives only the death benefit earnings in which settlement option?
Interest option
Life option
Stock option
Fixed amount option
Lump-sum - CORRECT ANSWER Which of these is the automatic mode of settlement for life insurance policy proceeds?
Fixed period
Interest only
Extended term
Lump-sum
Grace period - CORRECT ANSWER Which policy provision protects the policyowner from unintentional lapse of the contract?
Grace period
Free look period
Incontestability
Settlement options
Policy's cash value is not affected - CORRECT ANSWER When an accidental death benefit is added to a whole life policy, how does this affect the policy's cash value?
Increases the policy's cash value
Decreases the policy's cash value
Policy's cash value is not affected
Policy loans will no longer be available
Bank loans - CORRECT ANSWER What are collateral assignments normally associated with?
Bank loans
Policy loans
Insuring clause
Automatic premium loans
Policy Exclusions - CORRECT ANSWER How are acts of war and aviation treated under a group life insurance policy?
Optional rider
Bank loans
Covered hazard
Mandatory provision
Accelerated death benefit - CORRECT ANSWER Which provision will pay a portion of the death benefit prior to the insured's death due to a serious illness?
Cash surrender
Nonforfeiture
Return of premium
Accelerated death benefit
A return of excess premium and not taxable - CORRECT ANSWER How is a life insurance policy dividend legally defined?
A return of excess premium and partially taxable
A return of excess of premium and fully taxable
A return of excess premium and not taxable
A return of excess premium subject to capital gain tax
Dividend schedule - CORRECT ANSWER Which of the following does a policyowner NOT have the right to change?
Payment method
Dividend option
Dividend schedule
Beneficiary
Grace period - CORRECT ANSWER What time period allows an insured's life insurance policy to remain in force even if the premium was not paid on the due date?
Entire contract period
Free-look period
Reinstatement period
Grace period
Reinstatement provision - CORRECT ANSWER After a policy has lapsed, which provision allows the insured to continue coverage?
Entire contract provision
Reinstatement provision
Nonforfeiture provision
Grace period provision
Waiver of premium provision - CORRECT ANSWER Bruce is involved in an accident and becomes totally and permanently disabled. His insurance policy continues in force without payment of further premiums. Which policy provision is responsible for this?
Waiver of premium provision
Insuring provision
Return of premium provision
Automatic premium loan provision
Suicide clause - CORRECT ANSWER An insurer can be protected from adverse selection with which policy provision?
Insuring clause
Grace period
Suicide clause
Reinstatement
A dividend option is selected by the insured at the time of policy purchase - CORRECT ANSWER Which statement is true regarding policy dividends?
Dividends are always guaranteed
Nonparticipating policies issue dividends
A dividend option is selected by the insured at the time of policy purchase
Purchase additional coverage with no evidence of insurability required - CORRECT ANSWER What does the guaranteed insurability option allow an insured to do?
Transfer ownership of the policy
Purchase additional coverage with no evidence of insurability required
Provides for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness
Allows the insured to convert a term life policy to whole life with no evidence of insurability required
Insured becomes totally disabled - CORRECT ANSWER When does a life insurance policy's waiver of premium take effect?
Insured becomes unemployed
Insured becomes totally disabled
Insured has had policy in force for a specified number of years
Insured has become terminally ill
Nonforfeiture options - CORRECT ANSWER A life insurance police can be surrendered for its cash value under which policy provision?
Payor options
Dividend options
Settlement options
Nonforfeiture options
Extended term - CORRECT ANSWER Which of the following is NOT a common life insurance policy rider?
Extended term
Automatic premium loan
Waiver of premium
Accidental death
12/15th of the policy's face amount - CORRECT ANSWER Jerry is an insured who understated his age on his life insurance application, paying $12 per $1,000 of insurance instead of $15 per $1,000. If he dies, how will the adjusted death benefit be calculated?
12/15th of the policy's face amount
1/2 of the policy's face amount
3/4 of the policy's face amount
Full face amount
Policy and attached application - CORRECT ANSWER In a life insurance policy, the entire contract consists of
Policy and conditional receipt
Policy and all sales material
Policy and any verbal agreements
Policy and attached application
Modified premium, ordinary life, single premium - CORRECT ANSWER What is the proper order of initial life insurance premiums, from lowest to highest?
Ordinary life, single premium, modified premium
Modified premium, ordinary life, single premium
Single premium, modified premium, ordinarylife
Ordinary life, modified premium, single premium
Non-medical - CORRECT ANSWER Which of the following is a life insurance policy that does NOT require a physical exam?
Non-medical
Graded
Substandard
Noncancelable
Require a higher premium payable at each renewal - CORRECT ANSWER In a renewable tern life insurance policy, the contract will usually
Require a higher premium payable at each renewal
Require a lower premium payable at each renewal
Stipulate a higher cash value at each renewal
Mortgage redemption - CORRECT ANSWER Scott has just purchased a new house. He is now shopping for a life insurance policy that provides a death benefit that matches the projected outstanding debt of his mortgage. Which life policy would best suit his needs?
Variable
Universal
Adjustable
Mortgage redemption
Endowment insurance - CORRECT ANSWER A life insurance policy that pays the face amount if the insured survives to a specified period of time is called
Universal life
Endowment insurance
Modified life
Whole life
10% - CORRECT ANSWER Mark, age 45, has a Modified Endowment Contract (MEC). What is the tax penalty for taking a loan against his policy prior to age 59 1/2?
5%
10%
15%
20%l
The policy's face amount - CORRECT ANSWER A life insurance policy's limit of liability would be
Determined by the Department of Insurance
The policy's face amount
The total premiums paid
Determined by insurance company's reinsurer
Only children born prior to policy's issue date may be included - CORRECT ANSWER Which of the following statements do NOT apply to child coverage in a family policy?
Child coverage is convertible to permanent insurance
Child coverage comes in the form of term insurance
Children are covered up to an age stated in the policy
Only children born prior to policy's issue date may be included
Joint life policy - CORRECT ANSWER Tom is shopping for a policy that covers two people and would pay the face amount ONLY when the 1st person dies. The type of life policy he is looking for is called a
Joint life policy
Family income policy
Survivorship life policy
Modified endowment contract
A modified endowment contract - CORRECT ANSWER An insurance policy written after 1988 that fails to pass the seven-pay test is known as
An endowment policy
A modified life policy
A single premium contract
A modified endowment contract
Renewable term - CORRECT ANSWER Lynn owns a life policy that guarantees the right to renew the policy each year, regardless of health, but at an increased premium. What kind of policy is this? [Show Less]