CA LIFE EXAM PREP A
Risk in insurance terminology refers to the
Uncertainty of loss
Cause of a peril
Certainty of loss
Hazard that causes a claim
Events or conditions that increase the probability of a loss occurring are referred to as
Perils
Hazards
Exposures
Risks
What type of risk allows both gains and losses?
Pure
Exposure
Speculative
Hazardous
The principle that states that larger the number of exposure units, the more predictable the number of future losses is known as
The law of large numbers
Adverse selection
Predictable loss factor
Future loss equation
All of the following statements about insurable interest are true EXCEPT
A husband and wife have insurable interest in each other
A creditor can have an insurable interest in a debtor limited to the amount of indebtedness
An insurable interest must exist at the time of the claim between the beneficiary and the insured
People are considered to have an insurable interest in themselves
The tendency of less favorable insurance risks to seek or continue coverage to a greater extent than average risks is called
Adverse selection
Reciprocal
Reinsurance
Adverse speculation
For an insurance contract, utmost good faith means
The policyowner will be indemnified in case of loss
Each party relies upon the truthfulness of the other
The contract just involves the policyowner and the insurer
Each party is equally responsible for the value of the policy
When debt, income, mortgage, and expenses are used to determine the amount of insurance an insured should purchase it is known as the
Debt to income approach
Human life value approach
Ordinary life approach
Needs approach
When the business is the owner, pays the premium, and is the beneficiary of a life insurance policy, this is an example of what kind of business insurance?
Key person
Buy-sell agreement
Group life
Executive bonus
Which method of handling risk is considered to be self-insurance?
Avoidance
Sharing
Retention
Transfer
A business overhead expense policy does NOT reimburse a business owner for
Leased equipment
Utilities
Rent
Salary of the owner
The limit of liability to an insurer for an individual life insurance policy is the
Cash surrender value
Face value
Face value less any indebtedness including unpaid interest
Total of premiums paid
Which would NOT be considered a business use of life insurance?
Executive Bonuses
Key Person policies
Deferred Compensation
Policies used in buy-sell agreements
A provision in a life insurance policy that states the insured cannot receive more than their loss is known as
Reciprocity
Indemnity
Utmost Good Faith
Insurable Interest
There are 3 partners in a business. How many life insurance policies would be required for a cross-purchase plan?
3
6
9
12
A deliberate act that causes harm to another person regardless of whether the offending party intended to injure the aggrieved party is a
Contract of adhesion
Unintentional tort
Material misrepresentation
Intentional tort
To prevent people from taking advantage of minors or the mentally incompetent, a contract must have which element?
Offer and acceptance
Competent parties
Advice and consent
Legal purpose
The consideration involved in an insurance contract on the part of the insured refers to the
Payment of the first premium and statements made on the application
Cash or equivalent income payable to the beneficiary
Proceeds of the policy payable upon the death of the insured
The length of time it takes for the underwriting process to be completed
Any areas of ambiguity in an insurance contract are decided in favor of the insured because the contract is a(n)
Aleatory contract
Personal contract
Unilateral contract
Contract of adhesion
Statements in the application for insurance that must be true to the best of the applicant’s knowledge are called
Warranties
Representations
Waivers
Ambiguities
An applicant failed to disclose a material fact on an application. Which of the following is correct? He is guilty of
Twisting
Misrepresentation
Concealment
Coercion
The concept that all parties to a contract are entitled to all the information necessary to make an informed decision is called
Rescission
Materiality
Consideration
Utmost Good Faith
Which statement is INCORRECT regarding tort law?
A tort can be either intentional or unintentional
An unintentional tort is the result of acting without proper care
Insurance generally will only respond to intentional torts
Negligence is an example of an unintentional tort
An exchange of unequal amounts or values is known as a/an
Aleatory contract
Contract of Adhesion
Conditional contract
Unilateral contract
Which provision allows the policyowner to put a lapsed insurance policy back in force under certain conditions?
Renewal
Grace Period
Endorsement
Reinstatement
A depiction that includes nonguaranteed elements of a policy for individual or group insurance over a period of years is called a(n)
Illustration
Buyer’s guide
Policy summary
Mortality table
All of the following MUST sign the application EXCEPT
Proposed insured
Policyowner, if different from the insured
Beneficiary
Agent
If a change needs to be made to an application, the correct method would be for the agent to
Make the change and submit it to the insurer
Make the change, initial it and submit it to the insurer
Make the change, have the applicant initial it, and submit to the insurer
Erase the incorrect information, make the change and submit it to the insurer
All of the following are true of a nonmedical application EXCEPT
The agent and the insured complete all of the medical information
It does not require a medical examination
It is usually for a small amount of coverage
It does not require underwriting
If a proposed insured dies before the policy is issued but while in possession of a conditional receipt, the company will
Not pay the policy proceeds under any circumstances
Always pay the policy proceeds
Pay the policy proceeds only if the policy would have been approved as applied for
Pay the policy proceeds up to an established limit
A database maintained by insurance companies to collect and maintain information on applications and claims is called the
Insurance Service Organization
Life and Health Guaranty Association
Commissioner’s Standard Mortality Association
Medical Information Bureau
If an insurer requests an HIV test, whose written consent is needed?
The physician
The applicant
The insure
The policyowner
Applicants whose health, habits, or occupations make them higher than normal risks are referred to as
Preferred risks
Poor risks
Substandard risks
Standard risks
Which mode of payment does not have an additional charge (loading)?
Monthly
Quarterly
Semi-annually
Annual
When is a producer required to obtain a signed Statement of Good Health?
At delivery if the free look period begins at the time of delivery
At the time of application because the producer is the field underwriter
At the time of the medical examination
At delivery if the initial premium was not collected with the application
The period to receive a full refund for a life insurance or annuity policy issued to a person 60 years of age or old must be at least
10 days
30 days
60 days
90 days
The intent of the replacement regulations is to protect the original
Producer
Agency
Policyowner
Insurance company
An insured owns a term insurance policy in which the amount of protection remains constant during the term period. What kind of term insurance does he own?
Decreasing
Annually renewable
Level
Increasing
An annually renewable term policy
Increases in premium based on the insured’s health
Maintains a level premium each year
Renews each year with an increased premium
Increases in coverage each year
Which of the following amounts must increase in an increasing term policy?
Length of Term
Premiums
Interest rate
Death Benefit
A 35 year old insured’s five year level term policy will probably renew to a
Decreasing term with age 40 premiums
5-year level term with age 35 premiums
5-year level term with age 40 premiums
Whole life with age 35 premiums
The type of policy that can be changed from one that does not accumulate cash value to one that does is a
Convertible term policy
Level term policy
Whole life policy
Renewable term policy
All of the following statements regarding whole life insurance are true EXCEPT
The face amount of the policy stays the same as long as the policy remains in force
The shorter a premium period is, the faster the cash value will grow
The policy’s cash value decreases each year the policy is in force
Whole life insurance is designed to mature at age 100
How long does coverage continue on a limited–pay whole life policy?
20 years on a 20-pay policy
65 years on a life paid-up at 65
Death or age 100
10 years on a 10-pay policy
If a single premium (lump sum) is paid on a whole life policy, cash value will
Be available immediately
Be available in 5 years
Be available at age 59 1/2
Never be available
An equity-indexed life insurance policy’s cash value is usually linked to an index such as the
Moody’s Corporate Bond Yield
Consumer Price Index (CPI)
Inflation Rate
Standard and Poor’s 500
An Adjustable Life policy allows for the policy owner to do all of the following EXCEPT
Choose the face amount.
Set the premium
Choose the period of protection.
Choose the period of protection.
Which of the following is NOT true about a universal life policy?
The policyowner can increase or decrease the policy’s face amount
There is a guaranteed current interest rate in the contract
A universal life policy permits a policyowner to select from two death benefit options
The policyowner can schedule payments at varying times and in varying amounts
When are benefits paid from a joint life policy?
When the first insured dies
When the second insured dies
When both insureds attain age 100
When the last member in the group dies
In a jumping juvenile life, the component that “jumps” is the
Premium
Cash value
Face amount
Type of coverage
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