State: California | Category: Life Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. In a whole life policy, which statement is true?
Whole life premiums are level for life, and the policy builds cash value over time, part of which may be accessible via loans.
2. Which doctrine prevents a party from denying or asserting a claim after it has misrepresented facts or delayed action, based on prior conduct or representations?
The estoppel doctrine prevents a party from taking a position contrary to its prior conduct or statements if others relied on them.
3. The premium is:
Premium is the price for the policy coverage paid by the insured or policyowner.
4. Death benefits paid to a beneficiary are generally tax-free, with exceptions such as transfers of value.
In most cases, life insurance death benefits are income-tax-free to the beneficiary; exceptions include transfers of value (e.g., sale of the policy).
5. Under the state's contract law, the principle of utmost good faith (uberrimae fidei) requires which of the following?
Utmost good faith requires full and honest disclosure of all material facts by both parties to ensure a fair contract and informed underwriting decisions.
6. Which statement accurately describes the taxation of a nonqualified (after-tax) annuity's distributions?
Nonqualified annuities are funded with after-tax dollars; the IRS uses an exclusion ratio to determine the tax-free portion, representing return of investment; the remaining portion is taxable as ordinary income.
7. Which statement best describes the tax treatment of life insurance death benefits when paid to heirs or beneficiaries of a business owner?
Death benefits paid to beneficiaries are generally received income tax-free, though estate or other taxes may apply separately.
8. Which of the following is an unfair advertising practice in California insurance law?
Misleading advertising about dividends or non-guaranteed elements is prohibited to prevent consumer deception.
9. What document evidences an employee's coverage under a California group life plan?
The certificate of insurance is the evidence of coverage issued to each enrolled employee under the master policy.
10. If a named beneficiary is a minor, how are the proceeds most commonly paid?
Because minors cannot generally receive funds directly, proceeds are typically paid to a custodian under UGMA/UTMA or to a court-appointed guardian.
11. To reinstate a lapsed policy, what is typically required?
Reinstatement usually requires payment of back premiums with interest and evidence of insurability; additional conditions may apply per policy.
12. At the end of the grace period, if the premium remains unpaid, what usually happens to the policy?
If the premium is not paid by the end of the grace period, the policy typically lapses according to the policy terms.
13. An insurer that threatens to replace an existing policy through coercion or intimidation is engaging in which practice?
Coercion or intimidation to influence a sale is prohibited as an unfair trade practice.
14. Nonqualified annuity funds are contributed with after-tax dollars. Which portion of each distribution is NOT taxed?
The return of the investment in the contract (cost basis) is not taxed; the earnings portion is taxed as ordinary income.
15. 'Twisting' in California insurance terms refers to which activity?
Twisting involves inducing replacement of an existing policy through deception or misrepresentation, which is illegal.
16. Which of the following statements is true about the tax treatment of life insurance premiums when used to fund a buy-sell agreement?
Typically, premiums paid by a business for life insurance on the lives of owners under a buy-sell are not deductible as a business expense.
17. How does a critical illness policy define covered illnesses?
CI policies define coverage by listing specific illnesses on the policy. If an illness is not listed, it is typically not covered unless the policy states otherwise.
18. An underwriting class is best described as:
An underwriting class determines the premium rate category (e.g., standard, preferred, substandard) assigned to the applicant.
19. Which of the following best describes the concept of insurable interest?
Insurable interest exists when the policyowner has a valid stake in the subject matter of the risk; it prevents wagering policies.
20. During the contestability period, misstatements of age or sex discovered can lead to which of the following?
Most policies have a contestability period (commonly two years); misstatements found can lead to rescission or adjustment of benefits.
21. Premium payments are typically applied to which premium due first?
Premiums are normally allocated to the oldest due premium first to satisfy outstanding obligations and prevent compounding overdue amounts.
22. False statements about an insurer's financial condition to influence a purchase are considered an unfair trade practice.
Misrepresenting an insurer's financial condition to influence a transaction is prohibited to protect consumers.
23. What method is commonly used to determine the group life benefit amount?
Group life benefits are often determined by a multiple of salary (e.g., 1x, 2x) or by a flat amount, subject to plan maximums.
24. Under the state's conditional receipt provisions, when does temporary coverage typically begin if the premium is paid with the application?
A conditional receipt provides temporary coverage from the date of the application/receipt, subject to underwriting and policy approval.
25. Which is the typical grace period length for life insurance premiums in most jurisdictions?
Most jurisdictions require a minimum grace period of 30 days for premium payments, allowing time to make the payment without lapse.
26. Regarding 401(k) loans, what is the maximum loan amount typically allowed under plan rules?
The usual limit is the lesser of $50,000 or 50% of the participant's vested balance, with a minimum loan amount often set by plan rules.