State: California | Category: Life Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. Which factor directly affects life insurance premiums due to mortality risk and is commonly used in underwriting classifications?
Smoking status is a well-established factor that materially increases mortality risk and premium costs in underwriting.
2. If a critical illness policy lapses and is later reinstated, what is commonly required?
Lapsed policies may be reinstated, but typical terms require evidence of insurability and payment of any back premiums; a new waiting period may apply.
3. Which statement about survivor benefits is true?
A surviving spouse can receive up to 100% of the deceased worker's benefit if they wait until their own FRA; claiming earlier typically results in a reduced amount.
4. Which option allows an employee to continue group life coverage after leaving employment by paying the premium?
Portability is the feature that allows the employee to keep the coverage by paying the premium after leaving employment; conversion is typically to an individual policy.
5. In insurance, which term describes a specific cause of loss?
A peril is the actual event or circumstance that causes a loss (e.g., fire, theft).
6. How long is the typical grace period for a life insurance premium?
Most life insurance policies provide a 30-day grace period for late premiums; death benefits may be paid minus overdue premium if death occurs during the grace period.
7. The Government Pension Offset (GPO) reduces Social Security spousal or survivor benefits by what amount related to the government pension?
GPO reduces Social Security spousal or survivor benefits by two-thirds of the government pension amount for individuals receiving a government pension from non-covered work.
8. In underwriting, credit reports are most closely associated with assessing:
Credit reports provide information about an applicant's financial responsibility and stability, relevant to financial underwriting.
9. Under the SECURE Act 2.0, at what age must required minimum distributions (RMDs) generally begin for individuals whose 72nd birthday occurred after 2022?
SECURE Act 2.0 set the RMD starting age to 73 for individuals who are turning 72 after 2022, with gradual increases to 75 in certain future provisions.
10. Who typically sets the maximum coverage and underwriting rules in a California group life plan?
The employer, through the master policy, sets plan limits and underwriting rules within the framework approved by the insurer.
11. Under HIPAA, who must authorize the release of medical information to the insurer?
Under HIPAA, a written authorization from the applicant is generally required for releasing medical information to the insurer.
12. A policy illustration is typically used to show:
Policy illustrations display non-guaranteed elements like dividends or rate projections where applicable; actual results may differ.
13. Which characteristic makes life insurance a practical tool for funding a buyout in a closely held business?
Life insurance provides a liquid source of funds (cash value or death benefit) to fund a buyout, enabling the remaining owners to purchase shares.
14. A spendthrift clause in a life insurance policy primarily serves to
A spendthrift clause protects the beneficiary's proceeds from creditors and restricts improper assignments or transfers.
15. The named insured on a policy is:
The named insured is the person whose life or property is insured under the policy.
16. Which statement best describes the liquidity purpose of life insurance in estate planning for a business owner?
Life insurance can provide liquidity to cover estate taxes and buy out the business owner's stake so the business can continue without forced sales.
17. What is the 2024 elective deferral limit for 401(k)/403(b)/457(b) plans (before accounting for catch-up contributions)?
For 2024, the elective deferral limit is $23,000. Catch-up contributions are separate and allow additional amounts above this limit for participants aged 50+.
18. Under the state's contract law, which statement correctly describes concealment versus misrepresentation in terms of impact on a policy?
Both concealment and misrepresentation can affect validity or claims if the facts were material to risk assessment; the remedy depends on severity and timing under state law.
19. Distributions from a qualified annuity (funded with pre-tax dollars) are generally taxed as?
Qualified annuity distributions are taxed as ordinary income because contributions were made with pre-tax dollars.
20. Which principle allows insurers to predict losses more accurately by pooling many similar exposures?
The law of large numbers states that as the sample size grows, the actual results approach the expected results, improving predictability of losses for pricing and reserves.
21. How is the exclusion ratio generally calculated for a nonqualified annuity?
Exclusion ratio = investment in contract / expected return. The 'expected return' is the anticipated amount to be returned over the life of the contract.
22. Subrogation in insurance is the process by which:
Subrogation allows the insurer to step into the insured's shoes to pursue recovery from a third party responsible for the loss, preventing the insured from collecting twice and helping keep premiums stable.
23. Which of the following is a physical hazard example?
Faulty electrical wiring is a physical hazard because it physically increases the risk of a peril, such as fire.
24. Which settlement option provides guaranteed income for life to the beneficiary?
The life income option provides payments for the beneficiary's lifetime, often with or without a guaranteed period.
25. Which nondiscrimination tests apply to tax-qualified defined contribution plans (such as 401(k) and many 403(b) plans) to ensure benefits are not favoring highly compensated employees?
ADP (actual deferral percentage) and ACP (actual contribution percentage) tests are used to ensure nondiscrimination in many defined contribution plans. Safe harbor designs can avoid these tests.
26. If both the insured and the designated beneficiary die before settlement, the death benefit may be paid to
If both die before settlement, the death benefit may go to the insured's estate or to the contingent beneficiary, depending on policy terms and designations.