California Life-Only Agent Exam: all 303 questions with answers

Each question leads to its own page with the answers and the solution.

• Basic Insurance Concepts and Principles31 questions
• Contract Law23 questions
• The Insurance Marketplace, Producers, Ethics and California Law36 questions
• Life Insurance Basics30 questions
• Types of Life Policies34 questions
• Annuities29 questions
• Policy Replacement and Cancellation11 questions
• The Individual Life Insurance Contract36 questions
• Taxation of Life Insurance and Annuities15 questions
• Group Life Insurance Plans13 questions
• Social Security Disability Program15 questions
• Individual Underwriting, Pricing and Claims15 questions
• Life Policy Riders15 questions

Basic Insurance Concepts and Principles

• 1001Under California Insurance Code section 22, insurance is best described as which of the following?
• 1002Which term describes the uncertainty of financial loss?
• 1003A homeowner faces the possibility of a fire loss but has no chance of gaining from a fire. This is which kind of risk?
• 1004Which of the following is an example of a speculative risk?
• 1005In insurance terminology, a peril is best defined as
• 1006Storing oily rags near a furnace is an example of which kind of hazard?
• 1007An applicant intentionally overstates the value of belongings in order to collect more on a claim. This is an example of which hazard?
• 1008A policyowner stops locking the doors because the property is insured. This attitude illustrates
• 1009What does the law of large numbers allow an insurer to do?
• 1010Which of the following is a requirement of an ideally insurable risk?
• 1011Which risk management technique is used when a person decides not to take up skydiving to avoid injury?
• 1012A business pays a $1,000 deductible itself and insures losses above that. Which risk management method does the deductible represent?
• 1013Installing smoke detectors and sprinklers in a building is an example of
• 1014Buying an insurance policy is primarily which risk management technique?
• 1015Under California Insurance Code section 250, which kind of event may be insured against?
• 1016What is the purpose of the principle of indemnity?
• 1017Utmost good faith in an insurance contract means that
• 1018The main purpose of insurance underwriting is to
• 1019Adverse selection occurs when
• 1020Which term describes a possible exposure to loss that a person or business faces?
• 1021The term insurable interest means that the policyowner
• 1022Which of the following best describes the relationship between a hazard and a loss?
• 1023An insurer that sells a large number of similar policies is relying on which concept to make costs predictable?
• 1024Profitable distribution of exposures means that an insurer
• 1025Which statement about a risk that is ideally insurable is correct?
• 1026A person who buys a lottery ticket is taking
• 1027What is the difference between a peril and a hazard?
• 1028Which of the following is an example of the sharing method of managing risk?
• 1029When an insurer decides to charge higher premiums to applicants with known health problems, it is performing which function?
• 1030A pure risk differs from a speculative risk because a pure risk
• 1031Which concept holds that the insured should not be allowed to profit from a loss?

Contract Law

• 2001Which of the following is one of the four basic elements of a valid contract?
• 2002In an insurance contract, the consideration from the applicant is
• 2003An insurance policy is a contract of adhesion because
• 2004An insurance contract is called aleatory because
• 2005A unilateral contract is one in which
• 2006An insurance contract is conditional because
• 2007What does it mean to say that insurance is a personal contract?
• 2008Under California Insurance Code section 380, an insurance policy is
• 2009Which of the following must be specified in every California insurance policy under Insurance Code section 381?
• 2010Is the insurer's financial rating required to be stated in the insurance policy?
• 2011Under California law, concealment by a party to an insurance contract, whether intentional or unintentional, entitles the injured party to
• 2012Which of the following does NOT need to be communicated to the other party under California concealment rules?
• 2013In California, materiality is determined
• 2014A warranty in an insurance contract may be
• 2015A statement made by an applicant that is known to be false in order to obtain coverage is a
• 2016Under California law, a representation is false when
• 2017Which of the following is the difference between a representation and a warranty?
• 2018In a contract situation, the term lapse most accurately refers to
• 2019The period after a premium due date during which a life policy remains in force without payment is called the
• 2020Which of the following best describes the difference between earned and unearned premium?
• 2021A written addition to a policy that changes or adds coverage is called a
• 2022Tort law differs from contract law because tort law
• 2023Rescission of an insurance contract means that the contract is

The Insurance Marketplace, Producers, Ethics and California Law

• 3001Under California Insurance Code section 1626(a)(1), a life agent is authorized to transact
• 3002A person who, on behalf of an insurer, transacts life and accident and health insurance in California is called
• 3003California has a license category called life solicitor.
• 3004Which type of authority is the agent's power to act that is spelled out in the agent's contract with the insurer?
• 3005A client reasonably believes an agent can accept an application on the insurer's behalf because the insurer gave the agent a sign and supplies. This is
• 3006In California, the legal relationship between an insurance agent and the insurer is generally that the agent represents
• 3007Under California Insurance Code section 1631, which of the following is prohibited?
• 3008Under federal law cited in the examination objectives, which crime is covered by 18 U.S.C. sections 1033 and 1034?
• 3009A life settlement broker represents
• 3010To transact life settlements on behalf of a policy owner in California, a life agent must
• 3011What is the purpose of errors and omissions insurance for an agent?
• 3012Which of the following is prohibited under California Insurance Code section 777.1?
• 3013An insurer must keep records of producers and policies for what reason, according to Insurance Code sections 10508 through 10508.5?
• 3014Which of the following describes a fiduciary duty of an insurance producer under California law?
• 3015A life agent who also holds a property and casualty license must complete how many hours of continuing education, with how many in ethics?
• 3016A California life agent who sells annuity products to individual consumers must complete how much initial training before soliciting sales?
• 3017How much subsequent annuity training must a life agent complete before each license renewal?
• 3018Is long-term care training required when an agent sells an accelerated death benefit rider that does not require personal care services?
• 3019Which phrase best summarizes the first ethical principle in the objectives for life agents?
• 3020A client asks an agent to compare products. The agent states that a competitor's insurer is nearly bankrupt, without evidence. This violates which ethical principle?
• 3021The California Insurance Code and Code of Regulations are
• 3022An agent explains a policy to a client using plain language rather than jargon. Which ethical principle does this support?
• 3023California Insurance Code sections 785 through 789.10 contain special rules for
• 3024The difference between an admitted and a nonadmitted insurer is that an admitted insurer
• 3025An insurer incorporated in California is called a
• 3026An insurer organized in Canada and doing business in California is a
• 3027A primary insurer that transfers part of its risk to another insurer through reinsurance is called the
• 3028In a mutual insurance company, divisible surplus is usually returned to policyowners as
• 3029Which of the following is a function of an insurer's actuarial division?
• 3030Who may enforce the California Unfair Practices Act (Insurance Code sections 790 through 790.15)?
• 3031Which of the following is a privacy law covering insurers and producers that handle personal information?
• 3032The California Life and Health Insurance Guarantee Association (CLHIGA) exists to
• 3033A person who signs a false insurance claim form may be guilty of
• 3034In California statutes, the word shall means
• 3035Under the Fair Claims Settlement Practices Regulations, which of the following is a proof of claim?
• 3038Which record rule applies to claim files under California Code of Regulations Title 10, section 2695.3?

Life Insurance Basics

• 4001In a life insurance policy, the person whose death triggers the death benefit is the
• 4002The person who has the rights to change beneficiaries, borrow against cash value, and surrender a policy is the
• 4003A person who completes an application for insurance is called the
• 4004Which approach to determining life insurance amounts calculates the present value of the insured's future earnings?
• 4005The needs approach to determining the amount of life insurance is based on
• 4006Key person insurance is purchased by a business to
• 4007A buy-sell agreement funded with life insurance is designed to
• 4008Under California Insurance Code section 10110, when must insurable interest exist for a life insurance policy?
• 4009A person has an unlimited insurable interest in
• 4010A creditor generally has an insurable interest in the life of
• 4011A mortality table shows
• 4012The statement that life insurance creates an immediate estate means that
• 4013A limit of liability in a life insurance policy refers to
• 4014Which method of risk management applies when a family purchases life insurance on the breadwinner?
• 4015The personal insurance planning process begins with
• 4016Split dollar life insurance is an arrangement in which
• 4017Deferred compensation plans funded by life insurance are intended to
• 4018Business overhead expense insurance pays
• 4019What is the main purpose of an insurance premium?
• 4020Which of the following is a component of a life insurance premium?
• 4021A person's family needs a monthly income during the children's school years, then a smaller one later. Which life insurance need does this describe?
• 4022Which of the following is NOT a method of managing risk?
• 4023When the death benefit is paid to a beneficiary, which party is the person who named the beneficiary?
• 4024A husband buys a policy on his wife's life and names himself as beneficiary. Who is the policy owner?
• 4025Which of the following best describes an insurer's mortality assumption?
• 4026Insurable interest in life insurance is required to prevent
• 4027An employer typically has an insurable interest in
• 4028Life insurance proceeds paid to a named beneficiary generally
• 4029An insured purchases a policy and names a trust as beneficiary. This is an example of
• 4030Which of the following needs does life insurance commonly address?

Types of Life Policies

• 5001A guaranteed death benefit, a level premium, and cash value that accumulates describe
• 5002Which policy provides protection for a stated period and generally has no cash value?
• 5003A participating life policy is one that
• 5004Are policy dividends on a participating policy guaranteed?
• 5005Universal life insurance differs from whole life insurance because universal life
• 5006The cash value of a universal life policy grows based on
• 5007Which policy ties interest credits to an index such as the S&P 500, often with a floor and a cap?
• 5008A variable life policy requires the agent to hold
• 5009In a variable life insurance policy, the investment risk is borne by
• 5010A policy that pays a lump sum on the insured's death if it occurs within a specific number of years and has no cash value is
• 5011Level term insurance has a death benefit that
• 5012Decreasing term insurance is most appropriate to cover
• 5013A renewable term policy allows the owner to renew coverage at the end of the term
• 5014A convertible term policy gives the owner the right to
• 5015A return of premium term policy
• 5016A limited pay whole life policy
• 5017A single premium whole life policy is paid for with
• 5018A juvenile policy with a jumping feature
• 5019A payor benefit rider on a juvenile policy
• 5020A joint life policy that pays at the first death insures
• 5021A survivorship life policy (second-to-die) pays
• 5022A family policy typically provides
• 5023Mortgage redemption insurance is usually written as
• 5024Credit life insurance is designed to
• 5025Funeral and burial insurance is life insurance with an initial face amount of
• 5026A graded death benefit policy typically
• 5027A modified premium whole life policy
• 5028Which statement about a flexible premium policy is correct?
• 5029In a group life insurance plan, the individual covered under the plan receives
• 5030Third-party contract insurance refers to a policy
• 5031Term insurance premiums for an annually renewable policy typically
• 5032A guaranteed universal life policy is designed primarily to
• 5033An endowment policy
• 5034Which statement is true of non-participating policies?

Annuities

• 6001An annuity is primarily designed to
• 6002The accumulation period of an annuity is
• 6003In an annuity contract, the annuitant is the
• 6004A fixed annuity is backed by
• 6005In a variable annuity, the investment risk is borne by
• 6006A fixed indexed annuity credits interest based on
• 6007The first payment from a single premium immediate annuity must be made within what period from the contract date?
• 6008A deferred annuity is one in which
• 6009A flexible premium annuity allows the owner to
• 6010An annuity purchased with after-tax dollars outside a retirement plan is
• 6011An annuity used to fund an IRA or other IRS-approved retirement plan is known as
• 6012A market value adjusted annuity
• 6013A tax-sheltered annuity under Internal Revenue Code section 403(b) is available to
• 6014An annuity payout option that pays income for the annuitant's life only, with no payments after death, is called
• 6015A life annuity with a 10-year period certain pays
• 6016A period certain annuity pays
• 6017A joint and survivor annuity
• 6018A life annuity with refund guarantees that
• 6019Unpaid annuity benefits paid to the beneficiary after the annuitant dies are
• 6020A variable annuity is considered
• 6021Which of the following must be obtained before a producer recommends an annuity to a consumer in California?
• 6022Which of the following is a required suitability factor for an annuity recommendation in California?
• 6023Surrender charges on an annuity are
• 6024Early withdrawal from a nonqualified annuity before age 59 and a half is generally subject to
• 6025Annuity withdrawals from a nonqualified annuity are taxed on a
• 6026An annuitization of a contract means
• 6027Group annuities are most often used to
• 6029An annuity's death benefit during the accumulation period is typically paid to
• 6030Reverse mortgage status matters in an annuity suitability review because

Policy Replacement and Cancellation

• 7005A replacement of life insurance occurs when
• 7006When replacement is involved, the agent must give the applicant
• 7007Which of the following is a potential disadvantage of replacing a whole life policy with a new one?
• 7008Twisting is the practice of
• 7009A 1035 exchange is permitted when a policy owner
• 7010When replacing a life policy, what must the replacing insurer typically do?
• 7011The purpose of California's replacement regulations is to
• 7012The free look provision allows the policy owner to
• 7013Which agent practice violates replacement rules?
• 7015Policy cancellation by the owner during the free look period generally has what effect?
• 7016Seniors age 65 and older receive special protection in California regarding

The Individual Life Insurance Contract

• 8001The applicant's signature on a life insurance application attests that
• 8002Why does an insurer attach a copy of the application to the policy?
• 8003A conditional receipt issued with a life insurance application generally provides that coverage begins
• 8004Which statement about binders in California life insurance is correct?
• 8005A temporary insurance agreement provides coverage
• 8006A non-medical life insurance application means
• 8007What is the policy specifications page used for?
• 8008Unlike property and casualty policies, life policies
• 8009Which of the following is an acceptable method for delivery of a life policy under California law?
• 8010A delivery receipt is important because it
• 8011The insuring clause in a life policy
• 8012The consideration clause in a life policy states that
• 8013A primary beneficiary is
• 8014A contingent beneficiary receives the proceeds
• 8015Under a revocable beneficiary designation, the owner may
• 8016A spendthrift clause in a life policy
• 8017A common disaster (simultaneous death) clause applies when
• 8018In a per stirpes distribution, the share of a deceased beneficiary
• 8019The grace period in a life insurance policy is
• 8021Automatic premium loan provision
• 8022Reinstatement of a lapsed life policy generally requires
• 8023A policy loan from a whole life contract
• 8025A suicide clause in a life policy typically provides that if the insured dies by suicide within the first two years, the insurer will
• 8026If the age of the insured is misstated on the application, the death benefit is typically
• 8027Which nonforfeiture option provides the same death benefit for a limited period without further premiums?
• 8028Which nonforfeiture option provides a smaller amount of permanent insurance with no more premiums due?
• 8029If an owner stops paying premiums and does not choose a nonforfeiture option, the default option is usually
• 8030The fixed period settlement option pays the proceeds
• 8031Under the interest only settlement option, the insurer
• 8032The dividend option that uses dividends to buy small amounts of fully paid-up insurance is
• 8033A policy exclusion for war or military service means the insurer
• 8034If an insured dies while engaged in a hazardous activity excluded by endorsement, the insurer will most likely
• 8035A life settlement contract is
• 8036Stranger originated life insurance (STOLI) is
• 8037Which of the following must a life insurer provide to a prospective buyer with a life insurance application?
• 8038A surrender charge in a life or annuity contract is

Taxation of Life Insurance and Annuities

• 9001Life insurance death benefits paid to a named beneficiary are generally
• 9002Premiums paid for an individual life insurance policy are generally
• 9003Cash value growth inside a permanent life policy is
• 9004When a policy is surrendered for more than the owner's investment in the contract, the excess is
• 9005A modified endowment contract (MEC) results when
• 9006Distributions from a MEC are taxed on which basis?
• 9007A 1035 exchange allows an owner to
• 9008Annuity payments to an annuitant under a nonqualified annuity are taxed using
• 9009Policy dividends on a participating whole life policy are generally treated as
• 9010Premiums for the first $50,000 of employer-provided group term life insurance are
• 9011Contributions to a qualified retirement plan used to buy life insurance
• 9012Which tax rule applies to a withdrawal from a nonqualified annuity before age 59 and a half?
• 9013Interest earned on a policy loan from a whole life policy is
• 9014The tax treatment of death benefit proceeds paid in installments is that
• 9015When a lapsed policy with an outstanding loan is terminated, the owner may owe tax on

Group Life Insurance Plans

• 10001In a group life insurance plan, the employer typically receives
• 10002A contributory group plan is one in which
• 10003In a noncontributory group plan, the employer pays the entire premium, so
• 10004In group life insurance, the underwriting is based primarily on
• 10007Which employer responsibility applies to group life insurance?
• 10008Non-discrimination within a class of employees means that group life benefits
• 10009Blanket life insurance covers
• 10010Which of the following can be insured under group life with the employee's coverage?
• 10011An association group plan cannot be formed
• 10012Which of the following is typical for group life insurance?
• 10013Incontestability in group life means that after a stated period the insurer
• 10014A domestic partner may be recognized under California group life provisions
• 10015Group life insurance cost per person is generally

Social Security Disability Program

• 11001Under Social Security, how many credits are required to be fully insured for retirement benefits?
• 11002A worker under age 24 can obtain currently insured status with how many credits in the last three years?
• 11003Fully insured status in Social Security qualifies a worker for
• 11004The Social Security survivor benefit that is a one-time payment is the
• 11005The blackout period refers to
• 11006Currently insured status for survivor benefits is based on
• 11007Social Security disability benefits require that the worker
• 11008Which type of Social Security benefit is available to a surviving spouse caring for a young child?
• 11009A worker earns Social Security credits based on
• 11010Premium-free Medicare Part A requires
• 11011Social Security retirement benefits are payable to
• 11012Children of a deceased insured worker may receive survivor benefits until about age
• 11013Private life insurance is often used together with Social Security survivor benefits to
• 11014Which of these is a source of disability income not provided by insurance contracts?
• 11015The Social Security Disability program pays benefits when the disability is expected to last

Individual Underwriting, Pricing and Claims

• 12001The purpose of underwriting a life insurance application is to
• 12002A risk that is healthier than average and receives the lowest premium is classified as
• 12003An agent acting as a field underwriter should
• 12004The MIB report is used to
• 12005An attending physician's statement is
• 12006Under California law, insurers may not unfairly discriminate in underwriting on the basis of
• 12007Which rate-making component represents the expected rate of death?
• 12008A hazardous activity questionnaire would most likely be requested if the applicant
• 12009A rated policy is one in which the insurer
• 12010Which of the following is a possible underwriting outcome for the insured?
• 12011Which statement about underwriting requirements is correct?
• 12012A credit or inspection report is used by underwriters to
• 12013Adverse selection in life underwriting is best controlled by
• 12014The agent's report to the insurer
• 12015Persistency in life insurance refers to

Life Policy Riders

• 13001A waiver of premium rider
• 13002An accidental death benefit rider pays
• 13003A guaranteed insurability rider allows the insured to
• 13004A cost of living rider
• 13005An accelerated death benefit rider allows the insured to
• 13006Long-term care training is required for an agent who
• 13007How many hours of long-term care training must an agent complete before soliciting individual consumers for LTC insurance?
• 13008After the fifth year of licensing, long-term care training must be completed
• 13009A no-lapse guarantee in universal life
• 13010A disability income rider
• 13011Guaranteed minimum withdrawal benefit riders on annuities
• 13012Which rider would best meet the need of a parent who wants to ensure a child can buy more insurance later despite poor health?
• 13013Which rider would best protect against the policy lapsing if the insured is disabled?
• 13015Benefits paid under an accelerated death benefit rider reduce
• 13016A critical illness rider pays