California Life & Health Insurance License, Practice Exams

When a long-term care policy is replaced and the replacement premium is greater than the original, how is the agent's first-year sales commission calculated?

1. On the full annual premium of the new replacement coverage
2. On the difference between the replacement coverage premium and the original coverage premium ✓
3. On the original coverage premium only, at the renewal commission rate under the policy's terms
4. On the average of the original and replacement coverage premiums

Why: Sec. 10234.97 requires the first-year commission on replaced LTC coverage to be based on the difference between the replacement and original premiums (renewal rate only if not greater).

When a covered employee leaves the company, the group life conversion privilege generally allows them to:

1. Convert to an individual permanent policy within 31 days without evidence of insurability ✓
2. Keep the identical group term coverage for free for the rest of their life in most situations
3. Convert only after passing a new individual medical examination first
4. Receive a cash refund equal to all premiums the employer ever paid

Why: On termination, the employee may convert group coverage to an individual permanent policy (usually within 31 days) without proving insurability, though at individual rates.

Before an insurer may issue or deliver a group disability policy in California, what must occur with respect to the policy form?

1. The form must be filed with and approved by the commissioner as meeting the chapter's required provisions ✓
2. The form must be certified by the National Association of Insurance Commissioners before any use
3. The form must be reviewed and ratified by the policyholder's bargaining unit or trustees
4. The form must be registered with the Secretary of State and published for public comment

Why: Sec. 10270.9 bars issuing a group disability policy until the form is filed with and approved by the commissioner as meeting the applicable required provisions.

A producer convinces a client to drop a policy at Company A and buy one at Company B using misleading comparisons. This is:

1. Twisting ✓
2. Churning
3. Rebating
4. Coercion

Why: Inducing a replacement between different insurers through misrepresentation is twisting; doing it within the same insurer is churning.

In the application process, the producer often acts as the 'field underwriter,' meaning they:

1. Gather information and make an initial assessment of the risk ✓
2. Set the final premium and issue the policy under the policy's terms
3. Pay claims on behalf of the insurer
4. Audit the insurer's financial statements

Why: As field underwriter the producer collects accurate information and screens obvious risks before formal underwriting.

A family maintenance policy combines whole life with level term to:

1. Pay an income for a set period beginning at the insured's death, then the face amount ✓
2. Decrease the death benefit gradually as the insured's children grow up
3. Invest part of each premium in the policyowner's chosen mutual funds
4. Provide temporary coverage only, expiring with no value at the term's end

Why: Family maintenance adds level term to whole life; if the insured dies during the term, it pays income for a stated period from the date of death, then the face amount.

In life or disability insurance, what is the only measure of an insurer's liability and damage under California law?

1. The full replacement cost of the insured's projected lost future earnings
2. The sum or sums payable as provided in the policy ✓
3. The actual economic loss that the beneficiary is able to prove at a later trial
4. The stated face amount plus consequential damages for any emotional distress

Why: Sec. 10111 states the only measure of liability and damage is the sum payable as provided in the policy to the person entitled thereto.

A health policy with monthly premiums has a grace period of 10 days. A premium is 8 days late when the insured incurs a covered loss. The insurer:

1. Covers the loss, since the policy is still in force during the grace period ✓
2. Denies the loss because the premium was late according to the insurer's rules
3. Covers only half the loss as a penalty
4. Cancels the policy retroactively

Why: Coverage continues during the grace period; the claim is paid (the overdue premium may be deducted).

A guaranteed insurability rider lets the insured:

1. Buy more coverage at set dates without proving insurability ✓
2. Cancel the policy at any time and recover all premiums paid
3. Convert the policy into an annuity with a guaranteed income for life
4. Skip premium payments during any year of financial hardship

Why: The guaranteed insurability option permits purchasing additional coverage at specified ages or events with no new evidence of medical insurability.

A Medicare beneficiary wants a lower Medigap premium and is willing to use a provider network. The product is:

1. Medicare SELECT ✓
2. A Medicare Advantage HMO
3. Medicaid
4. A high-deductible health plan

Why: Medicare SELECT is a Medigap policy that uses a network of providers in exchange for a lower premium.

Withdrawing funds from a traditional IRA before age 59½ generally results in:

1. A 10% IRS penalty in addition to ordinary income tax ✓
2. Tax-free treatment as a qualified early retirement distribution
3. A reduced 5% penalty that applies only to the earnings portion
4. Loss of the entire account balance back to the plan trustee

Why: Premature distributions are subject to a 10% penalty plus ordinary income tax, unless an exception applies.

A contributory group life plan, in which employees pay part of the premium, generally requires:

1. 100% of all eligible employees to enroll in the plan
2. At least 75% of eligible employees to participate ✓
3. No minimum level of employee participation at all
4. Only the highly compensated employees to participate

Why: Contributory plans typically require at least 75% participation, while noncontributory (employer-paid) plans require 100%.

A modified-premium whole life policy charges:

1. Lower premiums for an initial period, then higher level premiums ✓
2. The same premium every year for the entire life of the policy
3. Premiums that decline a little bit every single year until paid up
4. A single large premium that makes the policy paid up at issue

Why: Modified whole life has reduced premiums during the early years (often the first five) followed by higher level premiums for life.

A producer makes untrue statements in a public advertisement about a policy's benefits. This is:

1. False advertising, an unfair trade practice ✓
2. Permissible marketing puffery in most situations
3. Twisting
4. Coordination of benefits

Why: Untrue or misleading advertising about insurance is the unfair practice of false advertising/misrepresentation.

For California 'group disability insurance' written under a master policy issued to a single employer, what is the minimum number of employees that must be covered?

1. Not less than two employees ✓
2. Not less than five employees
3. Not less than ten employees
4. Not less than twenty-five employees

Why: Sec. 10270.5(a)(1) defines employer group disability insurance as covering not less than two employees.

A policyowner stops paying premiums but wants to keep some permanent coverage with no further premiums due. The best nonforfeiture option is:

1. Reduced paid-up insurance ✓
2. Extended term insurance
3. Cash surrender value
4. Automatic premium loan

Why: Reduced paid-up uses the cash value to buy a smaller, fully paid-up permanent policy — permanent coverage with no further premiums.

A $500,000 death benefit is paid to a surviving spouse. For federal estate tax, the amount qualifies for the:

1. Unlimited marital deduction ✓
2. Annual gift tax exclusion
3. Transfer-for-value exception
4. Three-year ownership rule

Why: Transfers to a surviving (citizen) spouse qualify for the unlimited marital deduction, passing estate-tax-free.

The cash value in a permanent life insurance policy accumulates:

1. Tax-free with no conditions
2. Tax-deferred ✓
3. As taxable income each year
4. Only when dividends are paid

Why: Cash value grows tax-deferred while the policy is in force.

Making unfair discrimination between individuals of the same class and equal expectation of life in the rates charged for life insurance is prohibited under which part of Section 790.03?

1. The subdivision concerning misrepresentation of dividends or policy terms
2. The subdivision concerning unfair discrimination in life insurance rates ✓
3. The subdivision concerning false or misleading insurance advertising
4. The subdivision concerning boycott, coercion, and intimidation in trade

Why: Section 790.03(f) prohibits unfair discrimination between individuals of the same class and equal expectation of life in life insurance or annuity rates, dividends, benefits, or other terms.

Which conduct by a licensee is a specific cause to suspend or revoke a permanent license under the anti-inducement rule?

1. Inducing a client to make the licensee a beneficiary of the client's life insurance policy or annuity ✓
2. Recommending a coverage limit that is somewhat higher than the limit the client originally requested at intake
3. Selling a policy issued by an insurer for which the licensee is not appointed
4. Failing to display the license certificate at a secondary branch office

Why: Sec. 1668.1(b) makes it cause to suspend or revoke a license where the licensee induces a client to make the licensee a beneficiary under a life insurance or annuity policy.

Which item is part of the 'suitability information' a producer must reasonably try to obtain before an annuity transaction?

1. The consumer's liquid net worth and liquidity needs ✓
2. The consumer's credit score
3. The consumer's voter registration under the policy's terms
4. The consumer's employer's tax ID

Why: Sec. 10509.913(i) lists suitability information including liquid net worth and liquidity needs, among age, income, financial objectives, and more.

Under California's insurable-interest statute, in which of the following does a person automatically have an insurable interest in another's life?

1. A casual acquaintance whom the person knows only socially and has no financial ties to
2. A person on whom they depend for education or support ✓
3. A celebrity or public figure they admire from a distance but have never personally met
4. A neighbor whose residential property happens to border their own land

Why: Sec. 10110 lists, among insurable interests, any person on whom one depends wholly or in part for education or support.

What is the stated purpose of California's life insurance and annuity replacement article?

1. To prohibit outright all replacement of existing life insurance and annuity contracts
2. To regulate replacement activities and protect purchasers with minimum standards ✓
3. To set the maximum sales commissions that agents may earn on a replacement transaction
4. To require advance state approval before any in-force policy may be surrendered or replaced

Why: Sec. 10509 states the article's purpose is to regulate replacement activities and protect purchasers by establishing minimum standards of conduct.

A nonresident producer license allows a producer to:

1. Transact insurance in a state other than their home state ✓
2. Skip licensing requirements entirely
3. Sell only in their state of residence under the policy's terms
4. Operate without any appointment

Why: A nonresident license lets an already-licensed producer do business in another state, typically via reciprocity with their resident license.

A producer plans an in-home meeting to discuss life insurance with a senior. Under Section 789.10, the written notice must generally be delivered within what window before the initial in-home meeting?

1. At least 24 hours but not more than 14 days prior to the meeting ✓
2. At least 48 hours but not more than 30 days prior to the meeting
3. At least 72 hours but not more than 10 days prior to the meeting
4. At any reasonable time before the in-home meeting actually begins

Why: Section 789.10(b) requires delivery of the written notice no less than 24 hours and no more than 14 days prior to the initial in-home meeting (with a same-day exception for an existing client who requests it).

All proceedings in which an insolvent insurer is a party in any California court are stayed for how long after an order of liquidation, rehabilitation, or conservation is final, under Section 1067.16?

1. Not less than 180 days ✓
2. Not less than 30 days
3. Not less than 90 days
4. Exactly one calendar year from the date on which the order of liquidation, rehabilitation, or conservation involving the insolvent insurer becomes final

Why: Sec. 1067.16 stays proceedings not less than 180 days from the date the order is final, to permit proper legal action by the association.

Long-term care policies are generally required to be:

1. Guaranteed renewable ✓
2. Cancelable by the insurer at any time
3. Renewable only with new medical evidence each year
4. Convertible into a life insurance policy on demand

Why: LTC policies must be at least guaranteed renewable: the insurer must renew, though it may adjust premiums on a class basis.