CA LIFE AND HEALTH INSURANCE EXAM 3 LATEST
VERSIONS (VERSION A, B AND C) ACTUAL EXAM 350
QUESTIONS AND CORRECT DETAILED ANSWERS WITH
RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED
A
A family's need for income is greatest during the - ANSWER: Family Dependency
Period
Time after the insured has died, leaving a surviving spouse with dependent children
to support.
Which of the following would be least likely to be considered a legitimate need that
would be paid by insurance proceeds? - ANSWER: Vacation travel expenses
THere are many legitimate need-based expenses that can be paid by life insurance
proceeds, from groceries to retirement income. Vacation expenses are most likely to
be considered a luxury and not a need.
Which of the following is NOT a type of information that needs to be gathered in
order to determine the value of someone's life when using the needs approach?
A. Outstanding debt
B. Mortgages
C. Expenses
D. Estimated longevity - ANSWER: D. Estimated Longevity
There are four main types of information that an insurer needs to obtain in order to
determine the value of some's life: debt status, income, mortgage, and expenses.
Longevity is not a factor in the personal financial planing process.
What falls in the category of costs associated with death? - ANSWER: Costs would
take into account final medical expenses the insured, funeral expenses, and a day to
day expenses of maintaining the family including rent or mortgage payments, car
payments, utilities, groceries, etc.
What is the preretirement period? - ANSWER: Period after children are no longer
dependent upon surviving spouse for support, but before surviving spouse qualifies
for social security benefits.
What is the human life Value approach? - ANSWER: Human Life Value Approach
gives the insured an estimate of what would be lost to the family in the event of
premature death of the insured. Calculates and individuals life value by looking at
the insured's wages, inflation, number of years to retirement, and time value of
money.
,What is the needs approach? - ANSWER: Based on predicted needs of a family after
the premature death of an insured.
Some factors are income, amount of debt, investments, and other ongoing expenses.
What is a Key person Insurance? - ANSWER: Business suffers a financial loss because
of the premature death of a key employee--someone who has a specialized
knowledge, skills or business contacts.
What is it when buy-sell insurance? - ANSWER: Buy Sell Insurance is a legal contract
that determines what will be done with a business in the event that an owner dies or
becomes disabled. Also, referred to as business continuation agreement.
Cross Purchase - ANSWER: Used in partnerships when each partner buys a policy on
the other
Entity Purchase - ANSWER: When the partnerships buy the policies on the partners
Stock Purchase - ANSWER: used by privately owned corporations when each
stockholder buys a policy on each of the others
Stock redemption - ANSWER: when the corporations buys one policy on each
shareholder
In comparison to consumer reports, which of the following describes a unique
characteristic of investigative consumer reports? - ANSWER: THE CUSTOMER'S
ASSOCIATES, FRIENDS, AND NEIGHBORS PROVIDE THE REPORT'S DATA.
Both consumer reports and investigative consumer reports provide additional
information from an outside source about a customer's character and reputation,
and both types of reports are used under the Fair Credit Reporting Act. The main
difference is that the information for investigative consumer reports is obtained
through an investigation and interviews with associates, friends and neighbors of the
consumer.
Which of the following must be disclosed in all advertisements and policies of term
life insurance for individuals 55 years of age or older? - ANSWER: Insurance
monetary value index
When a term life insurance monetary value index is adopted by the commissioner, it
must be disclosed in all advertisements and policies of term life insurance for
individuals age 55 and older.
Which of the following is an example of liquidity in a life insurance contract? -
ANSWER: Cash Value available to the policy owner:
,Liquidity in life insurance refers to availability of cash to the insured. Some life
insurance policies offer cash values that can be borrowed at any time and used for
immediate needs.
Which of the following is NOT true regarding the Needs Approach method of
determining the value of an individual's life? - ANSWER: Need is predicted using the
number of years until the insured's retirement.
NEEDS APPROACH: need is determined by the predicted needs of the family after the
premature of the insured, which must be assumed will happen immediately. The
policy allows for benefits to be collected upon the insured's death.
Why should the producer personally deliver the policy when the first premium has
already been paid? - ANSWER: To help the insured understand all aspects of the
contract.
It is the producer's responsibility to make sure that the policy is understood by the
insured and all of their questions are satisfied, and the delivery receipt is signed.
If an insured changes his payment plan from monthly to annually, what happens to
the total premium? - ANSWER: Decreases, because the insurer would have the entire
premium to invest for a full year, they would reduce the premium amount.
If a business owner becomes totally disabled, a business overhead expense policy
will pay all of the following EXCEPT
A. Utilities
B. Employee payroll
C. Loss of the owner's income
D. Rent - ANSWER: C. Loss of the owner's income
If business owners want coverage for the loss of their own income due to total
disability, they need to purchase a separate individual disability income policy.
The mode of premium payment - ANSWER: Frequency and amount of the premium
payment.
Refers to frequency policy owner pays the premium: monthly, quarterly,
semiannually, or annually.
Within how many days of requesting an investigative consumer report must an
insurer notify the consumer in writing that the report will be obtained? - ANSWER: 3
days: investigative consumer reports cannot be made unless the consumer is advised
in writing about the report within 3 days of the date the report was requested.
, In the Executive Bonus plan, who is the owner of the policy, and who pays the
premium? - ANSWER: Executive is the owner and executive pays the premium.
Exec buys policy and pays premium, employer reimburses the executive for cost.
Exec receiving compensation, the amount paid by the employer would be considered
taxable income.
If an insurer issued a policy based on the application that had unanswered questions,
which of following will be TRUE? - ANSWER: The policy will be interpreted as if the
insurer waived its right to have an answer on the application.
Unanswered questions need to be answered before the policy is issued. If a policy is
issued with questions left unanswered, the contract will be interpreted as if the
insurer waived its right to have an answer for the question, and will not be able to
deny coverage later because of unanswered questions.
Stranger-originated life insurance policies are in direct opposition to the principle of -
ANSWER: Insurable Interest
because the purchaser of a stranger originated life insurance policy doesn't know the
insured, or have any interest in the insured's longevity, STOLI policies violate the
principle of insurable interest.
A return of premium term life policy is written as what type of term coverage? -
ANSWER: INCREASING
Return of premium (ROP) life insurance is an increasing term insurance policy that
pays an additional death benefit to the beneficiary equal to the amount of the
premiums paid.
When the breadwinner that is insured by a Family Policy dies, what rights are
provided to other family members that are covered under the policy? - ANSWER:
They can convert their coverage to permanent life insurance without evidence of
insurability.
Family Members may convert their term coverage to permanent insurance if
requested within the time stated in the policy.
When would a 20-pay whole life policy endow? - ANSWER: When the insured
reaches age 100.
VERSIONS (VERSION A, B AND C) ACTUAL EXAM 350
QUESTIONS AND CORRECT DETAILED ANSWERS WITH
RATIONALES (VERIFIED ANSWERS) |ALREADY GRADED
A
A family's need for income is greatest during the - ANSWER: Family Dependency
Period
Time after the insured has died, leaving a surviving spouse with dependent children
to support.
Which of the following would be least likely to be considered a legitimate need that
would be paid by insurance proceeds? - ANSWER: Vacation travel expenses
THere are many legitimate need-based expenses that can be paid by life insurance
proceeds, from groceries to retirement income. Vacation expenses are most likely to
be considered a luxury and not a need.
Which of the following is NOT a type of information that needs to be gathered in
order to determine the value of someone's life when using the needs approach?
A. Outstanding debt
B. Mortgages
C. Expenses
D. Estimated longevity - ANSWER: D. Estimated Longevity
There are four main types of information that an insurer needs to obtain in order to
determine the value of some's life: debt status, income, mortgage, and expenses.
Longevity is not a factor in the personal financial planing process.
What falls in the category of costs associated with death? - ANSWER: Costs would
take into account final medical expenses the insured, funeral expenses, and a day to
day expenses of maintaining the family including rent or mortgage payments, car
payments, utilities, groceries, etc.
What is the preretirement period? - ANSWER: Period after children are no longer
dependent upon surviving spouse for support, but before surviving spouse qualifies
for social security benefits.
What is the human life Value approach? - ANSWER: Human Life Value Approach
gives the insured an estimate of what would be lost to the family in the event of
premature death of the insured. Calculates and individuals life value by looking at
the insured's wages, inflation, number of years to retirement, and time value of
money.
,What is the needs approach? - ANSWER: Based on predicted needs of a family after
the premature death of an insured.
Some factors are income, amount of debt, investments, and other ongoing expenses.
What is a Key person Insurance? - ANSWER: Business suffers a financial loss because
of the premature death of a key employee--someone who has a specialized
knowledge, skills or business contacts.
What is it when buy-sell insurance? - ANSWER: Buy Sell Insurance is a legal contract
that determines what will be done with a business in the event that an owner dies or
becomes disabled. Also, referred to as business continuation agreement.
Cross Purchase - ANSWER: Used in partnerships when each partner buys a policy on
the other
Entity Purchase - ANSWER: When the partnerships buy the policies on the partners
Stock Purchase - ANSWER: used by privately owned corporations when each
stockholder buys a policy on each of the others
Stock redemption - ANSWER: when the corporations buys one policy on each
shareholder
In comparison to consumer reports, which of the following describes a unique
characteristic of investigative consumer reports? - ANSWER: THE CUSTOMER'S
ASSOCIATES, FRIENDS, AND NEIGHBORS PROVIDE THE REPORT'S DATA.
Both consumer reports and investigative consumer reports provide additional
information from an outside source about a customer's character and reputation,
and both types of reports are used under the Fair Credit Reporting Act. The main
difference is that the information for investigative consumer reports is obtained
through an investigation and interviews with associates, friends and neighbors of the
consumer.
Which of the following must be disclosed in all advertisements and policies of term
life insurance for individuals 55 years of age or older? - ANSWER: Insurance
monetary value index
When a term life insurance monetary value index is adopted by the commissioner, it
must be disclosed in all advertisements and policies of term life insurance for
individuals age 55 and older.
Which of the following is an example of liquidity in a life insurance contract? -
ANSWER: Cash Value available to the policy owner:
,Liquidity in life insurance refers to availability of cash to the insured. Some life
insurance policies offer cash values that can be borrowed at any time and used for
immediate needs.
Which of the following is NOT true regarding the Needs Approach method of
determining the value of an individual's life? - ANSWER: Need is predicted using the
number of years until the insured's retirement.
NEEDS APPROACH: need is determined by the predicted needs of the family after the
premature of the insured, which must be assumed will happen immediately. The
policy allows for benefits to be collected upon the insured's death.
Why should the producer personally deliver the policy when the first premium has
already been paid? - ANSWER: To help the insured understand all aspects of the
contract.
It is the producer's responsibility to make sure that the policy is understood by the
insured and all of their questions are satisfied, and the delivery receipt is signed.
If an insured changes his payment plan from monthly to annually, what happens to
the total premium? - ANSWER: Decreases, because the insurer would have the entire
premium to invest for a full year, they would reduce the premium amount.
If a business owner becomes totally disabled, a business overhead expense policy
will pay all of the following EXCEPT
A. Utilities
B. Employee payroll
C. Loss of the owner's income
D. Rent - ANSWER: C. Loss of the owner's income
If business owners want coverage for the loss of their own income due to total
disability, they need to purchase a separate individual disability income policy.
The mode of premium payment - ANSWER: Frequency and amount of the premium
payment.
Refers to frequency policy owner pays the premium: monthly, quarterly,
semiannually, or annually.
Within how many days of requesting an investigative consumer report must an
insurer notify the consumer in writing that the report will be obtained? - ANSWER: 3
days: investigative consumer reports cannot be made unless the consumer is advised
in writing about the report within 3 days of the date the report was requested.
, In the Executive Bonus plan, who is the owner of the policy, and who pays the
premium? - ANSWER: Executive is the owner and executive pays the premium.
Exec buys policy and pays premium, employer reimburses the executive for cost.
Exec receiving compensation, the amount paid by the employer would be considered
taxable income.
If an insurer issued a policy based on the application that had unanswered questions,
which of following will be TRUE? - ANSWER: The policy will be interpreted as if the
insurer waived its right to have an answer on the application.
Unanswered questions need to be answered before the policy is issued. If a policy is
issued with questions left unanswered, the contract will be interpreted as if the
insurer waived its right to have an answer for the question, and will not be able to
deny coverage later because of unanswered questions.
Stranger-originated life insurance policies are in direct opposition to the principle of -
ANSWER: Insurable Interest
because the purchaser of a stranger originated life insurance policy doesn't know the
insured, or have any interest in the insured's longevity, STOLI policies violate the
principle of insurable interest.
A return of premium term life policy is written as what type of term coverage? -
ANSWER: INCREASING
Return of premium (ROP) life insurance is an increasing term insurance policy that
pays an additional death benefit to the beneficiary equal to the amount of the
premiums paid.
When the breadwinner that is insured by a Family Policy dies, what rights are
provided to other family members that are covered under the policy? - ANSWER:
They can convert their coverage to permanent life insurance without evidence of
insurability.
Family Members may convert their term coverage to permanent insurance if
requested within the time stated in the policy.
When would a 20-pay whole life policy endow? - ANSWER: When the insured
reaches age 100.
