Life Practice Exam 1 Part 1

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1) Which of the following is the ideal or pure risk?

a) William won $20,000 from a slot machine

b) Robert lost his stock investments last year

c) Sarah’s income has decreased by $1,000 due to a disability

d) ABC Corporation’s return of operations showed a loss of $250,000


2) James bought a new sports car and drove it above the speed limit, resulting in an accident. Which constitutes a hazard?

a) driving too fast

b) medical expenses from the accident

c) disability income from his policy

d) life insurance premiums that are attributed to his cash value


3) Insurance sold by vending machines is an example of which type of distribution?

a) Independent company

b) Insurance agency

c) Marketing distribution system

d) Managing General Agency


4) Mr. Craig bought a policy with his wife as the primary beneficiary. He wants to adda provision that in case of an accidental death, where Mrs. Craig dies shortly after himproceeds of the life insurance would go to the contingent beneficiaries. This can beaccomplished by the "survivor/time clause.

a) True

b) False


5) With regards to an application; the applicant, insured and the policyowner is/are:

a) only one person

b) can be three different people

c) may be one or several different people

d) none of the above


6) Marie has a disability policy and decided to let it lapse after four years of premium payments. The premium became due on April 30th. On May 5th she had an accident and was hospitalized. A claim was filed on May 6th. The insurer will:

a) pay the claim because the claim was filed within the grace period

b) pay the claim because she had paid for more than two years

c) pay the claim because the accident happened within the grace period

d) pay the claim because she had to be hospitalized


7) Ken just got a disbility policy. He forgot to tell his life agent of a minor health problem. Four days later, he went skiing for the first time in several years and had a serious accident. The insurance company paid the medical expenses because:

a) unintentional concealment is advisable

b) the concealment was not material

c) the underwriter waived his intent

d) the accident was not material regarding health underwriting guidelines


8) ABC replaces the group life insurance program of 20,000 employees of the Merco Company. ABC also has other groups with coverage throughout the United States. The total number of employees covered all across the nation is approximately 200,000. Is this an example of the Law of Large Numbers?

a) True

b) False


9) Mr. Hutton has been using "Alpha Insurance Agency" for years. When "Alpha" terminated their contract with him, he decided to continue to use the name, since it was so popular and could bring him a lot of business. This is an example of:

a) expressed authority

b) apparent authority

c) implied authority

d) waiver authority


10) Regarding business names: Select the most appropriate:

a) E. Smith Insurance

b) E. Smith Agency

c) E. Smith Insurance Agency

d) E. Smith, CLU and Associates


11) Records for every transaction on new policies issued must be maintained in the office for:

a) 24 months

b) 12 months

c) 18 months

d) 36 months


12) As per Required Provisions, premiums paid quarterly, semi-annually and annually has a grace period of:

a) 7 days

b) 10 days

c) 31 days

d) 90 days


13) Bill bouhgt a whole life policy and named his new wife, Sara as the primary beneficiary. If Sara dies before Bill, death proceeds of the policy are paid to:

a) Sara’s estate

b) Bill’s estate

c) State of California

d) tertiary beneficiary’s estate


14) Mr. Dough bought a $50,000 life policy. Six months afterwards, he committed suicide. The insurance company will:

a) deny the claim

b) pay $50,000 if premiums were in fact paid

c) pay half of $50,000 less the amounts of premiums paid

d) return only premiums paid to the beneficiarydue to the two year rule


15) In a Single Premium Immediate Annuity (SPIA), the company will begin payment after at least one year.

a) True

b) False


16) Mrs. Jones, age 60, is planning to invest her retirement benefit in an annuity. She was guaranteed to live to be 95. She wants to invest in annuity which will give her the most money. Which type of annuity would you recommend?

a) straight life annuity

b) simple compound annuity

c) 20 - life annuity

d) whole life annuity


17) The Medical Information Bureau (MIB) is a non-profit information agency supported by which of the following:

a) private physicians

b) insurance agents

c) insurance companies

d) federal government


18) The reason agents need to know about the Modified Endowment Contracts, also known as MEC’s is:

a) it is rapidly becoming very popular

b) tax treatments on the living benefits is very different than ordinary life

c) tax treatment of the death benefits is different than ordinary life

d) none of the above


19) In a disability insurance policy, one way of determining premiums is by using:

a) mortality tables

b) morbidity tables

c) CSO tables

d) inspection reports


20) "Term to age 65" means:

a) paid-up to age 65 with total face value

b) paid-up to age 65 with less than face value

c) term insurance

d) never paid up


21) A life policy with cash value at current rate and flexible premium is a:

a) Universal life insurance

b) Variable life

c) Annuity

d) Fixed annuity


22) Wayne bought a house and needs an insurance policy to cover his martgage in case of his death. Which type of policy would be most appropriate?

a) 20 pay life

b) 30 pay life

c) increasing term

d) decreasing term


23) Howard bought a car through his bank. The bank required him to get an insurance policy to cover his loan in case he were to die prematurely. The type of insurance most likely to help Howard would be:

a) travel/accident policy

b) credit life policy

c) increasing term

d) none of the above


24) Which of the following describes the "entire contract?"

a) copy of the application, the policy and any attachments

b) the document signed by the insured containing information only about the insured, address, face values

c) an instrument where changes were signed by the agent

d) all of the above


25) Mr. Drake has a policy with his daughter as the revocable beneficiary. When he decides to get a policy loan, he should first have written consent by her.

a) True

b) False


26) Mrs. Clark had a whole life policy. Upon her death, it was discovered that her actual age was 2 years older than was stated in the policy. The insurer will:

a) pay the face value

b) pay the face value plus the amount of premiums paid

c) pay the face value less the premium difference based upon her corrected age

d) pay the face value plus cash values accumulated at the age that was stated in the policy when it was issued.


27) The automatic premium loan provision applies when:

a) deduct from cash values payments to policy loan after the grace period

b) deduct from the cash values for premium payment after the grace period

c) automatic use of the dividends for premium payments

d) none of the above


28) Jill bought a Universal life policy with a face value of $75,000. To keep up with inflation, she needs to increase the death benefit as she opted. As the agent which would you recommend?

a) spendthrift clause

b) accelerated benefits rider

c) cost of living rider

d) increasing term


29) The following are factors in determing premiums except:

a) mortality

b) operating expenses

c) commissioner’s expenses

d) investment experience


30) Upon negotiations leading to making a contract, representations by the insured or the insurer are:

a) misrepresentations if oral or written

b) may be withdrawn

c) may be true to the best knowledge of the agent

d) are not material


31) Mr. Thomas was issued a binding receipt. Nine days later he died from heart disease. The insurer found out that he had health problems but failed to inform him of the disapproval four days after the issuance of the receipt. The insurer will:

a) not pay the claim and just return the initial premium

b) pay the claim plus all premiums

c) pay the claim less the premiums

d) pay the amount of claim only


32) In health policies, the waiting period where no bebefits are paid is known as:

a) probationary period

b) elgibility period

c) elimination period

d) enrollment period


33) Everything being equal, which policy has the lowest premiums?

a) noncancellable

b) guaranteed renewable

c) cancellable

d) optionally renewable


34) Mr. Jones was offered a guaranteed renewable policy with the same premium as a noncancellable policy. Which will benefit him the most?

a) guaranteed renewable

b) noncancellable

c) conditionally renewable

d) optionally renewable


35) In a major medical expense policy, the dollar amount beyond which the insured no longer pays the expenses is known as:

a) deductible

b) coinsurance

c) first dollar coverage

d) stop loss limit


36) Joe works in the stockroom and while climbing on a ladder causes himself injury by breaking his leg. This is covered under:

a) Social Security

b) Medicare Part A

c) Medicare Part B

d) none of the above


37) A person that pays premium annually:

a) pays lower total premiums than monthly, quarterly, or semi-annually

b) pays higher premium than monthly, quarterly and semi-annually

c) pays the same premium as monthly, quarterly, or semi-annaully

d) none of the above


38) Allan works with Alpha Co. and his wife Brenda works at Bravo Co. Both are covered under group health insurance with coordination of benefits provision.

a) Alpha is the primary insurer for Allan

b) Brenda is the primary insured for Bravo Co.

c) Alpha Co. insurer will not pay any claims made by Brenda

d) Bravo Co. insurer will not pay claims for Allan already paid by Alpha Co. insurer


39) OBRA affects:






40) About Medicare, it covers the following, except:

a) Part A- hospital insurance

b) Part B-medical services

c) Part C-LTC


41) Premiums paid by employees on disability insurance are:

a) taxable above 2% of gross

b) tax-deductible

c) non-taxable

d) non-tax deductible


42) The California Insurance Code provides that: "An agent who guarantees dividends in the future on a policy in order to get the sale violates the provision of the Code. The penalty is a 30 day imprisonment" This statement is:

a) True

b) False


43) OASDHI is:

a) optional for all

b) it is required if the minimum floor income level exceeds the basis

c) an actuarial table used to determine premiums

d) associated with Social Security and is currently fully funded


 44) The CIC ( California Insurance Code) requires license numbers to be displayed/printed on documents such as:

a) business cards

b) newspaper ads

c) letterheads

d) all of the above


45) An agent selling LTC policies is required to do 8 hours of LTC courses and 25 hours of basic "continuing education" hours every year for the first four years.

a) True

b) False


46) A license is considered "inactive" if:

a) the license already lapsed and not renewed

b) no business is solicited while the license is in force

c) when an insurer terminates the appointment before the license expires

d) when aninsurer terminates the license after the license expires


47) In case of a Joint Life policy, the premiums are based on the:

a) age of the youngest insured

b) age of the oldest insured

c) age of whichever insured will be the owner of the policy

d) average age of both insureds


48) Joshua owns a Family Income policy that will provide an income for a term of 10 years. If Joshua dies after the seventh year, for how many years will the policy provide his family with an income?

a) 10 years

b) 7 years

c) 3 years

d) 0 years


49) A married couple ( each of which earns about the same income) conveys to you that if one of them dies, the surviving spouse would need life insurance proceeds in order to maintain the same standard of living. The couple also expresses that they would prefer to both be insured under the same policy. Which of the following types of policies would best accomplish this objective?

a) family maintainance policy

b) survivorship policy

c) joint life

d) Universal life


50) All of the following are true regarding a varible life policy except:

a) investment risk for the client

b) investment risk for the insurer

c) provides a hedge against inflation

d) provides potential for higher cash growth


Answers to Part 1

1-c 2-a 3-c 4-a 5-c 6-c 7-d 8-a 9-b 10-c 11-a 12-c 13-b 14-d 15-a

16-a 17-c 18-b 19-b 20-c 21-a 22-d 23-b 24-a 25-b 26-c 27-b 28-c

29-c 30-b 31-d 32-c 33-c 34-b 35-d 36-d 37-a 38-d 39-d 40-c 41-d

42-b 43-d 44-d 45-b 46-c 47-d 48-c 49-c 50-b



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