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TX insurance exam

Which provision states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity

For the purpose of insurance, risk is defined as

The uncertainty or chance of loss

Which of the following is NOT a characteristic of pure risk?

The loss must be catastrophic.

A tornado would be an example of which of the following?

A peril

Events or conditions that increase the chances of an insured loss occurring are referred to as

Hazards

Wagering on a sporting event is known as what type of risk?

Speculative

Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance?

Race

Units with the same or similar exposure to loss are referred to as

Pure risk

Which of the following is an example of an uninsurable risk?

Speculative risk

When are the group's reported losses more likely to become equal to the statistical probability of loss?

The larger the group

To achieve the profitable distribution of exposures,

Preferred risks and poor risks are balanced, with average risks in the middle.

A situation in which a person can only lose are have no change represents

Pure risk

What mechanism allows individuals to transfer their risk of loss to a larger group?

Insurance

Insurance policy is

A written instrument in which a contract of insurance is set forth

The key factor of representation that allows the injured to rescind the contract is

If the representation is false in a material point

If an applicant for a life insurance policy is fount to be a substandard risk, the insurance company is most likely to

Charge a higher premium

In forming an insurance contract, when does an acceptance usually occur?

When an insurer approves a pre-paid application

An applicant who receives a preferred risk classification qualifies for

Lower premiums than a person who receives a standard risk.

An importance of misrepresentation is determined by

The materiality of a given concealment

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

Conditional

An agent tries to sell insurance over the phone. One of the applicants appears to be somewhat confused, but is eventually able to give enough information for the application to be completed. After the policy was issued, it was discovered that the insured have been under the influence at the time of application. Which of the following is true?

The policy may be voided if the applicant was not capable of making a buying decision at the time of application.

Which of the following types of risk will result in the highest premium?

Substandard risk

According to the Code, how many separate requirements should an insurance policy have?

6
(The following must be identified: the parties to the contract; the property or persons being insured; a statement of the insurable interest that exists if the insured is not the owner; the risk(s) being covered; the time period during which the policy will be in force or continue; the stated premium or manner to calculate premium.)

Which of the following is true of the Fair Credit Reporting Act?

The purpose of the act is to protect the consumer's right to privacy by making certain that underwriting data is confidential, accurate, relevant, and properly used.

All of the following must be specified in an insurance policy EXCEPT

The financial rating of the insurer

According to the California Insurance Code, any agent violating the regulations relating to misrepresentation will be charged with a

Misdemeanor, a fine not to exceed $25,000 and/or a possible 1-year imprisonment

If a consumer request additional information concerning an Investigative Consumer Report, how long does the insurer or reporting agency have to comply?

5 days

All of the following are possible punishments for individuals involved in fraudulent insurance claims activities EXCEPT

Fine three times the amount of the fraud

What other term is used to refer to unintentional torts?

Negligence

Statements made by an applicant for an insurance policy which are true to the best of the applicant's knowledge are referred to as:

Representations

Concerning insurance, the definition of fiduciary responsibility is

Handling insurer funds in a trust capacity

If a licensee conducts insurance business under a name, other than their true name, the fictitious name must be approved by the commissioner. Which of the following names may be approved for use?

ABC Insurance Services

(The fictitious name cannot indicate that the licensee is an underwriter or insurance company).

"Discontinuance" is a term used to describe the termination of what type of insurance?

Group

A new insurance must be treated as a replacement if a new insurer sells a policy to a group which discontinued its group medical insurance within how many days?

60

(There is an assumption of responsibility by an insurer if they sell a new policy to a group within 60 days of discontinuane).

What is the purpose of the California laws regulating production agencies?

To provide protection for the clients by requiring producers to maintain professional standards of conduct.

The insured provides a proof of claim to the

Insurer

Applicant Ann writes a letter to Agent Dan to receive more information about a claim that is currently being settled. Within what span of time must Agent Dan respond?

15 days

Any person who knowingly and willfully obtains information about an individual from an insurance company, agent or organization supporting insurance under false pretenses shall be fined.

Not more than $10,000, imprisonment not to exceed one year or both

In which distribution system must the potential client take the initiative and respond to an advertisement through a telephone or mail contact with the insurer?

Direct response system

Which of the following is the most precise synonym for an "authorized" insurer?

Admitted

De-mutualization happens when

A mutual insurer becomes a stock company.

In a conservation or liquidation effort, what powers does the commissioner have?

The Commissioner has all of these powers.

According to California Insurance Code, the duties and requirements of solicitor, agent and broker are all distinct from one another. Which of the following is TRUE?

One or more fire and casualty broker-agents can employ a solicitor simultaneously

An example of foreign insurer is one formed under the laws of

Puerto Rico

Which of the following persons represents several insurance companies but owns the records of the policies sold?

Independent agent

Which of the following terms would be used for someone who transacts fire insurance on behalf of the insured, and for compensation?

Insurance broker

(insurance broker refers to a person who, for compensation & on behalf of a person other than an insurer, transacts insurance other than life)

Federal law makes it illegal for any individual convicted of a crime involving dishonesty or break of trust to work in the business of insurance affecting interstate commerce

Without receiving written consent from an insurance regulatory authority

Which of the following entities does a producer represent?

The company

An agent is a legal person who acts on behalf of

The principal

What is the main difference between a life agent and a life analyst?

The way each is compensated

In order for the California Insurance Code to be changed in any way, what is required?

A bill must be approved by both houses of the California legislature.

If an insurer meets the State's financial requirements and is approved to transact business in the same state, it is considered to be

Authorized

Arnie worked for Evermore Life Insurance for many years and became their top selling agent. However while Arnie was out of the country enjoying his earnings, he forgot to send in his renewal for his life license and his license expired. In addtion to Arnie's license expiring, what else will happen to Arnie?

His appointment will expire

The code defines the term "transact" as all of the following EXCEPT

Analyzing a contract of insurance

An insurer received a claim on May 1st. On May 31st, the claim was approved in its entity. By what date can the claimant expect the payment?

June 30th

Who is responsible for advertising, promoting, and distributing an insurer's products to the public?

Marketing Department

According to the California Insurance Code, all of the following are general powers and duties of the Commissioner of insurance EXCEPT

To delegate the power to approve a settlement.

The set of regulations issued by the California Insurance Commissioner that identifies the standards for the insurance code an how it is to be administered is

California Administrative Code of Regulations

Each of the following factors are used in determining insurance rates EXCEPT

Dividends

(Dividends are the return of premiums in mutual policies)

To make sure that an agent's license stays active, the agent of an insurer must see that all of the following are done EXCEPT

File a surety bond with the Commissioner

If the Department of Insurance request information from an agent regarding a claim, this must be provided within how many days?

21

Which of the following departments is responsible for developing mortality and morbidity tables?

Actuarial

When a discontinued policy contained a death benefit, what term is used in the CIC to describe the length of the applicable extension of benefits?

Reasonable

Which of the following terms describes the phenomenon of reinsurance companies reinsuring risks for other reinsurance companies?

Retrocession

Insurers are classified according to the legal form of their ownership. The type of insurer organized to return a profit to the stockholder is

Stock

Which of the following is the illegal act of post claims underwriting?

Not paying a claim based on research of the medical history of a hospitalized patient who has filed the claim

Any person or governmental entity that provides information about an individual to an agent insurance company, or insurance-support organization is known as:

Institutional source

When would the insurer be allowed to use the information obtained through a pretext interview?

In the investigation of a claim suspected as a fraudulent

Expect when performing the role of a surplus lines broker, any agent that acts to solicit business for a nonadmitted insurer shall be guilty of a misdemeanor and shall be fined

$500 per incident and $100 additionally for every month he continues such action.

Which type of authority is based on the actions, words, or deeds of the principal?

Apparent

Which of the following is NOT a required licensing qualification for a Life and Disability Insurance Analyst in this state?

Employment with an insurance company

In order to cover all aspects of insurance law and regulations, the Code is organized into how many main divisions?

6

( the code is organized into six main divisions: 1) general provisions & rules 2) classes of insurance 3) insurance commissioner 4) civil disorders 5) insurance adjusters 6) repeals

If the information is used only for identification and not for underwriting purposes, which of the following information about the applicant may be listed on the life insurance application?

Birthplace

No person can act as an administrator in this state other than an adjuster that is licensed for the kinds of business for which he/she is acting as an administrator, unless

He/she holds a certificate of registration issued by the Commissioner

The requirement that an agent not co-mingle insurance monies with their own funds is known as

Fiduciary responsibility

n the state of California, who selects the Insurance Commissioner and for how long?

General election, for no more than two four year terms

A new insurance must be treated as a replacement if a new insurer sells a policy to a group which discontinued its group medical insurance within how many days?

60

During the process of reinsurance an insurance company that has its property risks reinsured by another provider is called

Reinsurer

Al tells a client she is guaranteed to be approved for LTC insurance if she pays the full year's premium at the time of application. The client applies for LTC insurance and writes a check for he annual premium to Al's agency. Al issues a Binder of Insurance but does not send the application to the insurer, and intentionally uses the premium for personal expenses instead. Al is guilty of

Fraud

Al tells a client she is guaranteed to be approved for LTC insurance if she pays the full year's premium at the time of application. The client applies for LTC insurance and writes a check for he annual premium to Al's agency. Al issues a Binder of Insurance but does not send the application to the insurer, and intentionally uses the premium for personal expenses instead. Al is guilty of

Fraud

People may discuss the terms and effects of an insurance contract, inquire as to another person's need for insurance, or assist a persons to obtain insurance when

They have a valid license for the type of insurance being transacted

The Claims Department would be responsible for investing which of the following?

Possible fraudulent claims by an insured

Accident and health agents may transact all of following types of insurance EXCEPT

Endowments

A participating insurance policy may do which of the following?

Pay dividends to the policyowner

Anyone convicted of committing an insurance fraud may be fined up to

$150,000

An insurance company that is not authorized to do business in the State of California is known as a(n)

Nonadmitted company

An insurance company that is formed under the laws of another state is know as which type of insurer?

Foreign

Tom is licensed insurance agent. While at lunch, he overhears a conversation that leads him to believe a person is committing Worker's Compensation fraud. If tom makes a written report to a law enforcement agency and the person is investigated, but it turns out that tom was mistaken, he can be sued for

Nothing. The code gives Tom legal immunity

Company A enters into a reinsurance agreement with a Company B, where Company B reinsures Company As policies. Which of the following is true?

Company A is the primary insurer, and Company B is the reinsurer

A person that DOES NOT work on the behalf of the company for which he or she does business, but rather represents the prospect, insured, or client is called

An insurance broker

Whenever the Commissioner has reason to believe that a person is engaging in any unfair methods of competition, he or she has the power to serve a notice of hearing. The hearing must be held no later than how many days after the notice has been served?

30 days

An insurer is helping a married couple determine their children's needs, assets, and liabilities, in the event that one or both of the spouses should die. What is the term most closely associated with this?

Survivor protection

Which of the following terms describes the fee a person pays an insurance company to receive coverage?

Premium

For an insurance contract to be valid in the State of California, when must insurable insterest exist?

At the time of application for a policy on the insured

A family's need for income is greatest during the

Family Dependency Period

Two equal partners in a business worth $150,000 are using a Cross Purchase plan to protect against the death of each other. Which of the following statements would be correct?

Partner A buys a policy on Partner B in the amount of $75,000 naming Partner A as beneficiary.

An insurer is helping a married couple determine their children's needs, assets, and liabilities, in the event that one or both of the spouses should die. What is the term most closely associated with this?

Survivor Protection

For an insurance contract to be valid in the State of California, when must insurable interest exist?

At the time of application for a policy on the insured.

An insurer's liability shall be limited to

The face amount of an individual insurance policy, subject to any exclusions and riders as applicable, minus any outstanding policy loans and interest payments due the insurer.

The risk management technique that is used to prevent a specific loss by not exposing yourself to that activity is called

Avoidance

An insurer is helping a married couple determine their children's needs, assets, and liabilities, in the event that one or both of the spouses should die. What is the term most closely associated with this?

Survivor Protection

What does "liquidity" refer to in a life insurance policy?

Cash values can be borrowed at any time

A key person insurance policy can pay for which of the following?

Cost associated with training a new replacement employee

Which of the following is the best reason to purchase life insurance rather than annuities?

To create an estate

Which of the following types of insurance policies would perform the function of cash accumulation?

Life

Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds?

Vacation travel expenses

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?

Estimated Longevity

Key person life insurance does NOT reimburse a company for which of the following?

For increased pension liability resulting from a key person's death

An insurers liability shall be limited to

The face amount of an individual insurance policy, subject to any exclusions and riders as applicable, minus any outstanding policy loans and interest payments due the insurer.

The risk management technique that is used to prevent a specific loss by not exposing yourself to that activity is called

Avoidance

In 2000, a law firm purchased a buy-sell agreement policy on each of it's partners. In 2005, one partner left to start a new practice; however, the firm continued to pay the premiums on the policy. In 2007, the former partner died. The partners of the firm filed a claim on the policy to collect the death benefit despite the fact that the deceased was NOT part of the firm or its leadership. The insurer

Will pay the death claim to the beneficiary for this policy as written since insurable interest existed at the time of application

An individual was involved in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe?

Avoidance

For an insurance contract to be valid in the State of California, when must insurable interest exist?

At the time of application for a policy on the insured.

Gary wants to make sure that if he dies before his wife, she will have enough money to live on. His death is considered a risk. If he convinces another party to assume this risk, what is this phenomenon called?

Transfer

Isaac becomes angry when his insurer ask for his mortgage expenses when attempting to determine the value of his life. What should Isaac do?

Answer the question, since it's required for life underwriting

All of the following are examples of risk retention EXCEPT

a. Self Insurance
**b. Premiums
c. Deductibles
d. Co-payments

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then

The amount received is tax-free

Which of the following terms describes the fee a person pays an insurance company to receive coverage?

Premium

Which of the following statements concerning buy-sell agreements is true?

Buy-sell agreements are normally funded with a life insurance policy

What are the personal uses of life insurance?

Survivor protection, estate creation and conservation, cash accumulation and liquidity

Which of the following is a term for a person who seeks insurance from an insurer?

Applicant

When a homeowner purchases insurance on his home, what risk management technique is he practicing?

Transfer

Which of the following would be a unique benefit life insurance has over other types of insurance?

It performs the function of cash accumulation

All of the following are examples of risk retention EXCEPT

a. Co-payments
b. Self-insurance
**c. Premiums
d. Deductibles

An insurer's liability shall be limited to

The face amount of an individual insurance policy, subject to any exclusions and riders as applicable, minus any outstanding policy loans and interest payments due the insurer

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?

Estimated longevity

Which special policy combines decreasing term insurance with whole life insurance to provide the insured's family with a monthly income upon the death of the insured, while maintaining permanent coverage until the end of the income payments?

Family Income Policy

The death benefit in a variable universal life policy

Is guaranteed to be higher than when the policy is originally issued.

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?

If the father is disabled for more than 6 months

At age 30, a man wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs?

Adjustable life

Which of the following riders would NOT cause the Death Benefit to increase?

Payor Benefit Rider

Abigail's father dies shortly after his fiftieth birthday. Abigail is the designated beneficiary. She is surprised to see that in addition to the face amount of the policy, she will also receive a refund for all of the premiums he had paid. Which rider is attached to her father's policy?

Return of Premium

Concerning Juvenile Life insurance, which of the following statements is INCORRECT?

Juvenile Life is classified as any life insurance purchased by a minor

Which life policy is designed to provide the policyowner a hedge against the effects of inflation?

Variable life

A 20-year family income policy was purchased effective April 1, 2001. The insured died four months later, on August 1, 2001. The beneficiary receives monthly income for

19 years and 8 months

Cosmo has an individual life insurance policy with a face amount of $15,000. He pays a premium each month. What kind of policy did Cosmo purchase?

Ordinary Life

An individual has just borrowed $10,000 from his bank on a 5-year note. The note is due in installments. What type of life insurance policy would be best suited to this situation?

Decreasing term

When Grant's hours were reduced at work, he found that it was necessary to change his life insurance policy from an annual premium payment of $500 to quarterly premium of $132.50, which add up to $530 for the entire year. This increase in total premium payout was necessary for the insurance company because

They did not have his premium to invest for a full year and more expenses are incurred in collecting quarterly payments

What type of whole life insurance policy has premiums that are adjusted so that during the first years of the policy, the premiums are lower than those of a straight whole life policy, and in subsequent years the premiums are higher than those of a straight whole life policy?

Modified life

Which statement is NOT true, regarding a Straight Life policy?

Its premium steadily decrease over time, in response to its growing cash value

Paul is the policyowner of a life insurance policy which will increase significantly in face amount (death benefit) when the insured reaches an age specified in the policy. This policy is referred to as a

Jumping juvenile policy

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family term rider

The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as

The policy contains sufficient cash value to cover the cost of insurance

The type of policy that can be changed from one that does not accumulate cash value to the one that does, is a

Convertible Term Policy

Ken has a life insurance policy with a face amount of $500. He pays a premium each week to the agent who sold him the policy. What kind of policy did Ken purchase?

Industrial life

Annually renewable term policies provide a level of death benefit for a premium that

Increases annually

What kind of policy does NOT typically require proof of insurability?

Group insurance

If an insured changes his payment plan from monthly to annually, what happens to the total premium?

Decreases

Paul is the policyowner of a life insurance policy which will increase significantly in face amount (death benefit) when the insured reaches an age specified in the policy. This policy is referred to as a

Jumping juvenile policy

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