CA LIFE STATE PRACTICE EXAM PT 2(FROM
EXAM FX ONLINE TEST) QUESTIONS AND
ANSWERS WITH COMPLETE SOLUTIONS
Taxation of Life Insurance and Annuity – Premium and Proceeds
[Best Score: 75%] Employee Benefits Plans [Best Score: 87%]
Underwriting\/Pricing\/Claims [Best Score: 100%] Financial
Structure of Insurers
Life insurance death proceeds are correct answer: Generally not
taxed as income.
A policyowner surrendered a non-participating whole life policy
for $10,000 cash value. The policyowner had at that time paid
premiums totaling $8,000. The federal income tax effect would
be correct answer: $2,000 taxable, $8,000 tax free.
If an insured surrenders his life insurance policy, which
statement is true regarding the cash value of the policy? correct
answer: It is only taxable if the cash value exceeds the amount
paid for premiums.
When a beneficiary receives payments consisting of both
principal and interest portions, which parts are taxable as
income? correct answer: Interest only
What part of the Internal Revenue Code allows an owner of a
life insurance policy or annuity to exchange or replace their<\/p>\n\n\n\n
current contract with another contract without creating adverse
tax consequences? correct answer: Section 1035 Policy
Exchange
An immediate annuity purchased with the face amount at death
or with the cash value at surrender can be referred as which one
of the following? correct answer: Settlement option
An immediate annuity purchased with the face amount at death
or with the cash value at surrender can be referred as which one
of the following? correct answer: Settlement option
What is the main purpose of the Seven-pay Test? correct
answer: It determines if the insurance policy is an MEC.
Which of the following would qualify as a Section 1035
exchange? correct answer: Cash Value Life Insurance Policy to
a Cash Value Life Insurance Policy
Which of the following statements is INCORRECT with regard
to a 1035 exchange? correct answer: a. A whole life insurance
policy can be exchanged for a Universal life insurance policy.
b. On a trustee-to-trustee exchange where the policyowner
exchanges a life insurance policy for another life insurance
policy on the same life, there will be no income tax on the
transaction.
c. A life insurance policy can be exchanged for an annuity.
**d. A whole life insurance policy can be exchanged for a term
insurance policy.<\/p>\n\n\n\n
If a life insurance policy is deemed to be a Modified
Endowment Contract, the policy loans correct answer: Will be
taxed on a last-in-first-out basis.
When the owner of a $250,000 life insurance policy died, the
beneficiary decided to leave the proceeds of the policy with the
insurance company and selected the Interest Settlement Option.
If at the time of withdrawal the interest paid was $11,000, the
beneficiary would be required to pay income tax on correct
answer: $11,000.
Which of the following is true regarding dividend-related
taxation? correct answer: Dividends are not taxable.
Death benefits payable to a beneficiary under a life insurance
policy are generally correct answer: Not subject to income
taxation by the Federal Government.
The cash value under a MEC accumulates correct answer: On a
tax-deferred basis.
If there is a material change in an MEC contract, correct answer:
A new 7-pay test is required.
Which of the following is taxable as income? correct answer:
Benefits paid to the employee at retirement.
When a beneficiary receives payments consisting of both
principal and interest portions, which parts are taxable as
income? correct answer: Interest only<\/p>\n\n\n\n
Which of the following would be tax-free? correct answer:
Death benefit received in a lump-sum settlement
An insured decides to surrender his Whole Life insurance policy
which he had purchased 30 years ago. He had paid annual
premiums of $500 while the policy was in force (which added
up to $15,000). When he surrendered the policy, the cash
surrender value was $18,000. What part of the surrender value
would be income taxable? correct answer: $3,000
If taken as a lump sum, life insurance proceeds to beneficiaries
are passed correct answer: Free of federal income taxation.
In life insurance policies, cash value increases correct answer:
Grow tax deferred.
An employee quits his job on May 15 and doesn’t convert his
Group Life policy to an individual policy for 2 weeks. He dies in
a freak accident on June 1. Which of the following statements
best describes what will happen? correct answer: The insurer
will pay the full Death Benefit to the beneficiary.
In a single employer group plan, what is the name of the policy
issued to the employer? correct answer: Master contract
Which of the following employees insured under a group life
plan would be allowed to convert to individual insurance of the
same coverage once the plan is terminated? correct answer:
Those who have been insured under the plan for at least 5 years<\/p>\n\n\n\n
Combo with CA LIFE STATE PRACTICE
EXAM PT 2(FROM EXAM FX ONLINE TEST)
and 1 other QUESTIONS AND ANSWERS
WITH COMPLETE SOLUTIONS
Life insurance death proceeds are correct answer: Generally not
taxed as income.
A policyowner surrendered a non-participating whole life policy
for $10,000 cash value. The policyowner had at that time paid
premiums totaling $8,000. The federal income tax effect would
be correct answer: $2,000 taxable, $8,000 tax free.
If an insured surrenders his life insurance policy, which
statement is true regarding the cash value of the policy? correct
answer: It is only taxable if the cash value exceeds the amount
paid for premiums.
When a beneficiary receives payments consisting of both
principal and interest portions, which parts are taxable as
income? correct answer: Interest only
What part of the Internal Revenue Code allows an owner of a
life insurance policy or annuity to exchange or replace their
current contract with another contract without creating adverse
tax consequences? correct answer: Section 1035 Policy
Exchange<\/p>\n\n\n\n
An immediate annuity purchased with the face amount at death
or with the cash value at surrender can be referred as which one
of the following? correct answer: Settlement option
An immediate annuity purchased with the face amount at death
or with the cash value at surrender can be referred as which one
of the following? correct answer: Settlement option
What is the main purpose of the Seven-pay Test? correct
answer: It determines if the insurance policy is an MEC.
Which of the following would qualify as a Section 1035
exchange? correct answer: Cash Value Life Insurance Policy to
a Cash Value Life Insurance Policy
Which of the following statements is INCORRECT with regard
to a 1035 exchange? correct answer: a. A whole life insurance
policy can be exchanged for a Universal life insurance policy.
b. On a trustee-to-trustee exchange where the policyowner
exchanges a life insurance policy for another life insurance
policy on the same life, there will be no income tax on the
transaction.
c. A life insurance policy can be exchanged for an annuity.
**d. A whole life insurance policy can be exchanged for a term
insurance policy.
If a life insurance policy is deemed to be a Modified
Endowment Contract, the policy loans correct answer: Will be
taxed on a last-in-first-out basis.<\/p>\n\n\n\n
When the owner of a $250,000 life insurance policy died, the
beneficiary decided to leave the proceeds of the policy with the
insurance company and selected the Interest Settlement Option.
If at the time of withdrawal the interest paid was $11,000, the
beneficiary would be required to pay income tax on correct
answer: $11,000.
Which of the following is true regarding dividend-related
taxation? correct answer: Dividends are not taxable.
Death benefits payable to a beneficiary under a life insurance
policy are generally correct answer: Not subject to income
taxation by the Federal Government.
The cash value under a MEC accumulates correct answer: On a
tax-deferred basis.
If there is a material change in an MEC contract, correct answer:
A new 7-pay test is required.
Which of the following is taxable as income? correct answer:
Benefits paid to the employee at retirement.
When a beneficiary receives payments consisting of both
principal and interest portions, which parts are taxable as
income? correct answer: Interest only
Which of the following would be tax-free? correct answer:
Death benefit received in a lump-sum settlement<\/p>\n\n\n\n
An insured decides to surrender his Whole Life insurance policy
which he had purchased 30 years ago. He had paid annual
premiums of $500 while the policy was in force (which added
up to $15,000). When he surrendered the policy, the cash
surrender value was $18,000. What part of the surrender value
would be income taxable? correct answer: $3,000
If taken as a lump sum, life insurance proceeds to beneficiaries
are passed correct answer: Free of federal income taxation.
In life insurance policies, cash value increases correct answer:
Grow tax deferred.
An employee quits his job on May 15 and doesn’t convert his
Group Life policy to an individual policy for 2 weeks. He dies in
a freak accident on June 1. Which of the following statements
best describes what will happen? correct answer: The insurer
will pay the full Death Benefit to the beneficiary.
In a single employer group plan, what is the name of the policy
issued to the employer? correct answer: Master contract
Which of the following employees insured under a group life
plan would be allowed to convert to individual insurance of the
same coverage once the plan is terminated? correct answer:
Those who have been insured under the plan for at least 5 years
Which of the following are generally not considered when
underwriting group insurance? correct answer: The group’s
medical history<\/p>\n\n\n\n
CA LIFE STATE PRACTICE EXAM PT 1(FROM
EXAM FX ONLINE TEST) QUESTIONS AND
ANSWERS WITH COMPLETE SOLUTIONS
Introduction
Basic Insurance Concepts and Principles
Contract Law
The Insurance Marketplace
Basic Insurance Information
Types of policies
Annuities
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? correct answer:
Indemnity
For the purpose of insurance, risk is defined as correct answer:
The uncertainty or chance of loss
Which of the following is NOT a characteristic of pure risk?
correct answer: The loss must be catastrophic.
A tornado would be an example of which of the following?
correct answer: A peril
Events or conditions that increase the chances of an insured loss
occurring are referred to as correct answer: Hazards<\/p>\n\n\n\n
Wagering on a sporting event is known as what type of risk?
correct answer: Speculative
Which of the following factors is NOT considered by an
underwriter when determining the premium rates for an
individual seeking insurance? correct answer: Race
Units with the same or similar exposure to loss are referred to as
correct answer: Pure risk
Which of the following is an example of an uninsurable risk?
correct answer: Speculative risk
When are the group’s reported losses more likely to become
equal to the statistical probability of loss? correct answer: The
larger the group
To achieve the profitable distribution of exposures, correct
answer: 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 correct answer: Pure risk
What mechanism allows individuals to transfer their risk of loss
to a larger group? correct answer: Insurance
Insurance policy is correct answer: A written instrument in
which a contract of insurance is set forth<\/p>\n\n\n\n
The key factor of representation that allows the injured to
rescind the contract is correct answer: 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 correct
answer: Charge a higher premium
In forming an insurance contract, when does an acceptance
usually occur? correct answer: When an insurer approves a prepaid application
An applicant who receives a preferred risk classification
qualifies for correct answer: Lower premiums than a person
who receives a standard risk.
An importance of misrepresentation is determined by correct
answer: 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 correct answer: 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? correct answer: The
policy may be voided if the applicant was not capable of making
a buying decision at the time of application.<\/p>\n\n\n\n
Which of the following types of risk will result in the highest
premium? correct answer: Substandard risk
According to the Code, how many separate requirements should
an insurance policy have? correct answer: 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?
correct answer: 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 correct answer: 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 correct answer: 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? correct answer: 5 days<\/p>\n\n\n\n
CA Life Insurance State Exam Questions
With Complete Solutions
1.What is meant by referring to an insurance policy as a
unilateral contract? correct answer: Only one party makes a
legally enforceable promise.
2.When must insurance records of insurance agents and brokers
be made available to the Insurance Commissioner? correct
answer: At all times.
3.Any situation that presents the possibility of a loss is known as
correct answer: a loss exposure
4.Which of the following information is not required to be
communicated in a Life insurance contract? correct answer:
Personal judgment.
5.The direct distribution of insurance utilizes all of the following
to promote the sale of insurance EXCEPT correct answer:
telephone call from an agent.
6.A contract in which one party promises to indemnify another
against loss that arises from an unknown event is correct answer:
an insurance policy.
7.All of the occurrences listed below are examples of an
insurable event as defined by the California Insurance Code<\/p>\n\n\n\n
EXCEPT correct answer: an insured suffers a financial loss in
the state lottery
8.All of the following statements about aleatory contracts are
true EXCEPT correct answer: the insured and insurer contribute
equally to the contract.
9.All of the following would be considered unfair trade practices
EXCEPT correct answer: committing any act of discrimination
whether it be deemed fair or unfair.
10.As authorized by the California Insurance Code, the
Insurance Commissioner has provided standards for names used
by life insurance agents. Under these standards which, if any, of
the following are automatically acceptable for Mary Brown, a
holder of the CLU designation? correct answer: Mary Brown
Insurance Services.
11.A contract of indemnity is one in which correct answer: one
party is restored to the same financial position the party was in
before the loss occurred.
12.In insurance terminology, “indemnity” means correct answer:
make whole.
13.As defined in the California insurance Code, “insurance” is a
correct answer: contract.
14.What would a person be guilty of who refuses to deliver any
books, records, or assets to the commissioner once a seizure
order has been executed? correct answer: A misdemeanor<\/p>\n\n\n\n
15.An agent who is acting as an insurance agent, broker,
solicitor, life agent, accident and health, or bail agent acts in
which capacity when handling premiums or return premiums for
an insured? correct answer: Fiduciary
16.Which of the following statements regarding risk is TRUE?
correct answer: Only pure risks are insurable.
17.The purchase of an insurance policy may accomplish all of
the following for the insured EXCEPT correct answer: the
elimination of risk.
18.Insureds are entitled to recover an amount NOT greater than
the amount of their loss under the principle of correct answer:
indemnity.
19.What rule is used to determine the importance of a
representation? correct answer: The materiality of concealment.
20.The required contents of a policy include all of the following
EXCEPT correct answer: the probability of loss
21.All of the following are characteristics of reinsurance
EXCEPT it correct answer: increases the unearned premium
reserve.
22.According to the California Insurance Code, an insurance
policy must specify all of the following EXCEPT the correct
answer: financial rating of the insurer.<\/p>\n\n\n\n
CA State Life Insurance Practice Exam A
Questions And Answers With Complete
Solutions
An annuity that is purchased with a slump sum premium and
whose benefits begin after 12 month is called a correct answer:
Single premium deferred annuity
A technique used to determine the amount of life insurance
needed by focusing on the projected earning potential of an
insured is called the correct answer: Human Life Value
Approach
When replacing a policy the producer must present the applicant
with a Notice Regarding Replacement of Life Insurance correct
answer: At the time of taking the application
The possibility of a financial loss incurred by a life insurance
company for the premature death of an insured is known as a
correct answer: Risk
The Medical Information Bureau (MIB) is a nonprofit trade
association that maintains correct answer: Medical information
on applicants for life and health insurance
A person who signs a fraudulent claim form may be found guilty
of correct answer: Perjury<\/p>\n\n\n\n
Which policy is a combination of annual renewable term
insurance and interest-sensitive cash value? correct answer:
Universal life
The right to a full refund of premiums for insureds age 60 or
older is correct answer: 30 Days
The premium modes can be best described as the correct answer:
Frequency of premium payment
Intentionally omitting a history of heart problems on an
application is correct answer: Concealment
A tax-sheltered annuity (TSA) is a qualified plan available for
correct answer: Nonprofit organizations
The intent of replacement regulations is to protect the correct
answer: Policy owner
Which provision allows a lapsed policy to be put back in force?
correct answer: Reinstatement
According to the California Department of Insurance, an insurer
whose articles of incorporation are registered in Oslo, Norway is
considered a\/an correct answer: Alien Insurer
Mortality is defined as the correct answer: Rate of Death
Which of the following is NOT a characteristic of group life
insurance? correct answer: A group may exist for the purpose of
purchasing insurance.<\/p>\n","protected":false},"excerpt":{"rendered":"
CA LIFE STATE PRACTICE EXAM PT 2(FROMEXAM FX ONLINE TEST) QUESTIONS ANDANSWERS WITH COMPLETE SOLUTIONSTaxation of Life Insurance and Annuity – Premium and Proceeds[Best Score: 75%] Employee Benefits Plans [Best Score: 87%]Underwriting\/Pricing\/Claims [Best Score: 100%] FinancialStructure of InsurersLife insurance death proceeds are correct answer: Generally nottaxed as income.A policyowner surrendered a non-participating whole life policyfor […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-119679","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/119679","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=119679"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/119679\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=119679"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=119679"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=119679"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}