California Life & Health Insurance Exam — All Questions

Under an AD&D benefit, the amount paid for the accidental loss of a body part such as a hand or eye is called the:

• a.Face amount
• b.Residual benefit
• c.Principal sum
• d.Capital sum✓

In AD&D coverage, the capital sum is paid for dismemberment or loss of sight, while the principal sum is paid for accidental death. Residual benefit is a disability-income concept, and face amount is a life insurance term.

The return-of-premium rider on a life policy is funded essentially as a(n):

• a.Decreasing term rider
• b.Increasing term rider equal to the premiums paid✓
• c.Immediate annuity
• d.Paid-up whole life rider

Return of premium is achieved with an increasing term rider whose amount grows to match the cumulative premiums, so surviving the term returns those premiums. It is not decreasing term, whole life, or an annuity.

Adding a level term rider to a whole life policy lets the owner:

• a.Permanently reduce the base policy's face amount
• b.Permanently eliminate the base policy's cash value accumulation in exchange for the additional term protection
• c.Add temporary extra coverage (for example on a spouse or for a set period) at relatively low cost✓
• d.Avoid all future underwriting on the base policy

A term rider layers inexpensive, temporary coverage on top of permanent insurance, often to cover a spouse or a period of higher need. It does not shrink the base face amount, remove cash value, or waive future underwriting.

An accelerated (living) death benefit rider allows the insured to receive part of the death benefit while still alive if the insured:

• a.Changes to a higher-paying job
• b.Relocates to another region
• c.Is diagnosed as terminally or chronically ill✓
• d.Reaches normal retirement age

The accelerated death benefit advances a portion of the face amount when the insured is terminally or chronically ill, helping pay care costs. Ordinary events like a new job, retirement, or moving do not trigger it.

A long-term care rider attached to a life insurance policy generally:

• a.Pays for qualifying long-term care by drawing down the policy's death benefit✓
• b.Pays only a death benefit and nothing during life
• c.Is prohibited from being attached to life insurance
• d.Replaces the insured's Medicare coverage entirely and pays all future hospital and physician bills directly

An LTC rider accelerates the death benefit to reimburse qualifying long-term care expenses, reducing the remaining death benefit by what is used. It is a permitted living benefit, not a Medicare substitute.

A cost-of-living (COLA) rider on a life policy increases the:

• a.The guaranteed interest rate credited to the policy's cash value, raising that rate each year to match inflation
• b.Dividend scale on a participating policy
• c.Premium only, with no change to any benefit
• d.Death benefit periodically to offset inflation, usually tied to an index✓

A COLA rider raises the death benefit over time, often linked to an inflation index, so protection keeps pace with rising costs. It is not merely a premium increase, nor does it change the guaranteed interest or dividend scale.

Under the extended term nonforfeiture option, the policy's cash value is used to:

• a.Purchase a smaller amount of paid-up permanent coverage
• b.Continue the same face amount as term insurance for as long as the cash value will pay for it✓
• c.Increase the death benefit above the original face amount
• d.Provide the policyowner a lump-sum cash refund equal to the full face amount of the surrendered permanent policy

Extended term uses the cash value as a single premium to keep the same face amount in force as term insurance for a limited time. Buying a smaller paid-up amount is the reduced paid-up option, and a lump sum is cash surrender.

The reduced paid-up nonforfeiture option provides:

• a.A smaller, fully paid-up permanent policy with no further premiums due✓
• b.The same face amount but only for a limited number of years
• c.A one-time cash refund equal to the policy's surrender value, ending all of the coverage immediately
• d.A temporary term rider on a second insured

Reduced paid-up applies the cash value as a single premium to buy a smaller permanent policy that needs no more premiums and lasts for life. Keeping the same face for a limited time is extended term; a refund is cash surrender.

The automatic premium loan provision prevents a policy from lapsing by:

• a.Converting the policy to term insurance
• b.Automatically borrowing from the available cash value to pay an overdue premium✓
• c.Reducing the face amount to zero
• d.Canceling any interest owed on prior loans

The automatic premium loan quietly borrows against the cash value to cover a premium the owner failed to pay, avoiding a lapse. It does not zero out the face amount, forgive loan interest, or convert the policy.

When a policyowner requests a cash-value loan, the insurer:

• a.May refuse all policy loans at its discretion
• b.Must provide the requested policy loan at no interest and without any deduction from the available cash value
• c.May defer paying the loan for up to six months, except when the loan is used to pay a premium✓
• d.Must pay the loan within 24 hours as required by law

Insurers may delay honoring a policy loan for up to six months (a holdover from liquidity protection), except loans requested to pay premiums. They cannot generally refuse loans on a policy with cash value, and loans do bear interest.

Policy dividends from a participating life policy are generally not taxable because they are treated as:

• a.A return of overpaid premium✓
• b.A portion of the death benefit paid early
• c.A capital gain on invested premiums
• d.Interest earned on the cash value

Dividends are considered a refund of premium the policyowner overpaid, so they are not taxable income (though interest left to accumulate on them is). They are not capital gains, interest, or an early death benefit.

Electing to use policy dividends to buy paid-up additions will:

• a.Reduce the base policy's death benefit dollar for dollar as each annual dividend is applied to the contract
• b.Convert the base policy to term insurance
• c.Pay the dividends out to the owner in cash each year
• d.Purchase small amounts of additional permanent coverage that also build cash value✓

Paid-up additions use dividends to buy little blocks of fully paid permanent insurance, increasing both death benefit and cash value. This option adds coverage rather than reducing it, paying cash, or converting the policy.

The difference between the fixed-period and fixed-amount settlement options is that fixed-period:

• a.Sets the dollar amount of each payment and lets the duration vary
• b.Pays only the interest earned on the proceeds
• c.Pays a guaranteed income to the payee for their entire lifetime regardless of the amount of proceeds remaining
• d.Sets the length of time and varies the payment amount to exhaust the proceeds✓

Fixed-period fixes how long payments last and solves for the payment size; fixed-amount fixes the payment size and solves for how long the money lasts. Neither is interest-only or a life income option.

Under a life income settlement option, the size of each payment to the beneficiary depends primarily on the:

• a.Producer's commission on the policy
• b.Insured's original annual premium
• c.Beneficiary's age (life expectancy) and the amount of proceeds✓
• d.Number of policy loans that had been taken

A life income option converts the proceeds into payments for the payee's life, so the payment size is driven by the payee's life expectancy and the amount available. Premiums, loans, and commissions do not set it.

An applicant pays the initial premium with the application and receives a conditional receipt. Coverage becomes effective:

• a.As of the receipt or exam date, provided the applicant is found insurable under the insurer's standards✓
• b.Only after the policy is delivered and a second premium is paid
• c.Only after the policy's free-look examination period has completely ended and the owner has formally decided to keep the delivered contract
• d.Immediately and unconditionally, regardless of the applicant's health

A conditional receipt provides coverage retroactive to the application or exam date, but only if the applicant proves insurable as applied for; it is not a guarantee for an uninsurable applicant. Coverage does not wait for delivery or the end of the free-look.

When an application is submitted WITHOUT the initial premium, coverage generally does not take effect until:

• a.The medical examination is merely scheduled
• b.The application is signed by the applicant and the producer forwards it to the home office for underwriting review, approval, and issuance
• c.The producer mails the application to the insurer
• d.The policy is delivered, the first premium is collected, and any required statement of continued good health is obtained✓

With no premium submitted, the insurer's offer is the issued policy, and acceptance occurs at delivery when the first premium is paid and good health is confirmed. Signing, mailing, or scheduling an exam does not put coverage in force.

The consideration furnished by the applicant in a life insurance contract consists of the:

• a.Death benefit itself
• b.Application (the statements made) plus the initial premium✓
• c.Insurer's promise to pay the death benefit
• d.Producer's insurance license

The applicant's consideration is the premium and the representations made in the application; the insurer's consideration is its promise to pay. A license and the death benefit are not the applicant's consideration.

The insuring clause of a life insurance policy:

• a.States the insurer's basic promise to pay the death benefit upon the insured's death✓
• b.Lists the events the policy will not cover
• c.Sets the premium payment mode
• d.Names the servicing producer

The insuring clause is the insurer's core promise to pay the benefit when the insured dies. Exclusions, premium mode, and producer information are found in other parts of the policy.

The 'entire contract' provision in a life insurance policy means that the contract consists of:

• a.The policy plus the insurer's charter and bylaws, which it may amend after issue
• b.The policy plus the attached copy of the application, and nothing outside that document may be used to change it✓
• c.Any oral promises the agent made during the sale, which bind the insurer even if they are not attached to the policy
• d.Only the insurer's underwriting notes and the medical information it gathered

The entire contract provision states that the policy and the attached application together constitute the whole agreement; the insurer cannot incorporate outside documents (such as its bylaws) by reference, and no oral statements or later changes bind the parties unless made in writing and attached. This protects the policyowner by fixing the terms to what is in the document. Underwriting notes and unattached materials are not part of the contract, and agents' oral promises cannot alter it.

Under the 'misstatement of age or sex' provision, if an insured's age was understated on the application and is discovered after death, the insurer will:

• a.Void the policy from the start and refund the premiums paid, because the application was inaccurate
• b.Adjust the death benefit to the amount the premiums paid would have purchased at the correct age✓
• c.Pay the full face amount with no adjustment at all, since the two-year contestable period has expired
• d.Double the death benefit as a penalty for the insurer's underwriting error

The misstatement of age (or sex) provision does not void the policy; instead the insurer adjusts the benefit to what the premiums actually paid would have purchased at the correct age (or sex). If the age was understated, premiums were too low, so the death benefit is reduced accordingly; if overstated, the benefit would be increased. The policy is not rescinded, and the benefit is neither paid in full unchanged nor doubled. This provision fairly reconciles the premium with the true risk.

A typical life insurance 'suicide' provision states that if the insured dies by suicide within the stated period (commonly two years) after issue, the insurer will:

• a.Deny any payment permanently, even if the death occurs years later
• b.Refund the premiums paid rather than pay the full death benefit✓
• c.Pay double the face amount as an accidental death benefit
• d.Pay the full death benefit with no reduction

The suicide clause limits the insurer's liability for suicide during an initial period (usually two years): if suicide occurs within that window, the insurer returns the premiums paid instead of the face amount. After the period expires, suicide is covered like any other cause of death and the full benefit is paid. The provision does not double the benefit, does not deny coverage permanently, and does not pay the full amount during the exclusion period. It parallels the contestable period in guarding against adverse selection.

A policyowner wants to make sure a lapsed whole life policy can be put back in force. The 'reinstatement' provision generally allows this within a stated period if the owner:

• a.Waits until the insured's next policy anniversary, when the coverage is restored automatically at the attained-age premium
• b.Provides evidence of insurability and pays the overdue premiums with interest (and repays or reinstates any loan)✓
• c.Pays only the current month's premium, with no interest charged and no evidence of insurability required by the insurer
• d.Simply asks the insurer in writing, with no other requirement

Reinstatement lets an owner restore a lapsed policy within the contractual period (often three years) by furnishing evidence of insurability, paying all back premiums with interest, and repaying or reinstating any outstanding policy loan. It is not automatic on request, and paying only the current premium is not enough. Reinstating is frequently cheaper than buying a new policy because it keeps the original age-based premium, but the insurer requires proof the insured is still insurable and the arrears be cured.

The 'automatic premium loan' (APL) provision, when elected on a whole life policy, prevents a lapse by:

• a.Automatically borrowing against the cash value to pay an overdue premium✓
• b.Requiring the beneficiary to pay the overdue premium directly
• c.Increasing the death benefit by the amount of the unpaid premium
• d.Canceling the policy and refunding the full cash value to the policyowner

The automatic premium loan provision, if selected, automatically takes a loan against the policy's available cash value to pay a premium that would otherwise go unpaid at the end of the grace period, keeping the coverage in force. The loan (plus interest) reduces the cash value and any death benefit until repaid. APL does not raise the death benefit, does not surrender the policy, and does not shift the obligation to the beneficiary. It is a safeguard against unintentional lapse for policies with sufficient cash value.

A settlement option in which the insurer pays the beneficiary equal installments of a chosen dollar amount until the proceeds and interest are exhausted is the:

• a.Interest-only option
• b.Life income option
• c.Fixed-amount option✓
• d.Lump-sum option

Under the fixed-amount option, the beneficiary selects a specific installment dollar amount, and the insurer pays that amount regularly until the principal and credited interest run out — the number of payments varies with the amount chosen. The fixed-period option instead fixes the length of time and varies the payment. The life income option pays for the payee's lifetime. The interest-only option pays only interest while the principal is retained. A lump sum pays everything at once. Fixed-amount fixes the payment size, not the duration.

Under the 'life income' settlement option, the size of each payment to the beneficiary is based primarily on the:

• a.Insured's original premium amount and the policy's stated face amount
• b.Number of contingent beneficiaries named and the order in which they were listed
• c.Beneficiary's age and life expectancy (and the amount of proceeds)✓
• d.Beneficiary's credit score and household income

The life income settlement option converts the death proceeds into payments guaranteed for the payee's lifetime, so the payment amount depends chiefly on the proceeds and the payee's age and life expectancy (a younger payee with a longer life expectancy receives smaller payments). It does not depend on a credit score, the insured's premium, or how many contingent beneficiaries were named. Variations such as life with period certain or joint-and-survivor add guarantees that lower each payment in exchange for beneficiary protection.

A policyowner names her son as 'irrevocable' beneficiary. Compared with a revocable designation, this means the owner:

• a.Forfeits the policy's cash value to the beneficiary at once
• b.Cannot change the beneficiary or exercise certain ownership rights without the beneficiary's consent✓
• c.Can change the beneficiary at any time without consent, because the designation only takes effect at death
• d.Automatically becomes the insured under the policy

An irrevocable beneficiary has a vested interest, so the policyowner generally cannot change the beneficiary or take actions that reduce the beneficiary's interest (such as assigning the policy or taking large loans) without that beneficiary's written consent. A revocable beneficiary, by contrast, can be changed at the owner's discretion. Naming an irrevocable beneficiary does not make anyone the insured, and it does not forfeit the cash value. The key consequence is the loss of unilateral control over the designation.

The 'guaranteed insurability' rider allows the policyowner to:

• a.Convert the policy to an annuity automatically at age 65
• b.Skip premiums whenever money is tight, with no disability or proof of hardship required by the insurer
• c.Receive twice the policy's death benefit if death results from an accident, at no additional premium cost
• d.Buy additional coverage at specified future dates or events without new evidence of insurability✓

A guaranteed insurability (guaranteed purchase option) rider lets the owner purchase additional insurance at predetermined ages or life events — such as marriage or the birth of a child — without providing new evidence of insurability, protecting future insurability regardless of health changes. It does not permit skipping premiums (that is waiver of premium's function, and only during disability). Doubling the benefit for accidental death is the accidental death benefit rider. It does not auto-convert the policy to an annuity.

An 'accelerated death benefit' rider allows an insured to receive part of the policy's death benefit while still living if the insured:

• a.Is diagnosed with a qualifying terminal or chronic illness✓
• b.Wants to pay off a mortgage or other large debt early
• c.Simply requests a cash advance for any reason, with no medical certification
• d.Changes jobs or moves out of California

An accelerated death benefit (living benefit) rider lets a terminally or chronically ill insured — typically one certified with limited life expectancy or unable to perform activities of daily living — draw a portion of the death benefit in advance to help with care or expenses; the amount paid reduces the benefit later payable to the beneficiary. It is not triggered by a job change, a mortgage payoff, or an unrestricted cash request. Qualifying health events, certified by a physician, are what activate the acceleration.

The 'payor' rider, often added to a juvenile policy, provides that if the adult premium payer dies or becomes totally disabled, the:

• a.Full death benefit is paid to the child immediately in a lump sum
• b.Child's policy is canceled without value
• c.Premiums are waived until the child reaches a specified age✓
• d.Policy converts to term insurance at the same face amount and premium

The payor rider (payor benefit) on a juvenile policy waives future premiums if the adult payer dies or becomes totally disabled before the child reaches a stated age (such as 21 or 25), keeping the child's coverage fully in force. It does not cancel the child's policy, does not trigger an immediate death benefit (the child, not the payer, is the insured), and does not convert the policy to term. It functions like a waiver of premium centered on the person paying, not the insured child.

A dividend option under which a participating policy's dividends are used to buy small amounts of additional, fully paid-up whole life insurance is called:

• a.Accumulation at interest
• b.Cash payment
• c.Reduction of premium
• d.Paid-up additions✓

The paid-up additions option applies each dividend as a single premium to purchase small amounts of additional paid-up whole life insurance, which increases both the death benefit and the cash value and itself earns future dividends. Cash payment simply sends the dividend to the owner. Reduction of premium applies the dividend against the next premium due. Accumulation at interest leaves the dividend on deposit to earn interest. Only paid-up additions convert dividends into more permanent coverage.