1. An agent tells a prospect that a competing insurer is on the verge of financial collapse in order to convince the prospect to buy from her own company. The competitor is in fact solvent. Under the Unfair Practices Act, this conduct is best described as:
- a.Twisting, because twisting covers any false statement an agent makes about a competing insurer's solvency
- b.Permissible competitive speech, because the Act reaches only statements made after a sale has actually closed
- c.Defamation of an insurer, because it makes a false statement injuring the reputation of another insurer✓
- d.Boycott or coercion, because frightening a consumer about another insurer's insolvency is a form of coercion
Cal. Ins. Code §790.03(b) defines defamation as making, publishing, or circulating any false statement that is calculated to injure any person engaged in the business of insurance. False statements about a competitor's solvency fall squarely within this definition, regardless of whether a sale results.
Cal. Ins. Code §790.03(b)2. Which characteristic best distinguishes term life insurance from whole life insurance?
- a.Term insurance guarantees continuing coverage all the way to attained age 121
- b.Term insurance provides coverage for a stated period with no cash value✓
- c.Term insurance allows the policyowner to borrow against the policy through policy loans
- d.Term insurance builds tax-deferred cash value that the owner can draw on in retirement
Term insurance is pure protection: it pays a death benefit only if the insured dies during the term and accumulates no cash value. Cash value, lifetime coverage, and policy loans are features of permanent products such as whole life.
Cal. Ins. Code §10113; standard insurance principles3. Under the incontestability clause required in California life policies, after how many years from the date of issue can an insurer no longer contest the policy except for fraud or non-payment of premium?
- a.2 years✓
- b.18 months
- c.3 years
- d.1 year
California requires every life insurance policy to be incontestable after it has been in force during the lifetime of the insured for 2 years from its date of issue, except for non-payment of premium and certain fraud-related defenses.
Cal. Ins. Code §10113.54. Under the California Insurance Code, insurance is best described as which of the following?
- a.An investment contract that guarantees the buyer a stated rate of return on every premium dollar
- b.A government benefit program that pays benefits to all residents regardless of contract or premium
- c.A contract whereby one party undertakes to indemnify another against loss from a contingent event✓
- d.An interest-bearing savings account whose earnings accumulate free of all federal and state income tax
Cal. Ins. Code §22 defines insurance as a contract whereby one undertakes to indemnify another or pay a specified amount upon determinable contingencies. It is not an investment guarantee, a government program, or a savings account.
Cal. Ins. Code §225. Under a group life insurance plan sponsored by an employer, who holds the master contract and who receives a certificate of insurance?
- a.The employer holds the master contract; each covered employee receives a certificate of insurance✓
- b.The insurer holds the master contract, and the employer receives a certificate of insurance for its files
- c.Each covered employee holds a master contract, and the employer receives the certificate of insurance
- d.Both the employer and every employee hold signed copies of the master contract itself
In group life insurance the sponsoring employer (or association) is the policyowner and holds the single master contract. Each insured employee receives only a certificate of insurance summarizing coverage, beneficiary, and conversion rights.
Cal. Ins. Code §102026. A consumer enrolls in a California Health Maintenance Organization (HMO). Which state agency has primary regulatory authority over that HMO?
- a.California Department of Insurance, Consumer Services
- b.California Department of Managed Health Care (DMHC)✓
- c.Centers for Medicare & Medicaid Services (CMS)
- d.California Department of Public Health (CDPH)
Under the Knox-Keene Health Care Service Plan Act, California HMOs are regulated by the Department of Managed Health Care (DMHC), not the CDI. The CDI regulates indemnity health insurance and PPO products, but full-service HMOs fall under DMHC.
Cal. Health & Safety Code §1340 et seq. (Knox-Keene Act)7. Which California law sets the standardized required and optional provisions that every individual accident and health policy must follow?
- a.The Uniform Individual Accident and Sickness Policy Provisions Law (UPPL)✓
- b.The California Long-Term Care Insurance Act, which standardizes all A&H policy language
- c.The Holden-Bagley Act, which prescribes the required provisions for group life contracts
- d.The Knox-Keene Health Care Service Plan Act, which dictates individual A&H policy provisions
The UPPL, codified beginning at Cal. Ins. Code §10350, divides A&H policy language into required and optional provisions. Knox-Keene governs HMOs; Holden-Bagley addresses life and disability; the LTC Act covers long-term care contracts.
Cal. Ins. Code §10350 et seq.8. Which definition of total disability is the MOST favorable to the insured?
- a.Any occupation
- b.Gainful occupation
- c.Own occupation✓
- d.Modified own occupation
Under an own-occupation definition, the insured is totally disabled if they cannot perform the duties of their specific occupation, even if they could work in another field. This is the most favorable test because it allows benefits to continue even when the insured can earn a living in some other line of work.
Industry contract convention9. Which part of Medicare primarily covers inpatient hospital stays, limited skilled-nursing facility care, and hospice?
- a.Part D
- b.Part C
- c.Part A✓
- d.Part B
Part A is hospital insurance. It covers inpatient hospital stays, limited skilled-nursing facility care after a qualifying hospital stay, hospice, and some home health. Part B covers outpatient and physician services.
42 U.S.C. §1395c10. How is a lump-sum life insurance death benefit paid to a named individual beneficiary treated for federal income tax purposes?
- a.Subject to a 10% additional tax if the beneficiary is under 59½
- b.Taxed as ordinary income to the extent it exceeds premiums paid
- c.Taxed as long-term capital gain
- d.Generally excluded from the beneficiary's gross income✓
IRC §101(a) excludes amounts paid by reason of the insured's death from the beneficiary's gross income. Interest credited after the date of death on installment payouts is the only piece that becomes taxable.
IRC §101(a)