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Life, Accident, and Health Insurance Q&A: Key Concepts for Agents, Exams of Insurance Economics

A comprehensive overview of key concepts and principles in life, accident, and health insurance. It covers a wide range of topics, including the differences between admitted and non-admitted insurance companies, pure versus speculative risks, and various types of insurance contracts such as adhesion, aleatory, and indemnity contracts. Additionally, it delves into risk assessment, policy riders, annuity types, and important clauses like incontestability and free look periods. This material is designed to equip students with a solid understanding of insurance fundamentals, risk management, and policy provisions, making it an invaluable resource for exam preparation and further study in the field. It also includes questions and answers that help to reinforce learning and test comprehension, making it an excellent study aid for students preparing for insurance licensing exams or seeking a deeper understanding of insurance principles. (447 characters)

Typology: Exams

2024/2025

Available from 05/19/2025

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2025-2026 CA PSI SITE - LIFE, ACCIDENT AND
HEALTH AGENT|100+Qs&As|GRADED A+
Admitted Insurance Company vs. Non-Admitted Insurance Company ANS:-An
admitted insurance company is authorized to transact insurance in California
because it has a Certificate of Authority granted by the California Department of
Insurance (CDI)
A non-admitted insurance company is not authorized to transact insurance in
California because of failing to comply with California requirements or did not
seek admission
Pure Risk vs. Speculative Risk ANS:-Pure risks are insurable but Speculative risks
are not
Pure Risks - A possibility of loss, no loss, or gain
Pure Risk - A possibility of loss or no loss; there is no possibility for gain
Contract of Adhesion ANS:-One party writes the contract without inout from the
other party on a "take-it-or-leave-it" basis
Aleatory Contract ANS:-The exchange of value is unequal.
Insured's premium payment is less than the potential benefit to be received in the
event of a loss.
Indemnity Contract ANS:-An agreement to pay on behalf of another party under
specified circumstances
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Download Life, Accident, and Health Insurance Q&A: Key Concepts for Agents and more Exams Insurance Economics in PDF only on Docsity!

2025 - 2026 CA PSI SITE - LIFE, ACCIDENT AND

HEALTH AGENT|100+Qs&As|GRADED A+

Admitted Insurance Company vs. Non-Admitted Insurance Company ANS:-An admitted insurance company is authorized to transact insurance in California because it has a Certificate of Authority granted by the California Department of Insurance (CDI) A non-admitted insurance company is not authorized to transact insurance in California because of failing to comply with California requirements or did not seek admission Pure Risk vs. Speculative Risk ANS:-Pure risks are insurable but Speculative risks are not Pure Risks - A possibility of loss, no loss, or gain Pure Risk - A possibility of loss or no loss; there is no possibility for gain Contract of Adhesion ANS:-One party writes the contract without inout from the other party on a "take-it-or-leave-it" basis Aleatory Contract ANS:-The exchange of value is unequal. Insured's premium payment is less than the potential benefit to be received in the event of a loss. Indemnity Contract ANS:-An agreement to pay on behalf of another party under specified circumstances

Unilateral Contract ANS:-Only one party is legally bound to the contractual obligations after the premium is paid to the insurer Only the insurer makes a promise of future performance, and only the insurer can be charged with breach of contract 4 elements of a valid contract –

  1. Competent Parties 2) Legal Purpose 3) Agreement (offer and acceptance) 4) Consideration Preferred Risks vs Standard Risks ANS:-Standard Risks are individuals who have the same health, habits, sex/gender, and occupational characteristics as those reflected in the mortality table Preferred Risks are individuals who meet certain requirements and qualify for lower premiums because of ideal health, height and weight. Individuals in this category have a longer than average life expectancy Human Life Value Approach vs. Needs Analysis Approach ANS:-Human Life Value approach is a measure of the projected future earnings and services of a person at risk in the event of a premature death.

The policyowner must continue to pay premiums during the waiting period, but once eligible, the waiver is retroactive to the start of the disability and the premiums will be refunded. During the disability, the insured will credit the premiums to the policy and all benefits, such as cash value accumulation and dividend payments, will continue. Disability Income Rider ANS:-Life Insurance Disability Rider In the event of total disability and after the initial waiting period (such as 6 months), premiums are waived and the insured is paid a monthly income. The monthly disability income benefit is typically limited to a percentage of the face value. The benefit paid from the rider does not reduce the death benefits paid out upon death. Accidental Death Benefit rider ANS:-Life Insurance Rider affecting the death benefit amount May be called multiple indemnity rider In the event of a claim, the policy normally pays double or triple the face amount only if the insured's death was a result of an accident. The benefit is payable only if death occurs before a specific age and within 90 days of the accident Separate Account (Variable) vs General Account (Life Insurance) ANS:-The

separate account is invested in debt or equity securities as offered by the insurance company. o Both the cash value in the separate account and the death benefit will fluctuate based on market conditions and performance of the subaccounts. o There is no guaranteed minimum return on the cash value in the separate account and the policy may lose both cash value and death benefit if there are market losses. o The death benefit is recalculated annually. The general account provides a fixed rate of interest and the cash value in the general account provides for a guaranteed minimum death benefit. Viatical Settlement ANS:-An agreement between a policyowner and a third- party buyer to purchase the life policy covering a person who is diagnosed as terminally ill with less than 24 months remaining life expectancy. Principle of Indemnity ANS:-To indemnify means to restore a person, in whole or in part, to the same physical or financial condition which existed prior to a loss, but without profit or gain. In life and health insurance, it may not be possible to truly indemnify a person for all losses. o Instead, indemnity takes the form of cash (a death or disability income benefit) or payments to physicians or hospitals for care and services provided to an insured who is injured or ill. Joint Life ANS:-Joint Life (First to Die) is a whole life policy that is written to cover 2 or more lives.

- The death benefit is paid upon the first insured to die and the policy terminates.

Incontestability clause ANS:-Within the first 2 years of a policy, the insurer may contest a claim and void the contract upon proof of a material misstatement or fraud. Free Look ANS:-Every policy of individual life insurance and annuities (other than variable contracts) that is used for delivery in California must contain a notice regarding a return of the policy for cancellation of 10- 30 days after its receipt by the owner. o The minimum free look period is 10 days for persons under age 60. o Persons who are age 60 or older must be given a 30 - day free look period. Uniform Simultaneous Death Act ANS:-Provides that when the insured and primary beneficiary die as the result of the same event and the order of death cannot be determined, it is assumed the insured died last, protecting their secondary beneficiary or heirs. Cease and Desist order ANS:-Given when unlicensed persons are caught transacting insurance without appropriate licensing, and penalties can be up to $5,000 a day. Immediate vs. Deferred Annuity ANS:-Immediate Annuity: Annuity that does not have an accumulation period and is used to generate immediate income within a year of the issue date. Deferred Annuity: Annuity that will pay periodic benefits starting at some specified time in the future; begins more than 1 year from the issue date. Deferred annuities are ideal for accumulating a retirement fund. Life Income Joint & Survivor ANS:-Joint annuity with lifetime income and is

payable to 2 annuitants (in one check) while both are living. Upon the death of the first annuitant, survivor benefits continue, either paying the full amount of reduced to 2/3 or ½ for the survivor's income until the survivor dies. Joint Life Annuity ANS:-Annuity is payable to 2 or more named annuitants while all are living. o Upon death of the first annuitant, the benefit stops. Endow ANS:-Maturity date of policy, when it ends. Limit of Liability ANS:-Also known as the face amount it is the death benefit payable or coverage provided on a life insurance policy. Capitation ANS:-How HMO Primary Care Physicians are paid A fixed monthly fee made for each subscriber enrolled in the doctor's office regardless of the services provided. Health Maintenance Organization (HMO) ANS:-An Health Maintenance Organization (HMO) is regarded as a managed health care system providing a comprehensive array of medical services on a prepaid basis, which means little or no out of pocket expenses. o Copayment is required for office visits and hospital services. Copayments discourage unnecessary use of medical resources, such as emergency room services for non-emergency care. o HMOs are deemed to be both a health care financing and servicing mechanism by emphasizing preventive medicine by providing routine medical

Social Security Blackout Period ANS:-The time between when the youngest child reaches age 16 and the spouse is eligible for retirement benefits at age 60. Morbidity Tables ANS:-Morbidity: The predicted number of claims resulting from illness or injury in any given year for a specific group of insureds.

- Morbidity tables are used to provide statistics that give the company a basic estimate of how many insureds might be expected to suffer an illness or injury in any year. Fully Insured Status ANS:-• Fully Insured status requires an individual to have earned 40 quarters or credits, which is approximately 10 years of employment. o A fully insured worker has permanent coverage under Social Security and cannot lose this status. o Benefits that may be received under fully insured status are: Retirement income at age 62 or older. Spousal retirement at age 62 or older. Premium-free Medicare Part A Elimination Period ANS:-• The elimination period may be as short as 30 days and as long as one year, with 90 days being the most common. - The elimination period is a waiting period after a loss occurs before the benefit period begins. o The shorter the elimination period, the higher premium. Medi-cal ANS:-• Medi-Cal is the name of the Medicaid program in California that provides health coverage to people with low-income and asset levels who meet eligibility requirements.

o For individuals age 19 through 64 and not confined to an institutional setting, Medi-Cal eligibility is conditioned only on a household's annual income. o Benefits: Medi-Cal pays for "medically necessary" health care including" physician visits, hospital and nursing home care, home health care, laboratory and x-ray services, prescriptions, medical equipment, ambulance services, eyeglasses, prenatal care, preventive care, and hospice. Long-Term Care ANS:-• Long-Term Care (LTC) insurance includes any individual policy, group policy or rider that is advertised, marketed, offered, solicited, or designed to provide coverage for no more than 12 consecutive months. Adult Day Health Care ANS:-A LTC coverage designed to provide custodial care and supervision on a day care basis outside the home for individuals not requiring 24 - hour confinement in a nursing home nut who continue to live at home. Custodial Care ANS:-Nonmedical care (non-skilled care) to provide assistance with activities of daily living such as bathing, toileting, eating, dressing, transferring, and continence. May be provided in a nursing home or in one's own home. Providers are not required to undergo medical training Hospice Care ANS:-Provides pain control, comfort, and counseling for the terminally ill patient. Hospice care also includes a family counseling benefit. Respite Care ANS:-Provides relief to a primary caregiver and can include a service, such as someone coming to the home while the original caregiver tends to other matters. Most policies will include benefits for temporary institutionalization of the insured during a period of respite.

Disability income insurance offers various riders to supplement benefits from these policies. The Social Security rider: ANS:-Helps establish a limit for the amount of income benefits paid to an insured who will receive substantial benefits that may or may not be paid from government programs. Sam's insurance policy pays a dividend. the agent that sold Sam the policy refers to the shareholders of the company as "participating", therefore it is a(n) insurer.

Mutual All of the following are examples of the dividend options available on a whole life insurance policy, except: A. One-year term option B. Application to reduce premium C. Paid-up additions D. Life income with period certain ANS:-D A policy owner makes the last premium payment on his $250,000 non-par whole life policy today. The owner is 70 years of age. When will the cash value reach $250,000. A. About 13 years from now B. The cash value is $250,000 today C. Never, he didn't pay up to age 100 D. When he reaches the age of 100 ANS:-D Arnold and Bertha are married and work for different firms. Arnold has group health insurance through his company that also insures Bertha. Likewise Bertha has group health insurance also covering Arnold. Select the correct statement

below about how benefits are affected by the coordination of benefits provision in both plans. A. If Bertha files a medical claim Arnold's company is considered secondary. B. If Arnold files a medical claim Bertha's company is considered primary C. First the secondary insurer will decide what it won't pay for which will dictate what the primary insurer will pay D. Since both Arnold and Bertha are covered by a group plan neither insurer will pay if the other insurer is primary ANS:-D All of the following are used in determining life insurance rates, except: A. Investment and interest return B. Insurance company expenses C. Mortality expenses D. Policy reserves ANS:-Policy Reserves In the California Insurance Code there is a definition that reads, in short, " a person who, for a fee, offers to advise any insured having any interest in life or disability insurance contracts " This is the definition of : A. An insurance broker paid on a fee-for-service B. A solicitor C. A life and disability analyst ANS:-C Disability income insurance pays a weekly or monthly income to replace a portion of the one's lost salary due to an inability to work. When a disability

D. None of the above ANS:-The California Life and Health Insurance Guarantee Association Which of the following is not legal activity in this state? A. Participating in a plan to offer free insurance if a person buys some form of service. B. Disregarding age in the determination of insurance rates. C. Refusing to apply the practice of twisting in sales. D. All the above are legal in the state of California ANS:-A Employees that have group life or health policies covering them are required to be issued a/an. A. Estimate of employers premiums B. Certificate of insurance C. Master policy D. Monthly premium notification on a non-participating plan ANS:-B Which of the following is false about dividends paid from life insurance policies? A dividend is: A. Treated as a return of excess premium paid by the owner and is therefore taxable. B. Interest earned on dividends and paid to the policy owner. It is considered taxable. C. Not guaranteed to be paid to the policy owner. ANS:-A In order for insurers to help avoid the problem of over-insurance they include

provisio ns in their policies. A. Maximum limits B. Coordination of benefits C. Neither of the above ANS:-Coordination of benefits An agent mostly sells long-term care insurance to individuals. He obtained his insurance license (life and health) in January of 1998. In 1998 he must: A. Complete 25 hours of life and health continuing education only B. Complete 25 hours of life and health continuing education and, in addition, complete 8 hours of LTC specific continuing education, a total of 33 hours C. Complete 25 hours of life and health continuing education, 8 of which are LTC specific D. None of the above ANS:-C Jose is covered by an insurance plan that will pay him disability income benefits if he is injured either while working or at home. The type of plan he has is a/an: A. Workers compensation policy B. Key person policy C. Non-occupational policy D. Occupational Policy ANS:-D Teresa is injured while woking at her company's plant. She is taken to a hospital and receives several weeks of care. She has a non-occupational group health plan

The license of an agent is considered inactive when: A. All renewal fees are paid but there is a termination of all appointments B. The license has not been renewed C. Transactions of insurance are no longer executed following a 1 year period. D. ANS:-A A health insurance contract states that if, during the first 30 days after the policy's effective date, an illness occurs, there will be no benefits paid out of the policy. What is this period of time called? A. Probationary period B. Illness waiver C. Waiver period D. Benefit period ANS:-B All of the following are true regarding a policy owner that ceases making premium payments on a 10-pay life policy and selects the extended term insurance option, except: A. The face amount will be the same on the new extended term plan as the old 10 - pay life policy B. Premium payments no longer have to be made. C. The extended term policy will be in force a certain period and then expire. D. The extended term policy will reflect the same cash value as the original policy ANS:-D

Which of the following is not an acceptable risk to the underwriting department of an insurance company? A. Sub-standard B. Preferred C. Standard D. All are acceptable risks ANS:-D All the following are factors in determining premiums charged for group disability income insurance, except: A. The average age of all members of the group B. The location of the insured C. How long of a waiting or elimination period the policy reflects D. How long the benefits will play ANS:-B In life insurance policies, naming beneficiaries is an important part of the application process. Choose from below the best description of a contingent beneficiary. A. One with the first right to receive proceeds if there is no surviving primary beneficiary and the insured dies. B. One with the right to proceeds only if the primary and secondary beneficiary die in a common disaster. C. One with the right to proceeds if the insured dies. D. All the above are false ANS:-A