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California Insurance Exam Questions and Answers 100% Accurate
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California Insurance Exam
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California Insurance ExamTwo methods of determining insurance need: - answer- Human Life Approach
- Needs Approach
Human Life Value Approach~ - answer- One of two ways of calculating insurance need.
- By discounting estimated future income
- Calculating the amount of life insurance a family will need based on the financial loss that they will suffer if the insured person were to pass away today - 10X salary
- Based on age, gender, planned retirement age, occupation, annual wage, employment
benefits, as well as the personal and financial information of the spouse and/or dependent children.
*Needs Approach - answerAsk yourself:
1. How much will be needed at death to meet obligations. 2. How much future income is needed to sustain the household. - Focuses on the financial needs of the family
- Considers final expenses
- Considers disability income
- Consideres monthly income
Main list of private insurance companies - answer- Stock insurers
- Mutual insurers
- Lloyd's of London
- Reinsurers
- Risk retention groups
- Fraternal benefit societies
- Home service insurers
Government supplied insurance - answer- OASDI (Social Security)
- Medicare
- Medicaid
- Military plans (SGLI & VGLI)
Lloyd's of London - answer- Take greater risks and charge larger premiums.
- A British insurance and reinsurance marketplace
- Come together to pool and spread risk
Reinsurers - answerCompanies that take part of the risk of insurance companies. (The company that is taking a part of the risk) Ceding Company - answerThe company that is transferring the risk
Risk retention group - answerA mutual company formed to cover a bunch of people in the same occupation.
Fraternal benefit society - answerMembership groups that are created for membership to purchase insurance and gain other benefits.
Home service insurers - answer- Sell low dollar value policies (e.g. $1000/$2000 of face
amount)
- Paid for by bank draft of check sent in by mail
Insurance is sold through - answerCareer agents
Brokers
Aka Producers (independent insurance agents)
Agent - answer- Sells the company's products to the public
- When someone becomes an agent, they become a "field underwriter"
- Develops base for long-term sources of clients by using referrals, occupational, and special-interest groups to compile lists of prospects.
- Approaches potential clients by utilizing mailings and phone solicitation; making presentations to groups at company-sponsored gatherings; speaking publicly to community groups on the subject of financial well-being.
- Determines clients' particular needs and financial situations by scheduling fact-finding appointments; determining extent of present coverage and investments; ascertaining long-term goals.
- Develops a coordinated protection plan by calculating and quoting rates for immediate coverage action and long-term strategy implementation.
- Obtains underwriting approval by completing application for coverage.
- Completes coverage by delivering policy; planning future follow-up visits and evaluations of needs.
- Provides continuing service by providing direct deposit forms; processing changes in beneficiary and policy loan applications.
- Provides death benefits by delivering policy proceeds; reassessing client needs.
- Updates job knowledge by participating in educational opportunities; reading professional publications; maintaining personal networks; participating in professional organizations.
- Enhances insurance agency reputation by accepting ownership for accomplishing new
and different requests; exploring opportunities to add value to job accomplishments.
Brokers - answer- Represents the people and finds a company to insure them
- Assist prospective insureds with developing risk management strategies appropriate to
their risk profiles.
- *Cannot legally bind insurance
- Represents the client in purchasing the insurance product *Vending Machines~ - answer- Direct selling
- (A method of distribution)
- Generally limited to travel accident insurance , supplemental health or disability policies, or life insurance policies with a small face amount.
*Mass marketing~ - answer- A client interacts with an agent by phone or e-mail. Trying to get a number of people at one time to purchase insurance. - It reaches insureds who generally have no access to their own brokers or agents. - It also brings the policies to the insureds usually at lower prices than those charged in one-on-one sales because it reduces the "middleman" cost of agents.
- *Direct response / direct mail. - A system that does not use an agent
*Paul vs Virginia - answerState would be in charge of the insurance industry
*US vs SE Underwriters Association - answerFederal government in charge of the insurance industry
*McCarran Ferguson Act - answerReturn supervisory power to the states
*Fair Credit Reporting Act - answer- Provides that the applicant for insurance be informed that a consumer report may be requested
- A federal provision that requires privacy of a client's information
- Designed to promote accuracy, fairness, and privacy of information in the files of every
"consumer reporting agency" - You must be told if information in your file has been used against you. - You can find out what is in your file.
- You can dispute inaccurate information with the CRA.
- Inaccurate information must be corrected or deleted.
- You can dispute inaccurate items with the source of the information.
- It is not required that the CRA name be disclosed if you are denied coverage
- Outdated information may not be reported.
- Access to your file is limited.
- Your consent is required for reports that are provided to employers, or reports that contain medical information.
- You may choose to exclude your name from CRA lists for unsolicited credit and insurance offers.
- You may seek damages from violators.
Financial Services Modernization Act of 1999 - answerBanks can do insurance and insurance companies can do banking
1933 Class Steagall Act - answerRequired banks to remain in banking and not do insurance and insurance companies to remain in insurance and not do banking. Pooling the risk - answerDistributing the risk over a large number of people.
*Law of large numbers - answerHaving a large number of people in a pool helps to correctly predict the outcome.
Speculative risk - answerHoping for a gain
Pure risk - answerCovering for losses. No gain. So it's insurable.
Underwriters - answerDetermine if prospective clients fall into the normal category or if they are more risky in one category or another.
- They classify risks and determine which categories the insured should be placed
- Adhesion: categories have been decided and approved in advance by the state in conjunction with the insurance company.
- Categories of risks: Preferred (best premium rate), Standard, Substandard (most expensive)
Peril - answerThe actual incident happening
Hazard - answer- What causes the incident to happen. (e.g. your thoughts, actions, habits?) - 3 types
Physical Hazard - answer- Has to do with the body.
- Is the body going to live a normal length of time? - Are there negatives due to health issues, hobbies, or profession?
*Moral Hazard - answer- Issues resulting from weakness of human behavior
- Does the person follow rules and laws of society?
- Dealing with the difference between right and wrong
*Morale Hazard - answer- Focus on hobbies and jobs
- Jump out of airplanes?
- Attitude towards the item insured and to act carelessly about it
4 Treatments of Risk - answer- Avoidance
- Reduction
- Retention
- Transference
*Risk Avoidance - answerStopping the behavior all together. (e.g. stop smoking)
Risk Reduction - answer(e.g. smoking less cigarettes a day)
*Risk Retention - answerDoing nothing and retaining all the risk without any outside assistance.
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