CA PSI SITE - LIFE, ACCIDENT AND
HEALTH AGENT EXAMINATION (LIFE
AGENT) QUESTIONS WITH COMPLETE
ANSWERS
Admitted Insurance Company vs. Non-Admitted Insurance Company - Answer-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 - Answer-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 - Answer-One party writes the contract without inout from the
other party on a "take-it-or-leave-it" basis
Aleatory Contract - Answer-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 - Answer-An agreement to pay on behalf of another party under
specified circumstances
Unilateral Contract - Answer-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 - Answer-1) Competent Parties
2) Legal Purpose
3) Agreement (offer and acceptance)
4) Consideration
,Preferred Risks vs Standard Risks - Answer-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 - Answer-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 objective is to provide the proper amount of coverage as determined by the value of
the individual to his/her dependents using the following factors:
- The individual's age and gender
- The individual's occupation, annual wage, and planned retirement age
- Inflation
Needs Analysis Approach determines a need for coverage upon the premature death of
an individual.
It always assumes the death of the individual to be immediate and factors the following
steps into arriving at the proper amount of coverage needed:
- Calculate all financial needs caused by immediate death, including debts, medical
bills, and final expenses
- Provide lifetime income to the spouse
- Pay off mortgage or other debts
- Provide funds for children's education
- Subtracts any assets available to fund financial needs after death (such as retirement
plan, other insurance, liquid investments, separate savings)
Waiver of Premium - Answer-Life Insurance Disability Rider
If the insured becomes totally disabled, the insurer will waive premiums for the duration
of the disability or the end of the policy, whichever occurs first.
To qualify for the waiver, the insured must be disabled for a waiting period of 3-6
months.
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 - Answer-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 - Answer-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) - Answer-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 - Answer-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 - Answer-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.
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