Free CA Life & Health Insurance Exam Flashcards

A genuine financial or emotional loss the policyowner would suffer if the insured dies. For life insurance, insurable interest must exist at the time the policy is issued (the application) — NOT at the time of the claim. For property insurance, it must exist at the time of loss.

Indemnity restores an insured to the same financial position as before a loss, with no profit (most health/property coverage). Life insurance is a 'valued' (stated-amount) contract — it pays a fixed face amount because a human life cannot be precisely measured in dollars.

The tendency of higher-risk individuals to seek insurance more than lower-risk ones. Underwriting, waiting periods, and exclusions exist to control adverse selection and keep premiums fair for the whole risk pool.

Pure death-benefit protection for a set period (e.g., 10/20/30 years) with no cash value. Lowest initial premium. Variations: level term (fixed face), decreasing term (face declines, e.g., mortgage protection), and renewable/convertible term.

Permanent coverage with a level premium, guaranteed death benefit, and a guaranteed cash value that grows tax-deferred to endow at age 100/121. Premiums are higher than term but never increase. The insurer bears the investment risk.

Flexible-premium permanent insurance that separates the policy into a cost-of-insurance charge and an interest-bearing cash account. The owner may adjust premium and death benefit. Option A pays a level death benefit; Option B pays face plus cash value.

Cash value is invested in separate-account subaccounts (stocks/bonds), so values rise and fall with the market and the OWNER bears investment risk. Requires both an insurance license AND a securities (FINRA) registration to sell because it is a security.

Guaranteed ways to recover whole-life cash value if the policy lapses: (1) Cash surrender, (2) Reduced paid-up insurance (smaller fully-paid policy), and (3) Extended term insurance — usually the automatic default — which buys term coverage at the full face for a limited period.

California's standard individual life insurance free-look is at least 10 days (Insurance Code §10127.9 allows a 10–30 day range set by the insurer). It is 30 days for policies issued to seniors age 60 or older and for replacement policies (§10127.10). The policy may be returned for a FULL premium refund during this window. (Health/disability free-look in CA is 10 days.)

After a life policy has been in force for 2 years during the insured's lifetime, the insurer cannot contest it for material misrepresentation on the application (fraud aside in limited cases). California follows the standard 2-year contestability rule.

California Insurance Code requires a grace period of at least 31 days (commonly stated as 30) for life policies paid annually, semi-annually, or quarterly. The policy stays in force during grace; if the insured dies, the death benefit is paid minus the unpaid premium.

Lets an owner restore a lapsed policy (typically within 3 years) by submitting proof of insurability and paying back premiums with interest. A NEW 2-year contestability period applies to statements in the reinstatement application; the original suicide clause is not reset in most states.

Waives policy premiums (keeping coverage in force) if the insured becomes totally disabled, usually after a 6-month waiting period and before a stated age. The policy continues to build cash value as if premiums were paid.

Pays part of the death benefit early if the insured is diagnosed as terminally or chronically ill. The amount advanced reduces the remaining death benefit. Often available at no extra premium and a key consumer protection feature.

Allows the insured to buy additional coverage at specified future dates or life events (marriage, birth) WITHOUT new evidence of insurability. Protects against becoming uninsurable later.

A revocable beneficiary can be changed anytime by the owner without consent. An IRREVOCABLE beneficiary cannot be changed, and the policy cannot be surrendered or loaned against, without that beneficiary's written consent.

Per stirpes ('by branch'): if a named beneficiary dies first, that share passes to their heirs/descendants. Per capita ('by head'): proceeds are split equally only among the surviving named beneficiaries.

If insured and primary beneficiary die in the same event with unclear order, the law presumes the insured survived, so proceeds pass to the contingent beneficiary (or estate). A common-disaster clause requires the beneficiary to survive a set period (e.g., 30 days) to collect.

An annuity that credits a guaranteed minimum interest rate; the insurer bears investment risk and principal is protected. Predictable, conservative growth. The accumulation buys 'annuity units' only in variable contracts — fixed annuities pay a guaranteed dollar amount.

Premiums go into separate-account subaccounts; values fluctuate with the market and the OWNER bears investment risk. It is a security — selling requires a securities registration in addition to an insurance license. Offers tax-deferred growth but no guaranteed minimum return on the subaccounts.

Credits interest tied to a market index (e.g., S&P 500) subject to a participation rate, cap, and a guaranteed floor (often 0%). Offers more upside than a fixed annuity with downside protection. It is NOT a security in itself but is regulated for suitability.

Accumulation: the owner pays premiums and value grows tax-deferred. Annuitization: the contract is converted into a stream of income payments. Once annuitized, most contracts cannot be surrendered for a lump sum.

Straight life pays the largest income but stops at death (no refund). Life with period certain guarantees payments for a minimum number of years even if the annuitant dies. Joint-and-survivor continues income to a second person. Longer guarantees mean smaller payments.

California requires producers to ensure annuity sales are SUITABLE for the consumer's financial situation, with heightened duties for buyers 65+. Seniors get extra review time, and annuities sold to seniors carry strong free-look and surrender-disclosure protections under the Insurance Code.

An IRS-permitted tax-free exchange between like contracts: life-to-life, life-to-annuity, or annuity-to-annuity (but NOT annuity-to-life). Requires the same owner and a direct transfer. California recognizes 1035 exchanges; replacement disclosure rules still apply.

Death benefits paid in a lump sum to a named beneficiary are generally INCOME-TAX-FREE. If proceeds are held by the insurer and paid as installments, the interest portion is taxable. Large policies may still face estate tax if the insured owned the policy.

A life policy funded too quickly, failing the IRS 7-pay test. A MEC keeps its tax-free death benefit, but living distributions (loans/withdrawals) are taxed LIFO (gains first) and may incur a 10% penalty before age 59½. Once a MEC, always a MEC.

Annuities grow tax-deferred; gains are taxed as ORDINARY income (not capital gains) when withdrawn. Non-qualified annuity withdrawals are LIFO — earnings come out first and are taxable. A 10% IRS penalty generally applies to gains taken before age 59½.

If the individual pays premiums with after-tax dollars, disability income benefits are received TAX-FREE. If the employer pays the premium (group plan), the benefits are TAXABLE income to the employee.

Covers hospital, surgical, and physician costs. Key cost-sharing terms: deductible (paid first by insured), coinsurance (percentage split, e.g., 80/20), copay (flat fee per service), and out-of-pocket maximum (cap after which the insurer pays 100%).

HMO: lowest cost, requires a primary care physician (PCP) and referrals, in-network only except emergencies. PPO: higher cost, no PCP/referral required, and out-of-network care is covered at a reduced level. In California, HMOs are regulated by the DMHC, not the CDI.

Group plans cover employees under one master contract with simplified/guaranteed underwriting and lower cost; the certificate goes to the member. Individual plans are medically or community rated and owned by the insured. Group conversion rights let a departing member keep coverage.

The Affordable Care Act bans denial or rate-ups for pre-existing conditions, requires coverage of 10 essential health benefits, allows dependents to stay on a parent's plan to age 26, bans annual/lifetime dollar limits on essential benefits, and caps out-of-pocket costs.

The Knox-Keene Health Care Service Plan Act of 1975 governs HMOs and health care service plans in California. These plans are licensed and regulated by the Department of Managed Health Care (DMHC) — NOT the CDI. It sets standards for access, quality, and grievance handling.

Federal COBRA applies to employers with 20+ employees (18-36 months continuation). Cal-COBRA extends continuation rights to small employers with 2-19 employees and can provide up to 36 months, including time to bridge after federal COBRA is exhausted.

Replaces lost income when an insured cannot work. Elimination period = the waiting period before benefits begin (acts like a deductible). Benefit period = how long benefits are paid. 'Own-occupation' vs. 'any-occupation' defines how strictly disability is judged.

California requires individual disability income policies to be at least GUARANTEED RENEWABLE to age 65 — the insurer must renew if premiums are paid but may raise rates only by class, never for one individual. Noncancelable policies also lock in the premium.

Covers custodial and skilled care (nursing home, assisted living, home care) not paid by standard health insurance. Benefits trigger when the insured cannot perform a set number of Activities of Daily Living (ADLs) or has cognitive impairment, after an elimination period.

A qualified Partnership LTC policy lets the insured protect assets dollar-for-dollar when later qualifying for Medi-Cal. For every dollar the policy pays in benefits, a dollar of assets is disregarded in the Medi-Cal asset test — encouraging private LTC coverage.

Part A = hospital/inpatient (mostly premium-free). Part B = outpatient/physician (monthly premium). Part C = Medicare Advantage (private plans bundling A/B/often D). Part D = prescription drugs. Medicare is for those 65+ or with qualifying disability.

Medigap covers gaps (deductibles/coinsurance) in Original Medicare and uses standardized lettered plans. California requires a 30-day free-look on Medigap policies and follows the federal 6-month open-enrollment window starting when the person is 65+ and enrolled in Part B.

California's Medicaid program, jointly funded by state and federal government, providing free or low-cost coverage to eligible low-income residents, including children, pregnant women, seniors, and people with disabilities. It is needs-based (income/asset tested).

The CDI is California's primary regulator of insurers and producers. California is one of the few states where the Insurance Commissioner is ELECTED by voters (since 1991), making the office directly accountable to the public. The DMHC separately regulates HMOs.

The Commissioner may investigate, hold hearings, levy fines, and suspend or revoke licenses for fraud, dishonesty, or misappropriation of funds. A cease-and-desist order can be issued without a prior hearing when there is an immediate threat to the public.

California Insurance Code Section 790.03 prohibits misrepresentation of policy terms or benefits, false advertising, defamation, unfair discrimination, and unfair claims settlement (failing to investigate or pay valid claims promptly). Violations can bring fines and license action.

Twisting = using misrepresentation to convince a policyholder to drop one insurer's policy and replace it with a DIFFERENT insurer's. Churning = doing the same WITHIN the same insurer's book. Both are prohibited unfair practices in California and harm the consumer.

The California Life and Health Insurance Guarantee Association protects policyholders if an admitted insurer becomes insolvent: up to $300,000 life death benefit, $250,000 annuity present value, and $500,000 health claims per individual. Producers may NOT use CLHIGA to induce a sale.

California consumers age 65 and older may designate a third party (family member/advisor) to receive copies of all cancellation and lapse notices, and producers owe heightened suitability and disclosure duties on annuity and replacement sales to seniors.

On a replacement, the producer must give the applicant a signed Replacement Notice and comparison form and send a copy to the existing insurer. The replacing insurer must notify the existing insurer (within about 5 business days) so it can try to conserve the policy.

As of Jan 1, 2026 (AB 943), the 20-hour line course is dropped but a 12-hour Ethics & CA Insurance Code course (with 1 hr anti-fraud) is still required before licensing. Licenses renew every 2 years with 24 hours CE (3+ ethics). A producer must be APPOINTED by each insurer before transacting its business.