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.

For a buyer under 60, the insurer sets the return period, at least 10 and no more than 30 days (Insurance Code §10127.9). A buyer who is 60 or older on the date of purchase gets at least 30 days (§10127.10), and a replacement policy carries a 30-day unconditional refund right from delivery (§10509.6). A returned nonvariable policy gets all premiums and any policy fee back. A variable policy returns the account value plus any policy fee, except that a buyer 60 or older whose premium stayed in the fixed or money-market option during the 30 days gets the premium back (§10127.10).

An individual life policy must become incontestable after it has been in force during the insured's lifetime for no more than 2 years from its date of issue (Insurance Code §10113.5). The only exceptions are nonpayment of premium and certain supplemental benefits; there is no fraud exception. A policy obtained through an impostor is void from the start.

California Insurance Code 10113.71 requires every life insurance policy to contain a grace period of not less than 60 days from the premium due date. 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.

A buyer who is 60 or older on the date of purchase gets at least 30 days to return an individual annuity (Insurance Code 10127.10), and a senior's annuity with surrender charges must carry a bold 12-point cover notice showing where the charges appear (10127.13). Agents need 8 hours of annuity training before soliciting and 4 hours before each renewal (1749.8).

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.

Guaranteed renewable: the insurer must renew while premiums are paid but may raise rates by class, never for one individual. Noncancelable: the insurer must renew AND cannot raise the premium. Both run to the age or term stated in the policy.

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. A Medigap buyer has 30 days after receiving the policy to return it for a refund. California keeps the 6-month open enrollment that starts the first month a person is 65+ and enrolled in Part B, and adds a yearly birthday window of at least 60 days to buy a plan with equal or lesser benefits while covered by another Medigap policy (Insurance Code 10192.11).

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's Insurance Commissioner is ELECTED by voters in the same manner as the Governor, for no more than two four-year terms (Insurance Code 12900, added by Proposition 103 in 1988). 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 California policyholders if a member insurer becomes insolvent: 80% of a life death benefit up to $300,000, 80% of annuity present value up to $250,000, $300,000 total for life and annuity per person, and a health limit indexed to medical costs ($661,862 as of March 31, 2024). Producers may NOT use CLHIGA to induce a sale.

Every applicant for an individual life policy, of any age, must be given the right to name at least one other person to receive notice of lapse or termination for nonpayment of premium (Insurance Code 10113.72). For seniors, an agent visiting at home must deliver written notice 24 hours to 14 days ahead and leave when asked (789.10).

On a replacement, the agent presents a 'Notice Regarding Replacement' signed by the applicant and the agent, leaves it with the applicant, and sends a copy to the replacing insurer with the application (Insurance Code 10509.4). The replacing insurer must notify the existing insurer within three working days (10509.6), and the new policy carries a 30-day unconditional refund right from delivery.

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 insurance fraud) is still required before the license is issued. Licenses run for a 2-year term and need 24 hours of CE (3 ethics) before each renewal. A producer must be APPOINTED by each insurer before transacting its business.