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CA Life & Health practice questions

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Question 1Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

Which statement correctly describes the California Insurance Commissioner?

  1. Elected by the voters to a four-year term Correct answer.
  2. Appointed by the Chief Justice to a six-year term
  3. Appointed by the Governor to serve at the Governor's pleasure
  4. Elected by the Legislature to a two-year term

Explanation

The Insurance Commissioner is a statewide elected official who serves a four-year term and heads the California Department of Insurance. Because the office is elective, the Commissioner answers directly to the voters rather than to the Governor.

Question 2Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

How many hours of continuing education must a California resident life agent complete during each two-year license term?

  1. 20 hours, including 3 hours of ethics
  2. 40 hours, including 12 hours of ethics
  3. 16 hours, including 2 hours of ethics
  4. 24 hours, including 4 hours of ethics Correct answer.

Explanation

California resident life agents must complete 24 hours of continuing education in each two-year license term, and at least 4 of those hours must be in ethics. Course completion records must be kept and produced if the Department audits the licensee.

Question 3Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

An insurer wants a licensed producer to solicit life insurance on its behalf. The insurer must first:

  1. have the producer pass a second, company-specific exam
  2. require the producer to post a surety bond with the state
  3. file a notice of appointment with the Commissioner Correct answer.
  4. obtain the Commissioner's advance approval of each sales presentation

Explanation

An insurer authorizes a producer to act for it by filing a notice of appointment for that producer with the Commissioner. A producer who transacts insurance for an insurer without an appointment is subject to discipline.

Question 4Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

For a life insurance policy, insurable interest must exist:

  1. at application and again at the insured's death
  2. at the time of application and at policy issue Correct answer.
  3. only at the time of the insured's death
  4. only when the beneficiary files a claim

Explanation

Insurable interest in a life insurance transaction must exist when the application is made and when the policy is issued; it need not continue until the insured dies. A policy procured without insurable interest at inception is void.

Question 5Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer may disclose a client's confidential health information without the client's consent when:

  1. disclosure is required by law or court order Correct answer.
  2. a coworker asks about the client's medical history
  3. the producer wants to use the client as a marketing reference
  4. the client's adult child requests it

Explanation

Information a client gives an agent is confidential, and disclosure is permitted only with the client's authorization or when the law compels it. Curiosity, marketing purposes, and requests from relatives do not create authority to disclose.

Question 6Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer tells a client that the client's current insurer is "about to go bankrupt," which is false, so the client will surrender an existing policy and buy a new one. This practice is:

  1. churning, which applies only to annuity contracts
  2. lawful replacement if the client signs a replacement notice
  3. twisting, a prohibited unfair trade practice Correct answer.
  4. lawful if the new policy has a lower premium

Explanation

Twisting is a misrepresentation that induces a policyholder to lapse, surrender, or replace existing coverage. The false statement about the insurer's solvency is the heart of the violation, regardless of the premium on the new policy.

Question 7Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer may share the commission from a California life insurance sale with:

  1. an unlicensed assistant who explained the policy benefits
  2. any person who referred the client, whether licensed or not
  3. another producer who is licensed and appointed for that line Correct answer.
  4. a neighbor who is not licensed but helped complete the application

Explanation

California prohibits paying or sharing commissions with a person who is not licensed for the line of insurance involved. A licensed producer who is properly appointed may lawfully receive a share of the commission.

Question 8Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

Transacting insurance in California without a license is:

  1. a misdemeanor punishable by fine, imprisonment, or both Correct answer.
  2. a civil matter only, with no criminal exposure
  3. permitted for policies written outside California
  4. permitted if the person receives no commission

Explanation

Transacting insurance without a license is a misdemeanor in California, punishable by fine, imprisonment, or both. The absence of a commission does not excuse unlicensed activity.

Question 9Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer tells several clients that a competing insurer is "nearly insolvent," a statement that is false and made maliciously. This practice is:

  1. unfair discrimination
  2. rebating
  3. defamation Correct answer.
  4. coercion

Explanation

Defamation, as an unfair trade practice, is making, publishing, or circulating a false and maliciously critical statement about an insurer's financial condition. Truth, or a good-faith belief in the statement's truth, is a defense.

Question 10Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

An insurer charges two applicants of the same age, class, and expected mortality different premiums for identical coverage because of their national origin. This is:

  1. lawful if the insurer files the rating plan
  2. permissible underwriting judgment
  3. adverse selection, which producers must avoid
  4. unfair discrimination, a prohibited practice Correct answer.

Explanation

Unfair discrimination is charging different rates or terms to individuals of the same class and expected mortality for reasons unrelated to risk, such as national origin. Rates must rest on actuarial factors, not protected characteristics.

Question 11Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

When a producer takes an application for life insurance that will replace existing coverage, California rules require the producer to:

  1. wait 30 days before submitting the application to the insurer
  2. notify the Commissioner before the policy is delivered
  3. deliver a replacement notice and get a signature Correct answer.
  4. obtain the existing insurer's written consent to the sale

Explanation

A producer who solicits a replacement must present and obtain the applicant's signature on a notice regarding replacement so the buyer can compare the old and new coverage. The notice also triggers communication with the existing insurer.

Question 12Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

An individual life insurance policy delivered in California must allow the owner to return it for a full premium refund within at least:

  1. 20 days
  2. 5 days
  3. 10 days Correct answer.
  4. 7 days

Explanation

Individual life policies delivered in California must give the owner at least 10 days to examine the contract and return it for a full refund of premium. The period begins to run on delivery of the policy.

Question 13Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A policyowner with a 30-day grace period misses a premium due March 1 and the insured dies March 20. The insurer will:

  1. deny the claim because the premium was unpaid
  2. rescind the policy back to the missed due date
  3. pay the claim, because the policy remained in force during the grace period Correct answer.
  4. pay only the policy's cash surrender value

Explanation

A policy that is in force and still within its grace period remains in effect, so a death during the grace period is covered even though the premium has not been paid. The overdue premium is simply deducted from the death benefit.

Question 14Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

In an advertisement, a producer states that a policy form has been "approved by the California Department of Insurance" when it has not. This is:

  1. permissible puffery in advertising
  2. lawful if the policy was filed with the Commissioner
  3. acceptable if the producer removes the claim later
  4. misrepresentation, a prohibited unfair trade practice Correct answer.

Explanation

Implying that the Commissioner or the Department has approved a policy or advertisement when no such approval exists is a misrepresentation. Approval of a policy form is not an endorsement of the product's merits.

Question 15Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer deposits client premium checks into her personal checking account and forwards payment to the insurer weeks later. This conduct is:

  1. permitted if the insurer has no objection
  2. permitted if the producer keeps a ledger of the deposits
  3. permitted only for brokers, not for agents
  4. commingling of trust funds, which is prohibited Correct answer.

Explanation

Premiums collected belong to the insurer or the client, and a producer holds them in a fiduciary capacity. Mixing those funds with personal money is unlawful commingling even if the insurer is eventually paid.

Question 16Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer suspects that a claim submitted by a policyholder is fraudulent. Under California law the producer should:

  1. report the suspected fraud to the insurer and authorities Correct answer.
  2. confront the claimant and threaten criminal prosecution
  3. ignore the suspicion because claims are handled by the insurer
  4. pay the claim to avoid a bad-faith lawsuit

Explanation

The Insurance Frauds Prevention Act encourages prompt reporting of suspected fraudulent claims to the insurer and to the Department's fraud division, and good-faith reporting is protected. Producers may not threaten claimants or use pressure tactics to recover funds.

Question 17Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

Before the Commissioner may revoke a producer's license, the producer is entitled to:

  1. a hearing after reasonable notice of the charges Correct answer.
  2. reimbursement of all licensing fees paid
  3. a jury trial in superior court
  4. the Governor's personal review of the file

Explanation

A license is a valuable property interest, so the Commissioner must give the licensee notice of the charges and an opportunity for an administrative hearing before revocation. The hearing is held before the Commissioner or a designated hearing officer, not a jury.

Question 18Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

During a market conduct examination, the Commissioner's examiners may:

  1. inspect the producer's books and transaction records Correct answer.
  2. review only records the producer volunteers
  3. enter a producer's office only with a criminal warrant
  4. review records covering only the past 30 days

Explanation

The Commissioner has broad authority to examine the books, records, and accounts of licensees to determine compliance with the Insurance Code. Refusing to produce records is itself a ground for discipline.

Question 19Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

Before sharing a client's nonpublic personal financial information with a nonaffiliated company for marketing, a producer generally must:

  1. publish notice in a newspaper of general circulation
  2. receive the client's notarized written consent
  3. give a privacy notice and an opt-out opportunity Correct answer.
  4. obtain the Commissioner's approval of the disclosure

Explanation

Federal and California privacy rules require an initial privacy notice and, in many cases, a chance to opt out before nonpublic personal information is shared with nonaffiliated third parties. Any permitted disclosure must still be limited and secure.

Question 20Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A California broker-agent places a policy with an insurer that has not appointed the broker-agent. In that transaction the producer is acting on behalf of:

  1. the insurer, as its appointed agent
  2. the Commissioner, as a state representative
  3. both the insurer and the insured equally
  4. the client, as the client's representative Correct answer.

Explanation

A broker-agent represents the applicant or insured when placing coverage with an insurer that has not appointed the broker-agent. The distinction matters because it determines to whom the producer's fiduciary duties run in that transaction.

Question 21Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

Under the California Insurance Code, a person who willfully violates the unfair trade practice provisions may be liable for a civil penalty of up to:

  1. $1,000 per act, with no enhanced penalty for willful violations
  2. $50,000 per willful act
  3. $500 per act, with no enhanced penalty for willful violations
  4. $10,000 per willful act Correct answer.

Explanation

The Insurance Code authorizes civil penalties of up to $5,000 for each act violating the unfair practices article and up to $10,000 when the act is willful. Each prohibited act is counted separately.

Question 22Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

An investor with no family or business relationship to the proposed insured pays the premiums and is named owner and beneficiary of a new life policy at issue. Under California law this arrangement is:

  1. valid if the insured signs a consent form
  2. valid if the investor pays all premiums for two years
  3. void for lack of insurable interest at inception Correct answer.
  4. valid because the insurer approved the application

Explanation

Life insurance requires insurable interest at inception, and the insured's consent alone does not create that interest. A policy procured by a stranger with no relationship to the insured is void and may also violate California's rules against stranger-originated life insurance.

Question 23Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

When recommending an annuity to a California consumer, a producer must:

  1. recommend the contract that pays the highest commission
  2. have reasonable grounds to believe the recommendation suits the consumer Correct answer.
  3. obtain the Commissioner's approval of each recommendation
  4. sell only contracts that have no surrender charge

Explanation

California's annuity suitability standard requires the producer to gather the consumer's financial and personal information and to have reasonable grounds for believing the recommendation is suitable. The insurer must also maintain a system to supervise those recommendations.

Question 24Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer collects an advance premium and uses the money for personal expenses without remitting it to the insurer. Under California law this is:

  1. a contract dispute between the producer and the insurer
  2. permitted if the producer repays the amount within one year
  3. a minor violation curable by a written apology
  4. theft of trust funds and grounds for revocation Correct answer.

Explanation

Premium funds are held in trust, and applying them to personal expenses is misappropriation. It is grounds for license revocation and may also be prosecuted as theft.

Question 25Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

Without the applicant's authorization, a producer signs the applicant's name to an insurance application. This is:

  1. acceptable if the applicant later pays the premium
  2. acceptable if the producer notes it in the file
  3. a falsification that is grounds for license discipline Correct answer.
  4. a harmless clerical practice permitted by the Code

Explanation

Signing an applicant's name without authority falsifies the application and misstates that the answers came from the applicant. Falsification is unprofessional conduct that supports suspension or revocation of the license.

Question 26Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A California life agent offers to pay the first month's premium for a prospect if the prospect buys a policy from her. This practice is best described as:

  1. Controlled business, which requires special disclosure.
  2. A lawful inducement because the agent uses her own funds.
  3. Twisting, which is prohibited by California law.
  4. Rebating, which is prohibited by California law. Correct answer.

Explanation

Rebating is offering any part of the premium or commission, or anything of value not stated in the policy, as an inducement to buy insurance. California prohibits rebating. Paying a prospect's premium is a thing of value not specified in the contract.

Question 27Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer tells a policyholder that her current whole life policy "has no cash value and will expire next year," which is false, to persuade her to surrender it and buy a new policy. This conduct is:

  1. Coercion.
  2. A permissible replacement if a notice is given.
  3. Rebating.
  4. Twisting. Correct answer.

Explanation

Twisting is inducing a policyholder to lapse, surrender, or replace coverage through misrepresentation of the existing policy. A replacement notice does not cure the use of false statements.

Question 28Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A California life agent must complete continuing education during each two-year license term. The requirement is:

  1. 16 hours, including 2 hours of ethics.
  2. 24 hours, including 3 hours of ethics. Correct answer.
  3. 40 hours, including 4 hours of ethics.
  4. 8 hours, including 1 hour of ethics.

Explanation

California requires resident producers to complete 24 hours of approved continuing education every two-year license term, including at least 3 hours of ethics.

Question 29Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

The California Insurance Commissioner is:

  1. Appointed by an insurance board to a four-year term.
  2. Elected by the voters to a four-year term. Correct answer.
  3. Appointed by the Governor to a six-year term.
  4. Selected by the Legislature for a two-year term.

Explanation

The Insurance Commissioner is a statewide elected officer who serves a four-year term. The Commissioner heads the California Department of Insurance.

Question 30Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

Before an insurer may require an HIV test of a life insurance applicant in California, the insurer must:

  1. Disclose the test result to the applicant's employer.
  2. Obtain the applicant's written informed consent. Correct answer.
  3. Obtain approval from the Department of Public Health.
  4. Notify the applicant's physician only.

Explanation

California requires written informed consent before an insurer may test an applicant for HIV and imposes confidentiality requirements on the results. Disclosure to an employer without authorization is not permitted.

Question 31Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

Under California law, an insurer's decision to deny life insurance solely because the applicant is a victim of domestic violence is:

  1. Prohibited as unlawful discrimination. Correct answer.
  2. Permitted if the applicant discloses the history.
  3. Permitted if the insurer charges a higher premium.
  4. Required if the applicant has a protective order.

Explanation

California prohibits insurers from refusing to issue, canceling, or limiting coverage solely because an applicant is a victim of domestic violence. Such a denial is unlawful discrimination.

Question 32Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

An applicant for a California producer license intends to use the license mainly to write insurance on his own life, his family, and his own business. The Commissioner may:

  1. Issue the license only if the applicant posts a bond.
  2. Issue the license but limit annual commissions.
  3. Deny the license because it is controlled business. Correct answer.
  4. Issue the license because personal insurance is always permitted.

Explanation

A license may be denied or revoked when it is obtained principally to write controlled business, meaning insurance on the licensee, relatives, or the licensee's business. The concern is that the license would serve personal interests rather than the public.

Question 33Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

An insurer appoints a California producer. The insurer must file notice of the appointment with the Commissioner within:

  1. 5 days after the appointment.
  2. 30 days after the appointment. Correct answer.
  3. 10 days after the appointment.
  4. 60 days after the appointment.

Explanation

California requires an insurer to file notice of appointment with the Commissioner within 30 days after the agency contract is executed or the first application is submitted.

Question 34Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

An insurer wants to begin writing life insurance in California. Before transacting that business, the insurer must obtain from the Commissioner a:

  1. Surety bond approval.
  2. Certificate of authority. Correct answer.
  3. Certificate of convenience.
  4. Producer license.

Explanation

An insurer must be admitted and hold a certificate of authority from the Commissioner to transact insurance in California. A producer license applies to individuals and agencies, not insurers.

Question 35Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A California life insurer discovers evidence that a claimant has submitted a forged death certificate. The insurer should:

  1. Handle it internally without notifying regulators.
  2. Report it only to the claimant's bank.
  3. Ignore the matter unless the claim exceeds $10,000.
  4. Report it to the CDI Fraud Division. Correct answer.

Explanation

Insurers are required to report suspected fraudulent claims to the Fraud Division of the California Department of Insurance. Internal handling alone does not satisfy the reporting duty.

Question 36Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A California producer takes an application for a new life insurance policy. The applicant must be given a Buyer's Guide and Policy Summary:

  1. Only after the free-look period ends.
  2. Only when the policy replaces existing coverage.
  3. At application or before policy delivery. Correct answer.
  4. Only if the applicant asks for a copy.

Explanation

California life insurance solicitation rules require delivery of the Buyer's Guide and Policy Summary at the time of application or before delivery of the policy.

Question 37Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer tells a prospect that a policy's cash value is "fully guaranteed" when the policy actually uses a non-guaranteed illustration. This statement is:

  1. Acceptable if the producer discloses it later.
  2. Acceptable because illustrations are not regulated.
  3. A lawful opinion about the policy's performance.
  4. Misrepresentation, an unfair trade practice. Correct answer.

Explanation

Misrepresenting the terms or benefits of a policy is an unfair trade practice under California law. Stating that a non-guaranteed value is guaranteed is a false statement of policy terms.

Question 38Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A producer is appointed by an insurer but tells a client that the insurer accepts a particular rider. The producer exceeds her express authority, but the client reasonably relies on the statement and the insurer has given the producer apparent authority. The insurer is:

  1. Bound only if the client paid an extra fee.
  2. Bound only after the Commissioner approves the rider.
  3. Bound, because apparent authority can bind the insurer. Correct answer.
  4. Not bound, because express authority was exceeded.

Explanation

An insurer is bound by acts of its producer that fall within the producer's apparent authority when a third party reasonably relies on that authority. Exceeding express authority does not automatically protect the insurer.

Question 39Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A person who has been convicted of a felony involving dishonesty or breach of trust wants to become a California insurance producer. Under federal law, the person may engage in the business of insurance only if:

  1. The person pays a higher license fee.
  2. The felony is more than five years old.
  3. The person obtains the Commissioner's written consent. Correct answer.
  4. The person completes 40 hours of ethics training.

Explanation

Federal law bars a person convicted of a felony involving dishonesty or breach of trust from engaging in the business of insurance unless the person obtains written consent from the state insurance regulator. The passage of time alone does not remove the restriction.

Question 40Insurance Law and Regulations (California Insurance Code, licensing, producer duties, ethics)

A California producer helps an applicant conceal a serious medical condition on a life insurance application so the policy will be issued. This conduct is:

  1. Insurance fraud and grounds for license discipline. Correct answer.
  2. Permissible if the policy is delivered outside California.
  3. A minor violation cured by paying the first premium.
  4. Permissible if the applicant signs the application.

Explanation

Knowingly concealing material information in an insurance application is fraud and subjects the producer to license discipline and possible criminal penalties. The applicant's signature does not authorize the producer to assist in a concealment.

Question 41General Insurance Concepts

A small business purchases a commercial liability policy, shifting the financial consequences of covered lawsuits to an insurance company. Which function of insurance does this illustrate?

  1. It transfers risk to the insurer Correct answer.
  2. It eliminates the possibility of loss
  3. It pools premiums to earn investment returns
  4. It guarantees that losses will not occur

Explanation

Insurance transfers the financial consequences of covered losses from the policyholder to the insurer in exchange for a premium. The possibility of loss still exists; only its financial impact is shifted.

Question 42General Insurance Concepts

Which situation is an example of a pure risk?

  1. A company launches an untested product
  2. A homeowner faces fire damage Correct answer.
  3. An investor buys stock hoping for a gain
  4. A gambler bets on a card game

Explanation

A pure risk offers only the chance of loss or no loss, as with fire damage to a home. Speculative risks, such as stock purchases, gambling, and new product launches, carry the possibility of gain as well as loss and generally are not insurable.

Question 43General Insurance Concepts

An earthquake that topples a building and damages its contents is best described as which of the following?

  1. A hazard
  2. A retention
  3. A warranty
  4. A peril Correct answer.

Explanation

A peril is the actual cause of a loss, such as an earthquake, fire, or windstorm. A hazard is a condition that increases the likelihood or severity of a loss.

Question 44General Insurance Concepts

Which statement correctly describes a mutual insurance company?

  1. It is owned by the state insurance department
  2. It is owned by its policyholders Correct answer.
  3. It is owned by its producing agents
  4. It is owned by stockholders who receive dividends

Explanation

A mutual insurer is owned by its policyholders, who may receive dividends or reduced premiums when results are favorable. A stock insurer, by contrast, is owned by shareholders.

Question 45General Insurance Concepts

An insurer incorporated under the laws of California and authorized to sell insurance in California is classified in that state as:

  1. Alien
  2. Surplus lines
  3. Foreign
  4. Domestic Correct answer.

Explanation

An insurer is a domestic company in the state where it is chartered. The same company would be a foreign insurer in every other state and an alien insurer if chartered in another country.

Question 46General Insurance Concepts

Which element of a valid contract requires that each party have the legal capacity to enter into the agreement?

  1. Competent parties Correct answer.
  2. Legal purpose
  3. Offer and acceptance
  4. Consideration

Explanation

A contract requires competent parties, meaning each side must have the legal capacity to contract; minors and persons adjudicated incompetent generally lack it. The other required elements are offer and acceptance, consideration, and legal purpose.

Question 47General Insurance Concepts

An insurance policy is considered a conditional contract because:

  1. Benefits depend on the insured meeting stated conditions Correct answer.
  2. Premiums must be paid by automatic transfer
  3. The insured may cancel at any time
  4. The insurer must renew the policy each year

Explanation

A conditional contract requires each party to perform only after specified conditions are satisfied, such as providing proof of loss or paying premiums. The insurer's duty to pay hinges on the insured's compliance with those conditions.

Question 48General Insurance Concepts

A loose, worn handrail on a stairway in an insured's store is best classified as which of the following?

  1. A morale hazard
  2. A physical hazard Correct answer.
  3. A speculative risk
  4. A moral hazard

Explanation

A physical hazard is a tangible condition that increases the chance or severity of a loss, such as a worn handrail, faulty wiring, or icy steps. Moral and morale hazards involve attitudes or behavior rather than physical conditions.

Question 49General Insurance Concepts

Monica applies for a life insurance policy on her neighbor, with whom she has no family or financial relationship. The application will most likely be declined because Monica lacks:

  1. A fiduciary relationship
  2. A warranty
  3. Underwriting capacity
  4. Insurable interest Correct answer.

Explanation

A person buying life insurance on another must have insurable interest, typically a close family tie or a financial stake in the other person's continued life. Without it, the arrangement looks like a wager and is not permitted.

Question 50General Insurance Concepts

Careful underwriting is a primary defense against which of the following?

  1. Subrogation
  2. Estoppel
  3. Coinsurance
  4. Adverse selection Correct answer.

Explanation

Adverse selection is the tendency of people with the greatest likelihood of loss to seek or keep coverage. Underwriters gather information and classify risks so that premiums reflect expected loss experience.