California's protections for senior insurance buyers

California layers extra rules over sales to older buyers, and the exam draws on them in both the Life and the Accident & Health sections.

Questions and answers, explained

All 12 questions above, with the correct answer and why it is correct. Everything here is on california's protections for senior insurance buyers.

1. An agent tells a prospect that a term policy builds cash value, which it does not. Under California Insurance Code sections 780-784, this is:

   • AConcealment by the applicant
   • BA warranty
   • CAcceptable sales talk, as long as the policy summary delivered later is accurate
   • DA prohibited misrepresentation of the policy's termsCorrect

   Why: Sections 780-784 prohibit misrepresenting the terms, benefits or advantages of a policy, or making misleading comparisons to induce a sale or lapse. Misrepresentation by an agent is also an unfair practice under section 790.03.

   Reference Cal. Ins. Code 780-784 — CA objectives I.B.5.d

2. A senior enrolled in a Medicare Advantage plan asks an agent to also sell her a Medicare supplement policy to cover her copays. What is correct?

   • AMedicare Advantage plans are a type of supplement
   • BShe must buy two supplements to cover the Advantage plan
   • CMedicare Advantage is not a supplement and does not coordinate with oneCorrect
   • DA supplement pays all Medicare Advantage copays, so she should buy one right away

   Why: CDI's objectives state that Medicare Advantage is not a Medicare supplement plan and does not coordinate with supplements. A supplement fills gaps in Original Medicare. A person also cannot receive benefits from more than one Medicare supplement, so applications must ask about existing supplement coverage.

   Reference CA A&H objectives III.D.1.e.ii.f-g

3. A 66-year-old buys an individual life insurance policy in California. Under Insurance Code section 10127.10, how long is her right to return it for cancellation?

   • ANot less than 30 days after she receives itCorrect
   • B90 days
   • C10 days from the date the application was signed, the same as for younger buyers
   • DSeniors have no right to return a life policy

   Why: Section 10127.10 requires every individual life policy and annuity delivered to a senior (60 or older) to state on the cover a right to return it within a period of not less than 30 days after receipt. A returned nonvariable policy is void from the beginning and all premiums are refunded.

   Reference Cal. Ins. Code 10127.10 — CA Life objectives II.D.1.a

4. A 72-year-old buys a variable annuity in California and gives no investment direction. During the 30-day cancellation period, where may the premium be invested under Insurance Code section 10127.10?

   • AIt may not be invested; it must sit in cash
   • BOnly in the insurer's general account at a guaranteed 10 percent
   • CIn any of the underlying stock funds, chosen by the agent to maximize growth during the period
   • DOnly in fixed-income investments and money-market fundsCorrect

   Why: Under section 10127.10, during a senior's 30-day cancellation period the premium for a variable life policy or variable annuity may be invested only in fixed-income investments and money-market funds unless the owner specifically directs investment in the underlying mutual funds.

   Reference Cal. Ins. Code 10127.10 — CA Life objectives II.C, II.D.1.a

5. Under Insurance Code section 785, what duty do agents and insurers owe a prospective insured who is 65 or older?

   • ANo special duty, because seniors are treated like any other adult buyer under the code
   • BA duty to sell only Medicare supplement policies
   • CA duty of honesty, good faith and fair dealing, in addition to other dutiesCorrect
   • DA duty to obtain a relative's consent for every sale

   Why: Section 785 imposes on insurers, brokers, agents and others a duty of honesty, good faith and fair dealing toward prospective insureds age 65 or older, in addition to any other duty, and conduct during the offer and sale is relevant in any action for breach.

   Reference Cal. Ins. Code 785 — CA objectives I.C2.24

6. A senior goes without creditable prescription drug coverage for 20 months after becoming eligible, then enrolls in Part D. What penalty applies?

   • ANo penalty, because Part D is optional
   • BA one-time fee of $100 that is paid with the first premium and then never charged again
   • CA 10 percent penalty for one year only
   • DA lifetime premium penalty of 1 percent per month without coverageCorrect

   Why: Part D enrollment is optional, but going without creditable coverage after eligibility can bring a lifetime penalty of 1 percent of the base premium for each month without coverage, here about 20 percent. Part B's late penalty is 10 percent for each full 12-month period without it.

   Reference CA A&H objectives III.D.1.g.i

7. A California agent plans an initial meeting in a senior's home to discuss life insurance. Under Insurance Code section 789.10, when must the agent deliver a written notice?

   • AOnly if the senior asks for one in writing first
   • BWithin 30 days after the meeting
   • CAt the door, immediately before the meeting begins
   • DAt least 24 hours and no more than 14 days before the meetingCorrect

   Why: Section 789.10 requires a person meeting a senior in the senior's home to deliver a written notice no less than 24 hours and no more than 14 days before the initial meeting, in 16-point bold type, stating the agent's name, license number and purpose. If an existing client asks for a same-day meeting, the notice is delivered before it.

   Reference Cal. Ins. Code 789.10 — CA objectives I.C2.24

8. Under Insurance Code section 786, how long an examination period must an individual disability policy sold to a 70-year-old Californian provide?

   • A30 days after receiptCorrect
   • BOne year after purchase
   • CNone for disability policies
   • D10 days after receipt, the same as for any younger buyer

   Why: Section 786 requires all individual and group disability policies and certificates, and group life policies and certificates, offered to people 65 or older in California to provide a 30-day examination period after receipt; returning the policy voids it from the beginning with a full premium refund.

   Reference Cal. Ins. Code 786 — CA objectives I.C2.24

9. A life agent proposes that an 80-year-old cash in a certificate of deposit to buy an annuity. Under Insurance Code section 789.8 the agent must advise the elder in writing that:

   • AThe sale is final and cannot be returned
   • BLiquidating the asset may bring taxes or penalties, and independent advice may be wiseCorrect
   • CThe annuity is guaranteed by the State of California against any loss whatsoever
   • DElders may not buy annuities

   Why: Section 789.8 requires a life agent offering life insurance or an annuity to an elder (65 or older) to advise in writing that selling or liquidating stocks, bonds, IRAs, CDs or other assets to fund it may have tax consequences, early withdrawal penalties or other costs, and that the elder may wish to consult independent legal or financial advice.

   Reference Cal. Ins. Code 789.8 — CA objectives I.C2.24

10. Elsa is 67, still actively working, and covered by her employer's group health plan. The employer has 45 employees. She is also enrolled in Medicare Parts A and B. Which coverage pays first?

    • AMedicare, because she is over age 65
    • BThe two plans split each claim equally
    • CThe employer group health plan, because the employer has 20 or more employeesCorrect
    • DNeither — she must choose one coverage and drop the other

    Why: Under the Medicare Secondary Payer rules, a group health plan of an employer with 20 or more employees is primary for active employees age 65 or older and their covered spouses, and Medicare pays secondary. Choice A would be correct only if the employer had fewer than 20 employees; note that the threshold rises to 100 employees when Medicare entitlement is based on disability rather than age.

    Reference CA A&H objectives III.D (Senior health products)

11. Medicare Part A primarily provides coverage for which of the following?

    • APhysician office visits and outpatient diagnostic tests
    • BInpatient hospital careCorrect
    • COutpatient prescription drugs
    • DRoutine dental and vision care

    Why: Part A is the hospital insurance portion of Medicare: it covers inpatient hospital care, skilled nursing facility care after a qualifying stay, hospice care, and certain home health care. Physician and outpatient services fall under Part B, and outpatient prescription drugs fall under Part D.

    Reference CA A&H objectives III.D (Senior health products)

12. Rosa, age 67, has premium-free Medicare Part A. She now wants coverage for physician services and outpatient care. Which statement about the coverage she needs is TRUE?

    • AIt is provided automatically at no cost to anyone enrolled in Part A
    • BIt is available only through a Medicare Supplement policy
    • CIt requires a 24-month waiting period before benefits begin
    • DIt is voluntary and requires payment of a monthly premiumCorrect

    Why: Part B (medical insurance) covers physician services, outpatient care, and diagnostic tests; it is optional and is financed in part by monthly premiums paid by enrollees. The 24-month wait applies to Medicare eligibility for Social Security disability recipients under age 65, not to Part B enrollment for someone already eligible.

    Reference CA A&H objectives III.D (Senior health products)

Drill the whole domain

• Basic Insurance Concepts and Contract Law (17.3%)
• Senior Health Products (10%)
• The Insurance Marketplace, Licensing and Ethics (9.3%)

Other topics

• California contract law: concealment, representations and warranties
• California licensing, appointments and continuing education
• California free look periods and life insurance replacement
• Covered California and the Affordable Care Act on the exam
• Medicare supplements and California's Medigap rules
• California group health insurance, COBRA and Cal-COBRA
• California's Commissioner, unfair practices and the guarantee association
• Annuities for the California life exam

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