Life Insurance Practice Exam

1. Two candidates compare notes: one scored 72 percent and the other scored 69 percent on the same life insurance licensing exam. Assuming the typical passing threshold, which candidate(s) most likely passed?

• A. Both candidates passed, since each of their scores would clear the typical passing threshold either way
• B. Neither candidate passed, since both of their scores fall short of the typical passing threshold
• C. Only the candidate who scored 69 percent passed, since that score meets the typical passing threshold
• D. Only the candidate who scored 72 percent passed, since that score meets the typical 70 percent threshold

2. When advising a new applicant on the general path to licensure, which pairing of requirements is best supported as commonly applicable?

• A. Completing pre-licensing coursework hours and achieving a typical passing exam score of 70 percent
• B. Posting a surety bond and separately passing a physical medical examination before licensure
• C. Holding an existing securities license and separately completing an unrelated business internship
• D. Paying an annual membership fee and attending an industry convention each year as a member

3. A licensing prep instructor emphasizes that candidates should not underestimate the coursework step. Which statement best reflects why this step matters in many jurisdictions?

• A. Coursework is purely optional in every state and has no bearing on whether an applicant becomes licensed
• B. Coursework replaces the need to ever achieve a passing score on the licensing examination itself
• C. Pre-licensing coursework hours are mandated by many states as part of becoming licensed
• D. Coursework is only required of producers after a license has already been issued to them

4. A candidate for a life insurance license reports that their jurisdiction expects them to earn a specific score on the licensing examination in order to qualify. Based on the standard threshold commonly applied, what is the minimum percentage a candidate is typically required to achieve to pass?

• A. 60 percent, a figure below the standard threshold commonly applied on this examination
• B. 70 percent, the standard threshold commonly applied on the life insurance licensing examination
• C. 65 percent, a figure below the standard threshold commonly applied on this examination
• D. 75 percent, a figure above the standard threshold commonly applied on this examination

5. Before sitting for a life insurance licensing examination, a prospective producer in many states must satisfy an educational prerequisite. Which of the following best describes this requirement?

• A. A four-year college degree in finance, insurance, or a closely related business discipline
• B. Two years of prior full-time employment in sales of any kind, insurance or otherwise
• C. Current membership in good standing in a national producer trade association
• D. Completion of pre-licensing coursework hours mandated by the state before the exam may be scheduled

6. A study guide states that a candidate must reach the standard minimum passing percentage on the licensing exam. If a candidate scores exactly at that standard threshold, what percentage did they achieve?

• A. 50 percent, a threshold well below what most state licensing exams actually require
• B. 80 percent, a threshold higher than what most state licensing exams actually require
• C. 90 percent, a threshold well above what most state licensing exams actually require
• D. 70 percent, the standard minimum passing percentage typically required on the licensing exam

7. A prospective producer asks whether simply signing up for the licensing exam is enough to qualify in many jurisdictions. Which statement most accurately reflects the typical expectation?

• A. In many states, completing pre-licensing coursework hours is also expected in addition to registering for the exam
• B. Registration alone is sufficient in every state, and no coursework is ever expected of an applicant
• C. Only prior work experience in insurance sales is expected of an applicant, not any coursework
• D. A passing exam score becomes entirely optional for any applicant who has completed coursework

8. A policyowner wants a permanent policy that lets them raise or lower premiums and adjust the death benefit within limits, with cash value earning a current interest rate that can never fall below a contractual floor. Which product fits?

• A. Universal life
• B. Variable life
• C. Decreasing term
• D. Term insurance

9. A homeowner wants inexpensive coverage whose death benefit shrinks over time to roughly track a declining mortgage balance. Which product is most commonly used for this purpose?

• A. Whole life insurance, which maintains a level face amount and builds cash value over the insured's life
• B. Universal life insurance, which offers a flexible premium and an adjustable death benefit design
• C. Decreasing term insurance, which reduces its death benefit over time to track a shrinking mortgage balance
• D. Variable life insurance, whose cash value and death benefit depend on separate account performance

10. How is a life insurance product best described as the 'mathematical opposite' of an annuity?

• A. Both protect only against a premature death, differing from each other merely in their premium levels
• B. Life insurance protects against dying too soon, while an annuity liquidates a sum into income and guards against outliving one's assets
• C. An annuity pays its owner a death benefit that is entirely income-tax-free, while life insurance proceeds generally are not
• D. Life insurance investment options are held in separate accounts, while an annuity is never structured that way

11. An annuitant selects the payout option that yields the largest periodic payment. What is the principal trade-off of that choice?

• A. Payments continue afterward to a named joint survivor for as long as that survivor lives
• B. Payments cease entirely at the annuitant's death, leaving nothing further payable to any survivor
• C. Payments are guaranteed for a fixed number of years regardless of whether the annuitant dies sooner
• D. Payments received under this option are treated as entirely free of federal income tax

12. An employee receives a $250,000 death benefit as the named beneficiary of a life policy, taken in a lump sum. How is that lump-sum benefit generally treated for income tax?

• A. Fully taxable as ordinary income in the year the beneficiary actually receives the lump-sum payment
• B. Taxable only on the portion of the lump sum that exceeds the first fifty thousand dollars received
• C. Generally received income-tax-free, since a life insurance death benefit paid by reason of death is excluded
• D. Taxed on a last-in, first-out basis that treats any investment gain as received before the cost basis

13. A policy is overfunded and fails the seven-pay test. What is the tax consequence of this classification?

• A. The policy immediately loses all of its death benefit protection once it is reclassified this way
• B. Premiums paid into the contract become fully deductible on the owner's federal income tax return
• C. The death benefit itself becomes fully taxable as ordinary income to the beneficiary at the insured's death
• D. Loans and withdrawals from the contract are taxed LIFO and may incur a 10 percent penalty before age 59½

14. When must insurable interest exist in a life insurance contract, and who is presumed to hold unlimited insurable interest?

• A. At policy inception only, and a person is presumed to hold unlimited insurable interest in their own life
• B. At the time of loss only, with the beneficiary presumed to hold unlimited insurable interest instead
• C. At both inception and the time of loss, with only a spouse presumed to hold unlimited insurable interest
• D. Only at the time of loss, with the insurer itself presumed to hold unlimited insurable interest

15. An applicant fails to pay a premium by the due date but dies eight days later. Under a standard life policy, why is the death benefit still payable?

• A. The incontestability clause, which is said to force payment of a claim regardless of premium status
• B. The grace period, typically 30 or 31 days, keeps coverage in force after a missed premium due date
• C. The suicide clause, which is said to require payment of any claim occurring in the first two years
• D. Nonforfeiture options, which are said to automatically convert an unpaid policy to paid-up status

16. A life policy has been in force for 30 months when the insurer discovers the insured concealed a material fact on the application. Absent nonpayment of premium, may the insurer contest the policy?

• A. No, the incontestability clause bars the insurer from contesting for misstatement or concealment after two years
• B. Yes, because concealment of a material fact voids a life insurance policy at any time, without limit
• C. Yes, but only during the first five years the policy has been continuously in force
• D. No, because insurable interest is presumed to exist without limit in a person's own life at any time

17. Which type of life insurance requires the producer to hold a FINRA registration in addition to a life license before it can be sold?

• A. Variable life insurance, because it is classified and regulated as a security under federal law
• B. Whole life insurance, which is not classified as a security and requires no such additional registration
• C. Decreasing term insurance, which is not classified as a security and requires no such additional registration
• D. Level term insurance, which is not classified as a security and requires no such additional registration

18. An actuary explains that as an insurer's pool of similarly situated insureds grows larger, the insurer's actual loss experience tends to converge more closely with its predicted, expected loss experience. Which fundamental insurance principle is being described here?

• A. The principle of indemnity, under which a claim payment is limited to restoring the insured's actual financial loss
• B. The law of large numbers, under which predictability improves as the number of independent exposure units increases
• C. Reinsurance, under which one insurer transfers part of its risk exposure to another insurer for a share of the premium
• D. Adverse selection, under which higher-risk applicants seek insurance in disproportionate numbers compared with lower-risk applicants

19. According to commonly cited licensing standards, completing coursework before sitting for the exam is best described as:

• A. A step that is flatly prohibited in every state, so no applicant may ever complete it beforehand
• B. A step that is available only to applicants who already hold an active license in that state
• C. A step that is entirely optional in every state, without any exception anywhere
• D. A step that many states require of applicants before they may sit for the licensing exam

20. Which pairing correctly matches a common licensing requirement with its general description?

• A. Passing score — typically 70 percent, the general benchmark applied on the licensing examination
• B. Passing score — typically 90 percent, a figure well above the general benchmark actually applied
• C. Pre-licensing coursework — described as banned outright in most states, which is not the case
• D. Pre-licensing coursework — described as required only after the exam is passed, which is not the case

21. An applicant claims that no state ever requires education before an insurance licensing exam. How should this statement be evaluated?

• A. Correct, because education truly is never a requirement in any state's licensing framework
• B. Correct, because only the outcome of the examination itself is said to matter, nothing else
• C. Incorrect, because every single state requires it, without any exception whatsoever
• D. Incorrect, because many states mandate pre-licensing coursework hours before an applicant may test

22. An applicant plans to schedule the licensing exam without completing any preparatory coursework. Based on common state practice, what is a likely obstacle?

• A. Many states mandate pre-licensing coursework hours before the exam may even be scheduled
• B. There is never any coursework involved in insurance licensing in any state, so this should not concern her at all
• C. Coursework of this kind applies only when an already-licensed producer later renews an existing license
• D. State law never permits any applicant to schedule the licensing exam under any circumstances whatsoever

23. Which statement about typical insurance licensing requirements is best supported?

• A. A passing score of 40 percent is typically required, and coursework is never involved in licensing at all
• B. There is no passing score of any kind, and coursework is described as universally banned everywhere
• C. A passing score of 95 percent is required in every single state, with no coursework required anywhere
• D. A passing score of 70 percent is typically required, and many states mandate pre-licensing coursework hours

24. An insurer participates in an industry information-sharing arrangement to help detect material misrepresentations during underwriting. Which entity is being described?

• A. A state-run public registry that records the premium amount charged on every issued policy
• B. A federal agency that must individually approve each life insurance policy before it is issued
• C. A consumer credit bureau operated by the applicant's own bank to track loan repayment history
• D. The MIB, a nonprofit database of coded medical impressions shared among member insurers

25. A statutory policy provision bars an insurer from challenging a policy for misstatements or concealment after a set period. Which provision is this, and what is the period?

• A. The grace period provision, which is said to bar a misstatement contest after 30 days in force
• B. The suicide clause, which is said to bar a misstatement contest after five years in force
• C. The incontestability clause, which applies after the policy has been in force for two years
• D. The reinstatement clause, which is said to bar a misstatement contest after ten years in force

26. A regulator is verifying that a life policy honors an applicant's naming of beneficiaries. If the named owner designated an irrevocable beneficiary, what does the law require before that designation can be changed?

• A. Nothing at all is required; the owner may change any beneficiary designation at any time without limitation
• B. Formal approval from the state insurance regulator's office is required before any such change may occur
• C. The consent of the irrevocable beneficiary is required before the designation can be changed
• D. A court order is required in every case before an irrevocable beneficiary designation may ever be changed

27. A beneficiary submits a complete proof of death. The insurer neither acknowledges the claim nor investigates it for several weeks, then offers substantially less than the face amount while suggesting the beneficiary hire a lawyer if she disagrees. Which statutory violation does this pattern establish?

• A. Misrepresentation of policy benefits, because the amount offered understated the policy's stated face amount
• B. Unfair claims settlement practices: failing to acknowledge and investigate promptly and compelling litigation by a lowball offer
• C. Twisting, because the conduct pressured the beneficiary into abandoning her rights under the contract
• D. Breach of the entire contract provision, because in settling for less the insurer effectively rewrote the terms of the policy it issued

28. Before sitting for the licensing exam, an applicant in many states must first satisfy which requirement?

• A. Ten years of prior employment experience within the insurance industry specifically
• B. Possession of a federal securities license issued by a recognized federal regulator
• C. Completion of pre-licensing coursework hours mandated by many states before the exam
• D. Current membership in a national insurance trade union open to producers nationwide

29. A producer wishes to sell variable life insurance to a client. Beyond holding a state life insurance license, what additional qualification does the regulatory framework require, and why?

• A. No additional qualification at all, because variable life is regulated exactly like ordinary whole life
• B. A property and casualty insurance license, because variable life is treated as covering property risk
• C. A FINRA registration, because variable life insurance is classified and regulated as a security
• D. A real estate license, because the contract's separate account is deemed to hold real property assets

30. A producer is arranging the sale of a variable annuity. Which statement about the required registration is correct?

• A. A variable annuity is a security requiring registration, unlike a fixed annuity where the insurer bears the investment risk
• B. A fixed annuity requires securities registration, while a variable annuity is said to require none at all
• C. Neither a fixed annuity nor a variable annuity is described as requiring any registration whatsoever
• D. Both a fixed annuity and a variable annuity are described as requiring securities registration equally

31. During underwriting, an insurer obtains an investigative consumer report on an applicant. Under federal law incorporated into state regulatory practice, what must the insurer do?

• A. Destroy the investigative consumer report within 24 hours of the insurer actually receiving it
• B. Notify the applicant, who has the right to know the nature of the information collected about her
• C. Share the full contents of the report freely with all of the insurer's competing companies
• D. Automatically deny the application solely because any investigative report at all was obtained

32. A regulator reviews an insurer's underwriting outcomes. Which set of classifications reflects a permissible risk-classification result for an applicant?

• A. A gold, silver, or bronze coverage tier only, with no other classification result available
• B. Either approved or left permanently pending, since underwriting has no ability to decline anyone
• C. A public or private classification assigned strictly based on the applicant's reported income level
• D. Preferred, standard, or substandard classification, or an outright decline of the application

33. A required policy provision keeps coverage in force for a limited time after a premium is missed. Which provision is this, and what is its typical duration?

• A. The reinstatement provision, which is said to run for a typical duration of 90 days after lapse
• B. The grace period, which typically lasts 30 or 31 days after the premium due date
• C. The incontestability clause, which is said to run for a typical duration of two years after issue
• D. The free-look period, which is said to run for a typical duration of five days after policy delivery

34. Which statement most accurately reflects how pre-licensing education requirements apply across jurisdictions?

• A. Every state imposes an identical, fixed number of required pre-licensing coursework hours on applicants
• B. Pre-licensing coursework is mandated by many states, though not necessarily required in every single state
• C. No state anywhere requires any pre-licensing coursework at all before the licensing examination
• D. Pre-licensing coursework is required only after an applicant has already passed the licensing exam

35. Before sitting for the licensing examination, what do many states require a candidate to complete?

• A. A minimum of two years of prior industry work experience in an insurance-related occupation
• B. Pre-licensing coursework hours, which many states mandate before the exam may be scheduled
• C. A four-year college degree earned specifically in a finance-related field of study
• D. A federal background investigation conducted by a named federal law enforcement agency

36. Which of the following pairs correctly identifies a typical exam standard and a common pre-exam requirement?

• A. A 90 percent passing score, paired with a mandatory apprenticeship required in every single state
• B. A 70 percent passing score, paired with a claim that no state anywhere imposes an educational prerequisite
• C. A 55 percent passing score, paired with pre-licensing coursework required in only a single state nationwide
• D. A 70 percent passing score, paired with completion of pre-licensing coursework hours mandated by many states

37. A new candidate asks what she must do before she is even permitted to take the exam. Which response is supported by the material?

• A. She must first pass a separate federal ethics test administered by a named federal agency
• B. In many states, she must complete pre-licensing coursework hours before she is permitted to take the exam
• C. She must accumulate five years of prior experience in an insurance-related occupation first
• D. Nothing at all is required of her before the exam in any state under any circumstance

38. Which combination of statements about the licensing process is fully supported by the source material, without adding unstated details?

• A. A passing score of exactly 72 percent is required in every state, and coursework is entirely optional
• B. There is no passing score of any kind, and pre-licensing coursework is universally required everywhere
• C. A passing score of 70 percent is typically required, and many states mandate pre-licensing coursework hours
• D. A passing score of 70 percent is required, and a single fixed number of coursework hours applies nationwide

39. Which nonforfeiture option lets a policyowner take the accumulated cash value in a single lump-sum payment and terminate the coverage?

• A. Reduced paid-up insurance
• B. Extended term insurance
• C. Cash surrender
• D. Waiver of premium

40. A young policyowner wants the ability to increase coverage at future set intervals as their family grows, without having to prove good health each time. Which rider provides this?

• A. The waiver of premium rider, which excuses premiums if the insured becomes totally disabled instead
• B. The accelerated death benefit rider, which advances part of an existing death benefit before death
• C. The return of premium rider, which refunds premiums paid if the insured survives to the end of the term
• D. The guaranteed insurability rider, which lets the insured buy set additional amounts of coverage later

41. An insured stops paying premiums and lets the grace period expire without electing any option. Considering both the grace period and the nonforfeiture provision, which statement is most accurate?

• A. Coverage ends the instant a premium is missed, leaving no grace window and no residual value whatsoever
• B. Coverage stays in force for a grace period of 30 or 31 days, and cash value stays protected by nonforfeiture
• C. The incontestability clause is said to force the insurer to continue the policy free of any further charge
• D. The misstatement of age provision is said to automatically convert the lapsed policy to term coverage

42. A policyowner forgets to pay a premium on the due date but wants to know how long coverage remains in force before the policy lapses. Which provision addresses this window?

• A. The incontestability clause, which is said to restart automatically after every missed premium payment
• B. The reinstatement provision, which is said to extend coverage indefinitely once a premium is missed
• C. The suicide clause, which is said to suspend all coverage for the duration of a nonpayment period
• D. The grace period, which is typically 30 or 31 days after a missed premium due date

43. An insurer discovers a material misstatement on an application three years after the policy took effect. The insured is still living and premiums have been paid on time. What is the insurer's ability to contest the policy?

• A. It may contest the policy at any time it wishes, since misstatements are never protected from challenge
• B. It may contest the policy, but only if the specific misstatement concerned the insured's stated age
• C. It may not contest the policy for misstatement, because the policy has been in force more than two years
• D. It may rescind the policy immediately and is entitled to retain every premium the insured has paid

44. An insured dies by suicide 14 months after the policy was issued. Under the standard suicide clause, what is the insurer obligated to pay?

• A. A refund of the premiums paid, because the death occurred within the first two years the policy was in force
• B. The full face amount, because a standard policy treats suicide the same as any other cause of death
• C. Nothing at all, because a suicide death within the exclusion period voids the contract permanently
• D. The cash value only, reduced by any outstanding policy loans and accrued loan interest

45. At the insured's death, the insurer learns the applicant understated the insured's age at issue. How is the claim handled under the misstatement of age provision?

• A. The claim is denied entirely because the applicant's misstatement is treated as a material misrepresentation
• B. The full face amount is paid and the insurer separately bills the estate for the shortfall in back premiums
• C. The death benefit is adjusted to what the premium paid would have purchased at the insured's correct age
• D. Only a refund of the premiums actually paid is issued, with no death benefit payable at all

46. A whole life policyowner decides to stop paying premiums but wants to keep the same face amount of coverage for as long as the accumulated cash value will sustain it. Which nonforfeiture option fits this goal?

• A. Reduced paid-up insurance
• B. Extended term insurance
• C. Automatic premium loan
• D. Cash surrender

47. An insured becomes totally disabled and can no longer work. Which rider would keep the life policy in force by relieving the insured of the obligation to pay premiums?

• A. Accelerated death benefit rider
• B. Waiver of premium rider
• C. Cost-of-living rider
• D. Guaranteed insurability rider

48. An insured is diagnosed as terminally ill and needs funds while still living. Which rider allows a portion of the death benefit to be advanced before death?

• A. The guaranteed insurability rider, which lets the insured buy additional coverage at set future dates
• B. The waiver of premium rider, which excuses premium payments if the insured becomes totally disabled
• C. The accelerated death benefit rider, which advances part of the death benefit before death occurs
• D. The payor benefit rider, which waives premiums on a juvenile policy if the paying adult dies or is disabled

49. An applicant asks a producer to add a handwritten sentence to the margin of a delivered policy promising that the insurer will never raise the premium. The producer signs beside it. What effect does that notation have?

• A. It binds the insurer, because a producer's signature commits the company to any terms the producer writes on its forms
• B. It has no effect, because only an authorized officer of the insurer may alter the contract
• C. It binds the insurer only if the applicant also initials the notation and returns a copy to the home office
• D. It voids the policy, because an alteration made after issue renders the entire contract unenforceable

50. A policyowner receives her new life policy on the 3rd of the month, reads it that evening, and decides on the 6th that she does not want it. She had paid the initial premium with the application three weeks earlier. What does the free look provision entitle her to?

• A. A refund of the premium reduced by the cost of the coverage the insurer provided since the application date
• B. A refund of the premium reduced by the insurer's underwriting, medical examination, and policy issue expenses to date
• C. Nothing, because the free look period runs from the date the application was signed and has already expired
• D. A full refund of the premium, because the free look period runs from delivery and she returned the policy within it

51. A whole life policyowner travels abroad for several months and misses a premium due date entirely. When she returns she finds the policy still in force but the cash value reduced and an interest charge posted. Which provision produced that outcome?

• A. The automatic premium loan provision, which borrowed the overdue premium from cash value
• B. The extended term nonforfeiture option, which continued the coverage using the accumulated cash value
• C. The reinstatement provision, which automatically restored the lapsed policy when she returned and paid
• D. The waiver of premium rider, which paid the overdue premium on her behalf while she was travelling

52. Eighteen months after a policy lapsed for nonpayment, the former policyowner asks to put the same contract back in force rather than apply for a new one. Which combination of consequences follows a successful reinstatement?

• A. Premiums resume at the current attained age, and a fresh contestable period begins at reinstatement
• B. Premiums resume at the insured's current attained age, and no new contestable period applies to the restored coverage
• C. Premiums resume at the original issue age, and a fresh contestable and suicide period begins
• D. Premiums resume at the original issue age, and the original contestable period simply continues to run uninterrupted

53. A policyowner requests a substantial cash loan against her whole life policy during a period of severe financial market stress. The insurer notifies her that payment will be delayed. Which statement about the insurer's authority is correct?

• A. The insurer may delay indefinitely, since a policy loan is a discretionary accommodation rather than a contractual right
• B. The insurer may delay only where the owner already has an outstanding prior loan against the same contract
• C. The insurer may not delay payment of a policy loan under any circumstances once cash value has accumulated in the contract and is unencumbered
• D. The insurer may defer a cash loan for a limited period stated in the contract, but not a loan requested to pay a premium on that policy

54. The owner of a participating whole life policy wants each annual dividend to buy as much additional permanent coverage as it will purchase, without ever submitting to another medical examination. Which dividend option should she elect?

• A. Reduction of premium, which lowers the amount she owes the insurer on each annual premium notice
• B. Paid-up additions, which buy small single-premium amounts of permanent coverage with no evidence of insurability
• C. Accumulate at interest, leaving each dividend on deposit with the insurer to earn a declared rate
• D. Cash, which she may then use to purchase a supplemental policy through a separate application and new medical exam

55. A participating policyowner in his fifties wants each year's dividend used to add temporary death benefit for that year only, rather than to build permanent coverage or accumulate interest. Which dividend option achieves this?

• A. The reduction of premium option, with the annual savings applied to a supplemental term rider
• B. The accumulate-at-interest option, with the accrued interest added to the death benefit each year
• C. The paid-up additions option, which adds coverage that lapses if the next dividend is smaller
• D. The one-year term option, which buys term insurance covering the following twelve months

56. A prospect complains that the illustration for a participating whole life policy shows growing dividends but the producer will not promise them. What is the correct explanation of what a policy dividend is?

• A. A non-guaranteed return of premium the insurer overcharged, payable when favorable mortality, expense, and investment results permit
• B. A taxable distribution of the insurer's corporate profits, comparable in character to the dividend a corporation pays on its common stock
• C. A guaranteed distribution of the insurer's investment earnings, which the contract obligates the insurer to pay annually
• D. A required rebate of a portion of the premium, which state law compels every insurer to pay to participating policyowners

57. A business owner pledges his life insurance policy to a bank as security for a commercial loan, intending that the bank recover only the outstanding debt if he dies before repaying it. Which form of transfer fits, and what does the bank receive?

• A. A viatical settlement, which transfers ownership of the contract to the bank in exchange for the proceeds advanced on the note
• B. An irrevocable beneficiary designation, giving the bank a permanent claim to the entire proceeds
• C. A collateral assignment, giving the bank a claim limited to the unpaid balance, with any excess going to the beneficiary
• D. An absolute assignment, giving the bank all ownership rights in the policy until the loan is repaid

58. An insured and his primary beneficiary, his wife, are killed in the same automobile accident and the order of their deaths cannot be established. The policy names his adult daughter as contingent beneficiary. Under the common disaster clause, who receives the proceeds?

• A. The insured's estate, because the beneficiary designation fails when both parties die together
• B. The daughter, because the primary beneficiary is presumed to have died first when survival cannot be established
• C. The wife's estate, because a primary beneficiary's interest vests at the moment of the insured's death
• D. The wife's estate and the daughter in equal shares, since neither party's survivorship can be established on these facts

59. A policyowner names her three children as beneficiaries per stirpes. One child dies before the insured, leaving two children of his own. At the insured's death, how are the proceeds distributed?

• A. Entirely to the two surviving children, in equal halves, with the grandchildren of the predeceased child taking nothing
• B. One quarter each to the two surviving children and the two grandchildren of the predeceased child
• C. One third each to the surviving children, with the deceased child's third divided between his two children
• D. One fifth each to the two surviving children and the two grandchildren, with the balance to the estate

60. A widowed father names his eight-year-old son as the sole primary beneficiary of a large life policy and makes no other arrangement. What problem has he created at claim time?

• A. The proceeds become taxable to the minor as ordinary income because no adult beneficiary was named
• B. The insurer must pay the proceeds over to the minor's school district, to be held in trust for his future education
• C. The insurer generally cannot pay a minor directly, so payment waits until a guardian or trustee is appointed
• D. The designation is void, so the proceeds must be paid instead to the insured's estate for probate

61. A beneficiary tells the insurer she needs exactly $2,000 a month to cover her mortgage and will continue that amount for as long as the proceeds and interest last. Which settlement option is she selecting, and what is left open?

• A. The interest only option; the timing of the eventual principal payout is left open
• B. The fixed amount option; the number of payments, and so the duration, is left open
• C. The life income option; the total amount ultimately paid out is left open
• D. The fixed period option; the amount of each payment is left for the insurer to compute

62. An insured with a $250,000 policy and a $250,000 accidental death benefit rider suffers a heart attack while driving, loses control, and is killed in the resulting crash. The medical examiner attributes death to the cardiac event. What is the insurer likely to pay?

• A. $500,000, because the immediate cause of death was the collision rather than the heart attack
• B. $250,000, because death resulted from a natural cause rather than accidental bodily injury
• C. Nothing, because the underlying cardiac condition was a pre-existing illness at issue
• D. $500,000, because a death involving a motor vehicle collision is presumed to be accidental

63. A grandmother purchases and pays for a life policy on her ten-year-old granddaughter and adds a rider protecting the child's coverage if the grandmother herself dies or becomes disabled. Which rider has she added, and whose life does it monitor?

• A. The waiver of premium rider, which is triggered only by the total disability of the insured child herself
• B. The other insured rider, which extends term coverage to the grandmother as the premium payor
• C. The guaranteed insurability rider, which monitors the child's insurability at set option dates
• D. The payor benefit rider, which waives premiums if the premium payor dies or becomes totally disabled

64. A policyowner is worried that the fixed face amount she bought today will be inadequate in twenty years because of rising prices. Which rider directly addresses that concern?

• A. The return of premium rider, which refunds the premiums paid so she can buy more coverage later
• B. The cost of living rider, which periodically raises the death benefit with an inflation index
• C. The accelerated death benefit rider, which advances proceeds to offset rising living costs
• D. The waiver of premium rider, which protects the coverage if inflation makes the premiums unaffordable

65. Two life policies contain military service exclusions. One is a status clause and the other is a results clause. An insured serving overseas dies of a cause entirely unrelated to combat. How do the two clauses respond?

• A. The status clause pays and the results clause denies, because the results clause is the broader exclusion
• B. The results clause pays, because death did not result from war; the status clause denies, because he held military status
• C. Both deny the claim, because the insured was serving in the military overseas at the time that he died, whatever the cause of death
• D. Both pay the full death benefit, because the death was not caused by military action or by war

66. At the time of the insured's death, a whole life policy with a $300,000 face amount carries an outstanding policy loan plus accrued loan interest. How does the insurer settle the claim?

• A. It pays the full face amount, and the estate remains liable to repay the loan separately
• B. It denies the claim, because an unpaid loan constitutes a default under the contract
• C. It pays the full face amount and cancels the loan, because policy loans are forgiven at death
• D. It pays the face amount reduced by the outstanding loan balance and accrued interest

67. An underwriter finds a coded entry in the industry medical information exchange indicating that another member insurer once recorded an impairment for this applicant. What may the underwriter properly do with that entry?

• A. Use it as a signal to investigate further, but not as the sole basis for declining or rating the application
• B. Rate the policy at the level assigned by the reporting insurer, since the coding is standardized across members
• C. Disregard it entirely, since exchanged information may not be considered in any underwriting decision
• D. Decline the application immediately, since a member insurer already identified the impairment

68. An applicant completes an application, pays the initial premium, and receives a conditional receipt. She takes the required paramedical examination nine days later and dies in a fall the following week, before the insurer has acted on the file. Underwriting later establishes she was a standard risk. What is the insurer's obligation?

• A. Nothing, because a conditional receipt binds coverage only after the insurer approves the application
• B. To pay the death benefit, because coverage attached on the date of the examination once she proved insurable as applied for
• C. To pay half the death benefit, because coverage under a conditional receipt is limited until delivery
• D. Nothing beyond a refund of the premium she paid, because the insurer never issued or delivered a policy to her before she died

69. A producer submits an application without collecting the initial premium. Six weeks later the insurer approves the policy and the producer arranges to deliver it. What must the producer obtain at delivery in addition to the first premium?

• A. A signed waiver of the free look period, since coverage does not begin until delivery
• B. A newly completed application, because the original went stale once the policy was issued
• C. A signed statement of continued good health covering the period since the application was taken
• D. A second paramedical examination, because underwriting information expires when a policy is held for delivery

70. While reviewing an application in the applicant's kitchen, a producer notices that the applicant wrote the wrong year of birth. What is the correct way to handle the error before the application is submitted?

• A. The correction is made and the applicant initials it, or a clean application is completed and signed
• B. The producer strikes through the entry and signs beside the change on the applicant's behalf
• C. The producer submits the form as written and notes the correction in the cover memo to underwriting
• D. The producer erases the entry and writes the correct year, since the producer is responsible for the accuracy of the form

71. An insured stated on his application that he had not consulted a physician in the past five years, believing that a routine visit he had forgotten did not count. The insurer discovers the visit during a contestable-period claim investigation. How is his statement classified, and what must the insurer prove to rescind?

• A. As a concealment; the insurer must show that the insured intended to defraud it when he answered the question
• B. As a warranty; the insurer must show the statement was both untrue and intentional
• C. As a representation; the insurer must show the misstatement was material to its underwriting decision
• D. As a warranty; the insurer need only prove the statement was untrue, whether or not it mattered

72. An applicant is scheduled for a cardiac catheterization the week after he signs his application, and he deliberately says nothing about it because the application does not ask about scheduled procedures. Which term describes his conduct?

• A. Estoppel, because the insurer is barred from denying a claim on facts it did not ask about
• B. Waiver, because the insurer gave up its right to the information by omitting the question
• C. Innocent misrepresentation, since he answered truthfully every question that the application actually asked him
• D. Concealment, the intentional withholding of a material fact the insurer would want in assessing the risk

73. A producer submits an application on which two health questions were left completely blank because the applicant was in a hurry. What is the likely consequence for the case?

• A. Underwriting returns the application for completion, because issuing on an incomplete form waives the missing information
• B. The application is void, and the applicant must wait out a stated waiting period before he is permitted to reapply to this insurer
• C. The insurer must treat the unanswered questions as answered in the negative and issue the policy
• D. The insurer may issue the policy and later rescind it during the contestable period for the omitted subjects

74. A commercial lender wants to insure the life of a borrower who owes the bank a substantial sum on an unsecured note. To what extent does the lender have an insurable interest in the borrower's life?

• A. To the extent of the debt, so the coverage may reasonably reflect the outstanding obligation
• B. None, unless the borrower first assigns an existing policy to the lender as collateral
• C. Unlimited, because a creditor may insure a debtor for any amount it chooses
• D. None, because insurable interest in another person's life requires a family or marital relationship

75. An investor group approaches healthy retirees in a community, offers each of them a cash payment to apply for large policies on their own lives, funds the premiums, and takes an assignment of the contracts shortly after issue. How is this arrangement treated?

• A. A prohibited stranger-originated life insurance scheme, because the investors lacked insurable interest at inception
• B. A permissible third-party ownership arrangement, because policy ownership may always be transferred by assignment
• C. A viatical settlement, because the arrangement transfers the death benefit on each life to a purchaser for cash
• D. A permissible life settlement, because each of the insureds applied for the policy on his or her own life and then sold it

76. An applicant is declined for life coverage after the insurer reviews a report supplied by a consumer reporting agency. Which right does federal law give her at that point?

• A. The right to have the insurer reconsider the application without any reference to the report
• B. The right to compel the consumer reporting agency to delete any item in the file that she disputes as inaccurate
• C. The right to notice that the decision was based on the report and the name of the agency that furnished it
• D. The right to a copy of the insurer's internal underwriting guidelines used to evaluate the report

77. An applicant applies for a standard-rate policy. Underwriting develops an impairment, and the insurer issues the contract with a table rating and a premium 40 percent higher than quoted. In contract law terms, what has the insurer done and what must happen next?

• A. It has exercised a reserved right to reprice, so the applicant must pay the higher premium or forfeit the contract
• B. It has issued a binding policy subject to rescission if the applicant objects within the free look
• C. It has accepted the applicant's offer, so coverage is already in force at the higher premium
• D. It has made a counteroffer, which the applicant accepts by paying the modified premium and accepting delivery

78. A dispute arises over an ambiguous phrase in a life policy. The policyowner had no opportunity to negotiate any of its wording. How will a court most likely resolve the ambiguity, and on what principle?

• A. In favor of the policyowner, because an insurance policy is a contract of adhesion drafted entirely by the insurer
• B. In favor of the insurer, because insurance contracts are aleatory and the insurer bears the greater risk
• C. In favor of the insurer, because the policyowner accepted the contract as written when he paid the premium
• D. In favor of neither party, because an ambiguous term is simply struck from the contract as unenforceable surplusage

79. An insured paid $3,400 in premiums over two years and his beneficiary collected $500,000 at his death, while another insured paid premiums for forty years and his beneficiary collected the same amount. Which two characteristics of an insurance contract does this comparison illustrate?

• A. That it is a warranty contract and an executed contract, because performance was completed when it was issued
• B. That it is bilateral and conditional, because both parties exchange enforceable promises subject to conditions
• C. That it is a personal contract and a contract of indemnity, restoring the insured's exact prior financial position
• D. That it is aleatory and unilateral, because the values exchanged depend on chance and only the insurer is bound

80. Three years into the accumulation phase of a deferred annuity, the owner withdraws funds beyond the contract's penalty-free withdrawal amount. Besides any IRS early-withdrawal tax that may apply, what will the insurer most likely also assess on this withdrawal?

• A. A contractual surrender charge that declines over the early policy years and applies to withdrawals taken during that period
• B. No additional charge at all, because deferred annuity contracts never impose any withdrawal penalties on the owner
• C. A mortality and expense risk charge that the contract assesses only once, at the moment payments begin under annuitization
• D. A market value adjustment that the contract limits solely to withdrawals from variable subaccounts tied to equity performance

81. A client compares two 30-year level term policies with identical face amounts. The return-of-premium version costs substantially more each year. What does that additional premium actually purchase?

• A. A refund of the premiums paid if the insured is still living when the term expires
• B. A guaranteed right to convert to permanent coverage at the original issue age
• C. A death benefit that grows each year by the amount of premium paid in that policy year
• D. Cash value that the owner may borrow against at any point during the term

82. A 45-year-old surgeon wants permanent coverage that stays in force for her entire life, but she wants every premium paid before she retires at 65. Compared with an ordinary whole life policy for the same face amount, what should she expect from a life paid-up at 65 contract?

• A. A higher annual premium, with cash value accumulating more rapidly and coverage continuing for life
• B. A higher annual premium, with no cash value accruing until the policy becomes paid up
• C. The same annual premium, with coverage ending on her 65th birthday
• D. A lower annual premium, because the contract matures at 65 rather than at the normal whole life maturity age

83. A client purchases annually renewable term coverage and is surprised when the second-year premium notice is larger than the first. Which statement correctly explains the renewal feature of this contract?

• A. The premium is level for the full term, so the increase must be a billing error
• B. Coverage renews each year only after the insured submits a satisfactory medical examination
• C. The death benefit is automatically increased each year, and it is that added coverage that drives the higher premium notice
• D. Coverage renews each year without evidence of insurability, and the premium rises with the insured's attained age

84. A 40-year-old exercises the conversion privilege on a term policy issued when he was 30 and elects the original-age conversion rather than the attained-age conversion. What is the immediate consequence of that election?

• A. The permanent premium is based on age 40, and no back payment is required
• B. The face amount must be reduced proportionally to offset the lower premium rate
• C. The permanent premium is based on age 30, and he must pay the difference in premiums, generally with interest
• D. The insurer requires a new medical examination, because changing the premium basis changes his underwriting risk class

85. A universal life policyowner elects the level death benefit option rather than the increasing death benefit option. As the policy's cash value grows over the years, what happens to the insurer's net amount at risk?

• A. It decreases, because the stated death benefit stays level while the cash value inside it grows
• B. It remains constant, because the monthly mortality charge is locked in at issue and cannot be redetermined
• C. It increases, because the total death benefit rises along with the cash value
• D. It decreases, but only after the contract's surrender charge period has expired

86. A universal life policyowner has skipped premium payments for two years, relying on the contract's flexible premium feature. The insurer now notifies her that the policy is in danger of lapsing. What is the most likely explanation?

• A. Skipping the scheduled premiums voids the policy's incontestability provision, which in turn terminates the coverage
• B. The policy forfeited its guaranteed minimum interest rate when the owner stopped paying premiums
• C. Flexible premium contracts terminate automatically after 24 consecutive months without a payment
• D. The accumulated cash value is no longer large enough to cover the monthly mortality and expense deductions

87. The cash value of a variable universal life contract is held in the insurer's separate account, while the cash value of a traditional whole life contract is backed by the general account. What is the practical consequence of that difference for the owner of the variable contract?

• A. The insurer guarantees a minimum cash value but does not guarantee any death benefit
• B. The owner bears the investment risk, but the cash value is still guaranteed never to decline
• C. The owner bears the investment risk, and the cash value carries no guaranteed minimum
• D. General account creditors of the insurer have first claim on the separate account assets

88. Two clients each own a contract whose cash value is invested in subaccounts. One owns variable whole life; the other owns variable universal life. Which statement correctly distinguishes the two products?

• A. Variable whole life may be sold on a life license alone, while variable universal life additionally requires a securities registration
• B. Variable whole life carries flexible premiums and an adjustable death benefit, while variable universal life carries a fixed, level premium
• C. Variable whole life has a fixed premium and a guaranteed minimum death benefit; variable universal life has flexible premiums and no such guarantee
• D. Only variable universal life uses a separate account, because variable whole life invests its cash value in the insurer's general account rather than in subaccounts

89. A client funds a new whole life contract with one lump-sum payment and assumes no further premium obligation of any kind. Under federal tax rules, how is that contract classified from the moment it is issued?

• A. As an ordinary whole life contract, because a single premium is simply a permitted payment mode
• B. As a modified endowment contract, but only once the owner takes a loan or withdrawal
• C. As a term contract, because no continuing premium obligation sustains the coverage beyond the first year
• D. As a modified endowment contract, because a single-premium policy cannot satisfy the seven-pay test

90. A married couple who together own a small manufacturing company purchase a single contract that pays one death benefit when the first of them dies. Which product have they bought, and what is its characteristic use?

• A. Joint life, used to fund a buy-sell obligation or replace income at the first death
• B. A joint and survivor annuity, used to guarantee lifetime income to both spouses
• C. Survivorship life, used to create liquidity for estate taxes owed after the second death
• D. A family income policy, used to provide a monthly income to surviving children

91. An estate planner recommends a second-to-die policy for a wealthy married couple instead of two separate individual policies. What is the principal reason that design fits their objective?

• A. It keeps the proceeds out of both spouses' gross estates regardless of who owns the contract at the second death
• B. It pays two separate death benefits, one at each spouse's death, so it doubles the liquidity available to settle the couple's estate
• C. It insures only the healthier of the two spouses, which materially lowers the underwriting cost of the coverage
• D. Proceeds arrive at the second death, when settlement costs fall due, and the premium is lower than for two individual policies

92. A 68-year-old retiree hands an insurer a lump sum from a maturing certificate of deposit and wants income payments to begin within the next month. Which annuity structure fits, and which funding method is incompatible with it?

• A. A deferred annuity funded by flexible premiums; single premium funding would be incompatible with deferral
• B. An immediate annuity funded by a single premium; flexible premium funding is incompatible with it
• C. A deferred annuity funded by a single premium; flexible premium funding would be incompatible
• D. An immediate annuity funded by flexible premiums; single premium funding is incompatible

93. A retired couple want annuity income that continues for as long as either of them is alive, with no possibility of outliving the payments. Which payout structure meets that objective, and what does it cost them?

• A. Joint and survivor life income; the periodic payment is smaller than a single-life payout on either annuitant
• B. Installment refund; payments continue to the survivor only until the original principal has been recovered
• C. Life with a 20-year period certain; the payments would stop twenty years after the first annuitant dies, leaving the survivor unpaid
• D. Joint life income; the periodic payment is larger because two lives share the mortality risk

94. During the pay-in phase of a variable annuity, the owner's contributions buy accumulation units in the chosen subaccounts. What happens to those units when the contract is annuitized?

• A. They continue to be purchased each month, and each payment equals the value of the accumulation units redeemed that month
• B. They are converted into a fixed dollar payment that is then guaranteed for the annuitant's lifetime
• C. They are converted into a fixed number of annuity units, and each payment varies with the value of those units
• D. They are surrendered for cash, and the insurer issues a separate fixed annuity contract with the proceeds

95. A conservative client selects a fixed annuity specifically because the insurer guarantees the dollar amount of each payment for life. Which risk does that guarantee leave entirely unaddressed?

• A. The risk that the insurer credits less than the contractually guaranteed minimum interest rate
• B. The risk that inflation erodes the purchasing power of a level payment across a long retirement
• C. The risk that the annuitant lives long enough to exhaust the accumulated principal
• D. The risk that one of the separate account subaccounts declines sharply during a prolonged market downturn

96. An insurer markets a permanent contract that carries a fixed death benefit and a scheduled premium, credits the cash value at a current rate, and reserves the right to redetermine the premium based on its own mortality and expense experience. Which product is being described?

• A. Interest-sensitive whole life, sometimes called current assumption whole life
• B. Universal life, which instead gives the owner discretion over the premium amount and death benefit
• C. Variable whole life, which instead ties cash value performance to subaccounts chosen by the owner
• D. Indexed universal life, which instead credits interest linked to an external index subject to a cap and floor

97. In the twelfth year of a 20-year level term contract, the policyowner telephones the insurer to ask what his accumulated cash surrender value is. How should the producer respond?

• A. Cash value is available only on a policy carrying a return-of-premium rider, which pays it out annually
• B. Cash value equals the policy reserve less the applicable surrender charge
• C. The contract has no cash value; term insurance provides pure death protection for the stated period
• D. Cash value becomes available after the tenth policy year under the nonforfeiture provision

98. A whole life policyowner who is nearing the contract's stated maturity date asks his producer what will happen if he is still living on that date. What does a standard whole life contract provide?

• A. The contract converts automatically to extended term insurance for the remaining face amount
• B. The insurer endows the contract and pays the owner the cash value, which by then equals the face amount
• C. The death benefit is reduced to the accumulated cash value and coverage continues indefinitely
• D. Coverage terminates and the premiums paid over the years are refunded to the owner without any credited interest

99. A 65-year-old annuitant wants income for life but worries that if she dies shortly after payments begin the insurer will keep the unpaid balance of her deposit. She elects a life income option with a twenty-year period certain. How does that election differ from a straight life income option?

• A. The periodic payment is unchanged, and her beneficiary receives a lump sum refunding the unrecovered principal
• B. The periodic payment is smaller, and any payments remaining in the guarantee period at her death go to her beneficiary
• C. The periodic payment is larger, because the guarantee period shortens the insurer's expected payout obligation
• D. The payments stop at the end of the twenty-year certain period, whether or not she is still living on the date it expires

100. A 78-year-old policyowner no longer needs her $500,000 universal life policy and is offered $140,000 for it by a licensed settlement provider. Her cash surrender value is $62,000. What best describes what she is being offered and what happens after the sale?

• A. A life settlement, in which the provider becomes owner and beneficiary, pays the ongoing premiums, and collects the death benefit
• B. An accelerated death benefit, which advances part of the face amount and reduces what her beneficiary later receives
• C. A viatical settlement, which is available only because she is over 65, with the insurer taking over premium payments
• D. A collateral assignment, under which the provider is repaid the $140,000 it advanced and the balance goes to her named beneficiary