The Ultimate Life Insurance Practice Test: Assess Your Knowledge!

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Questions: 53 | Attempts: 22,696 | Updated: Apr 10, 2024

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The Ultimate Life Insurance Practice Test: Assess Your Knowledge! - Quiz

Are you ready to embark on a journey through the complexities and nuances of life insurance? Whether you're a seasoned professional looking to sharpen your skills or someone taking their first steps into the world of life insurance, our "Ultimate Life Insurance Practice Test" is here to assess and enhance your knowledge!

Life insurance is a critical financial tool that provides peace of mind and financial security to individuals and their loved ones. Understanding its intricacies is essential, and this quiz is your opportunity to gauge your expertise.

In this comprehensive practice test, you'll encounter a wide range of questions covering Read moretopics such as policy types, premium calculations, beneficiary designations, and the legal aspects of life insurance. Whether you're studying for an upcoming certification exam or simply want to ensure you have a solid grasp of the fundamentals, this quiz has got you covered.

Do you know the ins and outs of underwriting and policy provisions? This quiz will challenge your knowledge and boost your confidence. Join us in exploring the world of life insurance, one question at a time. Take the "Ultimate Life Insurance Practice Test" now and see how well you fare. Get ready to become a life insurance expert!

Questions and Answers

1.

Every licensee must indicate on which of the following documents his or her license number.
- A.
  
  Print advertisements
- B.
  
  Business cards
- C.
  
  Written price quotations
- D.
  
  All the above
Correct Answer
D. All the above

Explanation
Every licensee must indicate their license number on print advertisements, business cards, and written price quotations. This is important for transparency and ensuring that customers and clients can easily verify the licensee's credentials. Including the license number on these documents helps to establish trust and credibility in the licensee's professional services. Therefore, the correct answer is "all the above."

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2.

When any change in residence address occurs, every licensee and every applicant for a license must notify the Commissioner...
- A.
  
  Within 6 months after the move has taken place
- B.
  
  Within 6 months before the license is to expire
- C.
  
  30 days before submitting a continuing education certificate
- D.
  
  Immediately
Correct Answer
D. Immediately

Explanation
When any change in residence address occurs, every licensee and every applicant for a license must notify the Commissioner immediately. This means that as soon as the change in address takes place, it is the responsibility of the licensee or applicant to inform the Commissioner without any delay. This is important in order to ensure that the Commissioner has up-to-date information and can maintain accurate records of all licensees and applicants.

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1
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3.

An agent makes a misleading comparison of a policy he is selling in order to convince a prospect to lapse an old insurance policy. What is this called?
- A.
  
  Intimidation
- B.
  
  Rebating
- C.
  
  Boycotting
- D.
  
  Twisting
Correct Answer
D. Twisting

Explanation
Twisting refers to the unethical practice of an insurance agent making a misleading comparison of a policy they are selling in order to persuade a prospect to cancel or lapse their existing insurance policy. This deceptive tactic is aimed at convincing the prospect to switch to the agent's policy without fully understanding the potential negative consequences or benefits of the new policy. Twisting is considered unethical and can lead to serious financial harm for the policyholder.

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4.

Which of the following cannot legally be used when determining premium rates for life insurance?
- A.
  
  Gender
- B.
  
  Age
- C.
  
  Nationality
- D.
  
  All the above may not be used
Correct Answer
C. Nationality

Explanation
Nationality cannot legally be sued when determining premium rates for life insurance because it is considered discriminatory to base insurance rates on a person's nationality. Insurance companies are prohibited from using nationality as a factor in determining premiums in order to promote fairness and prevent discrimination based on a person's country of origin or citizenship. Gender and age, on the other hand, can be used as factors in determining premium rates, although some countries have implemented regulations to limit the use of these factors to prevent gender or age discrimination.

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5.

Generally, it is unfair to discriminate against any one class of individuals in the business of insurance. However, the code does permit the charging of a higher premium if such premiums can be supported by mortality tables segregated by sex (gender).
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
The explanation for the given correct answer is that while it is generally unfair to discriminate against any one class of individuals in the business of insurance, the code does allow for the charging of higher premiums if they can be justified by mortality tables segregated by sex or gender. This means that if there is statistical evidence to show that one gender has a higher mortality rate than the other, insurance companies can charge higher premiums for that gender. This is seen as a fair and objective way to determine premiums based on risk factors.

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2
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6.

Which of the following is not a legal activity in the state of California?
- A.
  
  Participating in a plan to offer free insurance if a person buys some form of service
- B.
  
  Disregarding age in the determination of insurance rates
- C.
  
  Refusing to apply the practice of twisting in sales
- D.
  
  All of the above are legal in the state of California
Correct Answer
A. Participating in a plan to offer free insurance if a person buys some form of service

Explanation
Participating in a plan to offer free insurance if a person buys some form of service is not a legal activity in this state. This means that it is illegal to offer free insurance as an incentive for purchasing a service. The other options mentioned in the question, disregarding age in the determination of insurance rates and refusing to apply the practice of twisting in sales, are legal activities in the state of California.

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1
7.

Employees that have group life policies covering them are required to be issued a/an...
- A.
  
  Estimate of employers' premiums
- B.
  
  Certificate of Insurance
- C.
  
  Master policy
- D.
  
  Monthly premium notification on a non-participating plan
Correct Answer
B. Certificate of Insurance

Explanation
Employees who have group life policies covering them are required to be issued a certificate of insurance. This document serves as proof of coverage and provides important information such as the policy number, coverage amount, and beneficiary details. It is typically given to the employee as evidence of their participation in the group life insurance plan.

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8.

Jerry is using a new time management technique in his insurance sales presentation. In order to cut the amount of time he spends at each appointment, he no longer answers questions when they are first asked. Instead, he answers them only if they are asked twice. He feels this will allow him to get to his next meeting quicker. Most insurance professionals would consider this:
- A.
  
  An unethical practice
- B.
  
  A clever and ethical practice
Correct Answer
A. An unethical practice

Explanation
Answering questions only if they are asked twice can be considered an unethical practice in the insurance sales industry. Insurance professionals are expected to provide accurate and complete information to their clients in order to help them make informed decisions. By intentionally withholding information until it is asked for multiple times, Jerry is not acting in the best interest of his clients and is potentially misleading them. This practice goes against the principles of transparency and trust that are essential in the insurance industry.

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2
3
9.

In the life insurance planning process, the "blackout period" is considered:
- A.
  
  The period of time after a life insurance application is written and the date the coverage takes effect.
- B.
  
  The period of time when there is not enough income available as required by the insured's beneficiaries.
- C.
  
  The period of time when a surviving spouse does not receive any social security benefits
- D.
  
  None of the above
Correct Answer
C. The period of time when a surviving spouse does not receive any social security benefits

Explanation
The term "blackout period" refers to a specific period of time when a surviving spouse does not receive any social security benefits. This period can occur after the death of a spouse and before the surviving spouse becomes eligible for their own social security benefits. During this time, the surviving spouse may face financial challenges as they do not have access to the social security benefits they were receiving through their deceased spouse.

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10.

All of the following are reasons for an individual to purchase personal life insurance, except:
- A.
  
  To have funds that can supplement social security at retirement.
- B.
  
  To cover a buy/sell agreement.
- C.
  
  For the creation of an immediate estate.
- D.
  
  To have cash available for emergencies.
Correct Answer
B. To cover a buy/sell agreement.

Explanation
Personal life insurance is typically purchased to provide financial protection to an individual's loved ones in the event of their death. It can also be used to create an immediate estate or have cash available for emergencies. However, covering a buy/sell agreement is not a reason for an individual to purchase personal life insurance. Buy/sell agreements are typically used by businesses to ensure a smooth transfer of ownership in the event of an owner's death or departure. This would typically require business life insurance rather than personal life insurance.

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11
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11.

Why would a business use a key person life insurance policy?
- A.
  
  To provide the key employee's surviving family members with funds to live on after the death of the employee
- B.
  
  To help the employee's spouse supplement her social security benefits
- C.
  
  To better allow the employee qualify for a bank loan
- D.
  
  To protect the company from the financial consequence of the death of a vice president
Correct Answer
D. To protect the company from the financial consequence of the death of a vice president

Explanation
A business would use a key person's life insurance policy to protect the company from the financial consequences of the death of a vice president. This type of insurance policy provides the company with funds to cover any financial losses or expenses that may arise due to the sudden death of a key employee. By having this policy in place, the company can ensure that it can continue its operations smoothly without facing any financial hardships or disruptions. It also helps to mitigate the risks associated with the loss of a key employee and provides financial stability to the company in such a situation.

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12.

Identify the statement that is true about contributory group life insurance.
- A.
  
  The employer will make a cash contribution to the estate of a deceased employee.
- B.
  
  The employer will contribute the full amount of the premium.
- C.
  
  The employee will contribute to the premium payments.
- D.
  
  None of the above
Correct Answer
C. The employee will contribute to the premium payments.

Explanation
Contributory group life insurance is a type of insurance where the employee contributes to the premium payments. In this type of insurance, the employer and the employee both contribute towards the cost of the insurance coverage. This means that the employee will have a portion of their salary deducted to pay for the insurance premiums. The employer may also contribute to the premium payments, but it is not the sole responsibility of the employer. Therefore, the statement "the employee will contribute to the premium payments" is true about contributory group life insurance.

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13.

Select the correct statement about the social security system:
- A.
  
  It is, for the most part, a voluntary program.
- B.
  
  It is only meant to be a supplement to an individual's major income; it only supplies a minimum floor of income.
- C.
  
  The system is completely and fully funded.
- D.
  
  The amount each person gets out is nearly exactly what they put in.
Correct Answer
B. It is only meant to be a supplement to an individual's major income; it only supplies a minimum floor of income.

Explanation
The correct answer suggests that the social security system is designed to provide a minimum level of income to individuals and is intended to supplement their main source of income. It implies that the system is not meant to fully fund an individual's financial needs but rather acts as a safety net to ensure a minimum level of income.

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14.

Which of the following is true regarding the government's social insurance program known as Social Security?
- A.
  
  The majority of workers in the U.S. must pay into the program.
- B.
  
  The contributions paid closely match the benefits received.
- C.
  
  Participants sign a contractual agreement with the insurer.
- D.
  
  Both A and B above are true
Correct Answer
A. The majority of workers in the U.S. must pay into the program.

Explanation
The correct answer is that the majority of workers in the U.S. must pay into the program. This means that a large percentage of individuals who are employed in the U.S. are required to contribute a portion of their income towards the Social Security program. This contribution is usually deducted from their wages or salary. It is a mandatory requirement for most workers, and failure to pay into the program can result in penalties or legal consequences.

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15.

Choose the payments from an insurance policy that are not subject to federal income taxes:
- A.
  
  Any part of the death benefit paid as the result of choosing the "life income" settlement option
- B.
  
  The death benefit paid to a beneficiary in a lump sum
- C.
  
  Any cash value received upon the surrender of a life insurance policy
- D.
  
  Non of the above
Correct Answer
B. The death benefit paid to a beneficiary in a lump sum

Explanation
The death benefit paid to a beneficiary in a lump sum is not subject to federal income taxes because it is considered a tax-free distribution. This means that the beneficiary does not have to report the lump sum payment as income on their federal tax return. Instead, the death benefit is generally received by the beneficiary as a tax-free transfer of wealth.

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16.

Which of the following is false about dividends paid from life insurance policies? A dividend is:
- A.
  
  Treated as a return of excess premium paid by the owner and is therefore not taxable
- B.
  
  If interest is earned on dividends and paid to the policy owner, it is considered taxable
- C.
  
  Not guaranteed to be paid to the policy owner
Correct Answer
A. Treated as a return of excess premium paid by the owner and is therefore not taxable

Explanation
Dividends paid from life insurance policies are not treated as a return of excess premium paid by the owner and are therefore not taxable. Dividends are considered a return of surplus earnings by the insurance company and are typically not subject to income tax. The other statements are true - if interest is earned on dividends and paid to the policy owner, it is considered taxable, and dividends are not guaranteed to be paid to the policy owner.

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1
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17.

Which of these statements with regard to the tax treatment of life insurance is true?
- A.
  
  Death benefits are generally exempt from taxation
- B.
  
  Individual policy premium are tax deductible
- C.
  
  Policy premiums that provide benefits to employees are not tax deductible
- D.
  
  All of the above
Correct Answer
A. Death benefits are generally exempt from taxation

Explanation
Dividends paid from life insurance policies are not treated as a return of excess premium paid by the owner and are, therefore, not taxable. Dividends are considered a return of surplus earnings by the insurance company and are typically not subject to income tax. The other statements are true - if interest is earned on dividends and paid to the policy owner, it is considered taxable, and dividends are not guaranteed to be paid to the policy owner.

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18.

Which of the following is false regarding the taxation of life insurance?
- A.
  
  Annuity death benefits are totally exempt from taxation.
- B.
  
  Businesses that buy group term life insurance for their employees can generally deduct the premiums because they are considered a business expense.
- C.
  
  Individuals making premium payments on life insurance can not deduct those premiums.
- D.
  
  None of the above are false.
Correct Answer
A. Annuity death benefits are totally exempt from taxation.

Explanation
Annuity death benefits are generally taxable to the extent that they exceed the annuity's investment in the contract. Therefore, this statement is false.

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19.

Patrick has been diligent in investing money for his retirement. He has managed to put $100,000 of after-tax money into a tax-deferred annuity. Now, he is ready to take it out, and the insurance company that issued the annuity says his guaranteed payment is $8,000 a year for the remainder of his life. This means he can expect a total amount of $200,000 back over his life. How much of each year's annuity payment is taxable?
- A.
  
  $8,000
- B.
  
  $4,000
- C.
  
  $2,000
- D.
  
  @0
Correct Answer
B. $4,000

Explanation
Each year's annuity payment of $8,000 is not fully taxable. The taxable portion of the annuity payment depends on the portion of the annuity that represents earnings and gains, as opposed to the original after-tax investment. Since Patrick invested $100,000 and expects a total amount of $200,000 back over his life, the difference of $100,000 represents the portion of the annuity payment that is considered a return of his original investment and is not taxable. Therefore, the taxable portion of each year's annuity payment would be $8,000 - $4,000 = $4,000.

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2
20.

When applying for insurance, there is usually the owner of the contract, the insured, and the applicant. They may be: 1. Three different individuals 2. The same person
- A.
  
  1 only
- B.
  
  2 only
- C.
  
  Both 1 and 2
- D.
  
  Neither of the above
Correct Answer
C. Both 1 and 2

Explanation
In the context of insurance, the owner of the contract, the insured, and the applicant can be either three different individuals or the same person. This means that it is possible for the owner of the contract, the insured, and the applicant to be the same individual. It is also possible for these roles to be fulfilled by three different individuals. Therefore, both options 1 and 2 are correct.

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21.

Insurance companies have several departments handling various responsibilities in the issuance of policies. Which department is involved with the selection of risks?
- A.
  
  The sales unit
- B.
  
  The claims unit
- C.
  
  The underwriting unit
- D.
  
  The actuarial unit
Correct Answer
C. The underwriting unit

Explanation
The underwriting unit is responsible for evaluating and selecting risks for insurance policies. They assess the potential risks associated with an individual or entity seeking insurance coverage and determine whether or not to provide coverage based on their analysis. This department plays a crucial role in ensuring that the insurance company only takes on risks that are manageable and align with their business objectives.

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2
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22.

Bill holds two jobs. If Bill were to apply for an insurance policy and the insurer reviews the risk exposure based on his occupation, which of the following would the insurer most likely use to classify him? The job:
- A.
  
  Which would constitute the highest premium
- B.
  
  That Bill has worked at the longest
- C.
  
  That represents the highest hazard
- D.
  
  That Bill devotes the most time to every week
Correct Answer
C. That represents the highest hazard

Explanation
The insurer would most likely use the occupation that represents the highest hazard to classify Bill. This is because the insurer wants to assess the risk exposure associated with Bill's jobs, and occupations with higher hazards are generally considered to have higher risk. By classifying Bill based on the occupation with the highest hazard, the insurer can determine the appropriate premium for his insurance policy.

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23.

Which of the following supports the Medical Information Bureau?
- A.
  
  Insurance companies
- B.
  
  The Department of Insurance
- C.
  
  Insurance agents
- D.
  
  None of the above
Correct Answer
A. Insurance companies

Explanation
The Medical Information Bureau is supported by insurance companies. This is because the Medical Information Bureau is a centralized database that collects and stores medical information on individuals, which is then used by insurance companies to assess risk and make underwriting decisions. The database helps insurance companies to access and share important medical information about applicants, which allows them to make more informed decisions regarding policy approvals and pricing. Therefore, it is the insurance companies that support and utilize the services of the Medical Information Bureau.

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24.

Select the incorrect statement from the choices below concerning insurance applications:
- A.
  
  Before the insurer can issue the policy, the beneficiary must acknowledge any changes by providing her/her original initial.
- B.
  
  Applications become a part of the contract when attached.
- C.
  
  The statements made on the application are viewed as representations (statements made to the best of the applicant's knowledge)
- D.
  
  The name of the insured must appear somewhere on the application.
Correct Answer
A. Before the insurer can issue the policy, the beneficiary must acknowledge any changes by providing her/her original initial.
25.

From the following, identify what constitutes the "entire contract" in a life insurance policy. The policy:
- A.
  
  And any oral statements along with the application
- B.
  
  And a copy of application when attached
- C.
  
  And a brochure on the insurer including code-approved financial information
- D.
  
  But not the application
Correct Answer
B. And a copy of application when attached

Explanation
The "entire contract" in a life insurance policy includes the policy itself, any oral statements made during the application process, a copy of the application when attached, and a brochure on the insurer including code-approved financial information. However, it does not include the application itself.

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26.

Fran is comparing life insurance available through her employer and an independent life-only agent. Her employer provides automatic coverage and requires ............ medical information than the life-only agent?
- A.
  
  More
- B.
  
  Less
- C.
  
  Neither A nor B, the medical information required would be the same
Correct Answer
B. Less

Explanation
The correct answer is "less". Fran is comparing life insurance available through her employer and an independent life-only agent. Her employer provides automatic coverage, which means that she does not need to provide as much medical information compared to the life-only agent. Therefore, the medical information required would be less in the case of her employer's life insurance.

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27.

Which of the following is not an acceptable risk to the underwriting department of an insurance company?
- A.
  
  Sub-standard
- B.
  
  Preferred
- C.
  
  Standard
- D.
  
  All are acceptable risks
Correct Answer
D. All are acceptable risks

Explanation
All types of risks, including sub-standard, preferred, and standard, are acceptable to the underwriting department of an insurance company. The underwriting department assesses and evaluates risks to determine the premium rates and coverage for potential policyholders. While sub-standard risks may have higher chances of claims, preferred and standard risks are considered more favorable. However, the underwriting department is equipped to handle and manage all types of risks, ensuring that appropriate premiums and coverage are provided to policyholders.

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28.

All of the following are used in determining life insurance rates, except:
- A.
  
  Investment and interest return
- B.
  
  Insurance company expenses
- C.
  
  Mortality expense
- D.
  
  Policy reserves
Correct Answer
D. Policy reserves

Explanation
Policy reserves are not used in determining life insurance rates. Policy reserves refer to the funds that an insurance company sets aside to cover future claims and obligations to policyholders. These reserves are not directly related to the calculation of life insurance rates, which are typically based on factors such as the insured individual's age, health, lifestyle, and the amount of coverage desired. Therefore, policy reserves are not considered in determining life insurance rates.

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9
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29.

If the owner of a life insurance policy elects to pay an annual premium, she will:
- A.
  
  Find her premiums the same as compared to all other payment methods
- B.
  
  Pay more as compared to paying premiums every 6 months
- C.
  
  Pay less as compared to paying premium every 6 months
- D.
  
  Pay a reduced amount if she pays earlier in the year, rather than at the end of the term of coverage, as is customary
Correct Answer
C. Pay less as compared to paying premium every 6 months

Explanation
If the owner of a life insurance policy elects to pay an annual premium, she will pay less as compared to paying premiums every 6 months. This is because insurance companies often offer a discount or lower rates for policyholders who choose to pay their premiums annually instead of semi-annually. By paying annually, the policyholder can save money in the long run and have a more convenient payment schedule.

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30.

A binding receipt issued on the sale of a life insurance policy becomes effective from the date the receipt is given -- no matter what the insurability of the applicant.
- A.
  
  True
- B.
  
  False -binding receipts do not apply to life insurance policies
Correct Answer
A. True

Explanation
A binding receipt issued on the sale of a life insurance policy means that once the receipt is given, the policy becomes effective regardless of the insurability of the applicant. This means that even if the applicant's health or other factors may affect their eligibility for the policy, the binding receipt ensures that the policy is still in effect. Therefore, the statement is true.

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31.

There are four basic classes of life insurance. All of the selections listed below are regarded as ordinary insurance, except:
- A.
  
  Whole life insurance policy
- B.
  
  Universal life insurance policy
- C.
  
  Industrial life insurance policy
- D.
  
  Term life insurance policy
Correct Answer
C. Industrial life insurance policy

Explanation
Industrial life insurance, the correct exception among the options, is distinct due to its focus on covering funeral expenses with small face values. Unlike ordinary life insurance types like whole, universal, and term life, which offer broader financial protection and higher face values, industrial life aims for affordability and accessibility, often with premiums collected weekly or monthly directly from policyholders' homes.

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32.

From the descriptions below, identify which one is a term policy:
- A.
  
  The policy contrains a prevision that provides non-forfeiture options. The owner pays premiums for 25 years after which payments are no longer required yet coverage is still in force
- B.
  
  The policy states premiums are to be paid every year. At the end of 15 years the cash value represents about 25% of the total face amount
- C.
  
  Each year the premium increases as the insured grows older. After several years the coverage and premiums end simultaneously. Cash value is not created
- D.
  
  The premium increases after five years then remains the same unit it is paid yp at age 65
Correct Answer
C. Each year the premium increases as the insured grows older. After several years the coverage and premiums end simultaneously. Cash value is not created

Explanation
This description indicates that the premium increases each year as the insured gets older, and after several years, both the coverage and premiums end at the same time. Additionally, it states that there is no cash value created. These characteristics are consistent with a term policy, where the coverage is only provided for a specific term or period of time, and there is no cash value accumulation.

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33.

Decreasing term insurance is frequently used to pay the unpaid balance of a mortgage upon the death of the mortgage holder.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Decreasing term insurance is a type of life insurance that is specifically designed to cover the outstanding balance of a mortgage in the event of the policyholder's death. As the name suggests, the coverage amount decreases over time, which aligns with the decreasing balance of the mortgage. This ensures that the mortgage will be paid off in full if the policyholder passes away before the loan is fully repaid. Therefore, the statement that decreasing term insurance is frequently used to pay the unpaid balance of a mortgage upon the death of the mortgage holder is true.

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34.

The owner of a non-par whole-life policy never misses a payment, never borrows from the policy's cash value, and finally reaches the age of 100. What cash value is this person entitled to in comparison to the face amount?
- A.
  
  100% of cash value which is now the same as the face amount
- B.
  
  None of the cash value, the person has not died
- C.
  
  About 50% of the cash value as of the date of the birthday
- D.
  
  None of the above
Correct Answer
A. 100% of cash value which is now the same as the face amount

Explanation
If the owner of a non-par whole life policy never misses a payment, never borrows from the policy's cash value, and reaches the age of 100, they are entitled to 100% of the cash value, which is now the same as the face amount. This means that the cash value of the policy has grown over time and is now equal to the face amount of the policy. Since the person has not died, they can receive the full cash value of the policy.

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1
1
35.

A policy owner makes the last premium payment on his $250,000 non-par whole-life policy today. The owner is 70 years of age. When will the cash value reach $250,000?
- A.
  
  The cash value is $250,000 today
- B.
  
  Never, he didn't pay up to age 100
- C.
  
  When he reaches the age of 100
- D.
  
  About 13 years from now
Correct Answer
C. When he reaches the age of 100

Explanation
The cash value of a non-par whole life policy typically increases over time as premiums are paid and the policy accumulates cash value. In this case, the policy owner has made the last premium payment, so the cash value will continue to grow until the insured reaches the age of 100. At that point, the cash value will reach $250,000.

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36.

Upon reaching the age of 65, the policyholder of a non-participating paid-up life insurance policy will find that the cash value matches the face amount.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
The statement is false because the cash value of a non-participating paid-up at age 65 life insurance policy does not equal the face amount when the insured attains the age of 65. The cash value is the amount that the policyholder would receive if they were to surrender the policy before reaching the age of 65. The face amount, on the other hand, is the death benefit that would be paid out to the beneficiaries upon the insured's death.

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2
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37.

Assume two people apply for life insurance with exactly the same monthly premiums. One individual buys a whole policy, and the other, a 10-year renewable term plan. Both are standard risks with no difference in their age or health rating. Select the statement from below that is false:
- A.
  
  The whole life policy will generate a larger cash value
- B.
  
  Stopping premium payments on the whole life plan may trigger an option of having the cash value pay for premiums. This will have the effect of reducing the overall death benefit.
- C.
  
  The 10-year renewable term contract will have a premium increase every 10 years while the whole life policy premium remains level
- D.
  
  The whole life policy will pay a higher amount to the beneficiary should the insured die within the first 10 years.
Correct Answer
D. The whole life policy will pay a higher amount to the beneficiary should the insured die within the first 10 years.

Explanation
The statement is false because the 10-year renewable term plan will actually pay a higher death benefit to the beneficiary if the insured dies within the first 10 years. This is because term policies typically have higher death benefits compared to whole life policies, especially in the early years of the policy. Whole life policies may take some time to accumulate a significant cash value, which is why the death benefit in the first 10 years is typically lower compared to a term policy.

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38.

A family life insurance policy that provides coverage for children may be converted to permanent insurance for the children, but evidence of insurability is required.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
The given statement is false. A family life insurance policy that provides coverage for children can be converted to permanent insurance for the children without requiring evidence of insurability. This means that the children can convert their coverage to a permanent policy without having to prove their insurability, such as their health condition or any other factors that may affect their eligibility for insurance.

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39.

Survivorship life or second-to-die policies: 1. Are effectively used to cover the costs of estate taxes 2. Are issued in excess of $1 million in most cases 3. Reflect substantially lower premiums when compared to buying two separate policies
- A.
  
  1 only
- B.
  
  2 only
- C.
  
  3 only
- D.
  
  1 and 2
Correct Answer
D. 1 and 2

Explanation
Survivorship life or second-to-die policies are effectively used to cover the costs of estate taxes because they pay out the death benefit after both insured individuals have passed away. This allows the policy to provide the necessary funds to cover any estate taxes that may be owed. Additionally, these policies are often issued in excess of $1 million because they are commonly used by individuals with larger estates who have a greater need for estate tax coverage. This higher coverage amount ensures that there is enough money to pay the taxes owed.

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40.

Frequently, juvenile life policies contain a payor rider. This rider states that in the event the payer of premiums is disabled or dies and the juvenile has yet to reach a specific age:
- A.
  
  This insurance firm will lend ( with interest) funds to make the premium payments
- B.
  
  The premiums will be paid by the insurer until the child reaches the age of 21 or 25
- C.
  
  The deceased parent's estate will pay the premiums
- D.
  
  The insurer will completely waive all future premiums
Correct Answer
B. The premiums will be paid by the insurer until the child reaches the age of 21 or 25

Explanation
The correct answer is that the premiums will be paid by the insurer until the child reaches the age of 21 or 25. This means that if the payor of premiums becomes disabled or dies before the child reaches the specified age, the insurance company will continue to pay the premiums on behalf of the child. This ensures that the policy remains in force and the child continues to receive the benefits of the insurance policy.

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41.

When premiums are paid into a universal life insurance policy, insurers must make certain adjustments to the cash value. The company will add the current premium paid and:
- A.
  
  Deduct for expenses and mortality costs
- B.
  
  Deduct for general expense charges only
- C.
  
  Deduct for expenses and mortality costs, then add current interest
- D.
  
  The current interest
Correct Answer
C. Deduct for expenses and mortality costs, then add current interest

Explanation
When premiums are paid into a universal life insurance policy, insurers must deduct for expenses and mortality costs from the cash value. After deducting these costs, the company then adds the current interest to the remaining amount. This adjustment ensures that the cash value reflects the necessary deductions for expenses and mortality costs, while also accounting for any interest earned on the remaining balance.

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42.

Variable life insurance policies and variable annuities are primarily governed by which agency?
- A.
  
  FBI
- B.
  
  SEC (Security exchange commission)
- C.
  
  EPO
- D.
  
  NAIC
Correct Answer
B. SEC (Security exchange commission)

Explanation
Variable life insurance policies and variable annuities are primarily governed by the SEC (Security Exchange Commission). The SEC is responsible for regulating and overseeing the securities industry, including variable insurance products. These products involve investment components, such as stocks and bonds, and the SEC ensures that they comply with federal securities laws. The FBI (Federal Bureau of Investigation) is not involved in the regulation of insurance or annuities. EPO (Employee Plans Operations) and NAIC (National Association of Insurance Commissioners) are also not the primary governing agencies for variable life insurance policies and variable annuities.

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43.

An additional amount of premium used to pay for an accidental death benefit provision does not increase the cash value of the policy.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
When an additional amount of premium is used to pay for an accidental death benefit provision, it means that the policyholder is paying extra to have coverage in case of accidental death. This provision does not contribute to the cash value of the policy because it is a specific benefit that is only paid out in the event of accidental death, rather than being part of the overall policy value. Therefore, the statement that an additional amount of premium used for an accidental death benefit provision does not increase the cash value of the policy is true.

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44.

When an insured individual becomes totally and permanently disabled, her condition triggers a provision that keeps the policy in force even though the insured stops making premium payments. This is a/an:
- A.
  
  Accelerated living benefit provision
- B.
  
  Guaranteed insurability provision
- C.
  
  Waiver of premium provision
- D.
  
  Non of the above
Correct Answer
C. Waiver of premium provision

Explanation
When an insured becomes totally and permanently disabled, the waiver of premium provision comes into effect. This provision allows the insured to stop making premium payments while keeping the policy in force. It provides financial relief to the insured during their disability, ensuring that they continue to receive the benefits of the policy without the burden of premium payments.

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45.

The dividends and cash value continue, and all features of the policy remain in force, even though the insurance company, not the owner, is making the premiums. This is a description of a ..........................rider.
- A.
  
  Cost of living
- B.
  
  Return of cash value
- C.
  
  Waiver of premium
- D.
  
  None of the above
Correct Answer
C. Waiver of premium

Explanation
This is a description of a waiver of premium rider. With a waiver of premium rider, the insurance company pays the premiums on behalf of the policy owner if they become disabled or unable to work. Despite the owner not making the premiums, the policy remains active and all its features, including dividends and cash value, continue.

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46.

Beth wants to purchase more life insurance through her current policy. She calls you, the agent, and asks your opinion. You know Beth has a guaranteed insurability rider on the policy. She can buy more insurance:
- A.
  
  Assuming she is still insurable on her life at specific ages
- B.
  
  Without the need to prove insurable on her life at specific ages
- C.
  
  On the life of her dependent children when they reach certain ages
- D.
  
  Without the need to prove insurability on her life at any time
Correct Answer
B. Without the need to prove insurable on her life at specific ages

Explanation
Beth can purchase more life insurance without the need to prove insurability on her life at specific ages because she has a guaranteed insurability rider on her current policy. This rider allows her to increase her coverage without undergoing additional medical underwriting or proving her insurability at certain ages. This means that Beth can secure additional insurance coverage at specific ages without any requirements or restrictions based on her health or insurability.

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47.

Select the policy riders frequently found in life insurance polices:
- A.
  
  Accidental death and dismemberment
- B.
  
  Waiver of premium
- C.
  
  Cost of living
- D.
  
  All of the above
Correct Answer
D. All of the above

Explanation
The correct answer is "All of the above" because policy riders frequently found in life insurance policies include accidental death and dismemberment, waiver of premium, and cost of living. Accidental death and dismemberment rider provides additional coverage in case of death or loss of limbs due to an accident. Waiver of premium rider waives the premium payment if the policyholder becomes disabled. Cost of living rider adjusts the death benefit to keep up with inflation. Therefore, all of these riders are commonly included in life insurance policies.

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48.

Choose the correct statement about a cost of living rider. The policy owner:
- A.
  
  Is only charged a flat fee to have the rider attached
- B.
  
  Could experience a decrease in amount of the policy if the CPI decreases
- C.
  
  Pays an additional premium for the extra protection the rider provides and will see the face amount of the contract increase according to the increase of the index
- D.
  
  All the above
Correct Answer
C. Pays an additional premium for the extra protection the rider provides and will see the face amount of the contract increase according to the increase of the index

Explanation
The correct statement about a cost of living rider is that the policy owner pays an additional premium for the extra protection the rider provides and will see the face amount of the contract increase according to the increase of the index. This means that the policy owner will have to pay more for the rider, but they will also receive increased coverage as the index increases. This allows the policy owner to keep up with inflation and maintain the value of their policy over time.

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49.

Inflation can have a tremendous eroding effect on the purchasing power of benefits that are received from a disability income policy. What type of supplementary benefit rider can be sued by the insured to offset the effects of inflation?
- A.
  
  Social insurance supplement rider
- B.
  
  Guaranteed purchase option rider
- C.
  
  Cost of living adjustment rider
- D.
  
  Inflation offset rider
Correct Answer
C. Cost of living adjustment rider

Explanation
A cost of living adjustment rider is a type of supplementary benefit rider that can be used by the insured to offset the effects of inflation. This rider ensures that the benefits received from a disability income policy are adjusted periodically to keep up with the rising cost of living. By providing an increase in benefits based on the rate of inflation, the cost of living adjustment rider helps to maintain the purchasing power of the benefits over time. This is important because inflation can erode the value of the benefits, making it difficult for the insured to cover their expenses.

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50.

Oscar owns a whole life policy that he has been paying into for many years. He would like to continue having life insurance and can afford to make the premium payments, but he needs about 30% of the cash value for a couple of years. What would be the best course of action for Oscar to take?
- A.
  
  Continue making the premium payments to keep the contract in force and borrow form cash value
- B.
  
  Since he must surrender the policy to get any money out he can do so, then buy another policy with the other 70% of the funds he received from the cash value
- C.
  
  Find another source of funds. He has no access to cash value until the age of 100
- D.
  
  Find another source of funds. Whole life policies do not build cash value
Correct Answer
A. Continue making the premium payments to keep the contract in force and borrow form cash value

Explanation
Oscar should continue making the premium payments to keep the contract in force and borrow from the cash value. This option allows him to maintain his life insurance coverage while also accessing a portion of the cash value that he needs for a couple of years. By borrowing from the cash value, Oscar can meet his short-term financial needs without surrendering the policy or finding alternative sources of funds.

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Quiz Edited by
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Sep 25, 2012

Quiz Created by
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The Ultimate Life Insurance Practice Test: Assess Your Knowledge!

Every licensee must indicate on which of the following documents his or her license number.

When any change in residence address occurs, every licensee and every applicant for a license must notify the Commissioner...

An agent makes a misleading comparison of a policy he is selling in order to convince a prospect to lapse an old insurance policy. What is this called?

Which of the following cannot legally be used when determining premium rates for life insurance?

Generally, it is unfair to discriminate against any one class of individuals in the business of insurance. However, the code does permit the charging of a higher premium if such premiums can be supported by mortality tables segregated by sex (gender).

Which of the following is not a legal activity in the state of California?

Employees that have group life policies covering them are required to be issued a/an...

In the life insurance planning process, the "blackout period" is considered:

All of the following are reasons for an individual to purchase personal life insurance, except:

Why would a business use a key person life insurance policy?

Identify the statement that is true about contributory group life insurance.

Select the correct statement about the social security system:

Which of the following is true regarding the government's social insurance program known as Social Security?

Choose the payments from an insurance policy that are not subject to federal income taxes:

Which of the following is false about dividends paid from life insurance policies? A dividend is:

Which of these statements with regard to the tax treatment of life insurance is true?

Which of the following is false regarding the taxation of life insurance?

When applying for insurance, there is usually the owner of the contract, the insured, and the applicant. They may be: 1. Three different individuals 2. The same person

Insurance companies have several departments handling various responsibilities in the issuance of policies. Which department is involved with the selection of risks?

Bill holds two jobs. If Bill were to apply for an insurance policy and the insurer reviews the risk exposure based on his occupation, which of the following would the insurer most likely use to classify him? The job:

Which of the following supports the Medical Information Bureau?

Select the incorrect statement from the choices below concerning insurance applications:

From the following, identify what constitutes the "entire contract" in a life insurance policy. The policy:

Fran is comparing life insurance available through her employer and an independent life-only agent. Her employer provides automatic coverage and requires ............ medical information than the life-only agent?

Which of the following is not an acceptable risk to the underwriting department of an insurance company?

All of the following are used in determining life insurance rates, except:

If the owner of a life insurance policy elects to pay an annual premium, she will:

A binding receipt issued on the sale of a life insurance policy becomes effective from the date the receipt is given -- no matter what the insurability of the applicant.

There are four basic classes of life insurance. All of the selections listed below are regarded as ordinary insurance, except:

From the descriptions below, identify which one is a term policy:

Decreasing term insurance is frequently used to pay the unpaid balance of a mortgage upon the death of the mortgage holder.

The owner of a non-par whole-life policy never misses a payment, never borrows from the policy's cash value, and finally reaches the age of 100. What cash value is this person entitled to in comparison to the face amount?

A policy owner makes the last premium payment on his $250,000 non-par whole-life policy today. The owner is 70 years of age. When will the cash value reach $250,000?

Upon reaching the age of 65, the policyholder of a non-participating paid-up life insurance policy will find that the cash value matches the face amount.

Assume two people apply for life insurance with exactly the same monthly premiums. One individual buys a whole policy, and the other, a 10-year renewable term plan. Both are standard risks with no difference in their age or health rating. Select the statement from below that is false:

A family life insurance policy that provides coverage for children may be converted to permanent insurance for the children, but evidence of insurability is required.

Survivorship life or second-to-die policies: 1. Are effectively used to cover the costs of estate taxes 2. Are issued in excess of $1 million in most cases 3. Reflect substantially lower premiums when compared to buying two separate policies

Frequently, juvenile life policies contain a payor rider. This rider states that in the event the payer of premiums is disabled or dies and the juvenile has yet to reach a specific age:

When premiums are paid into a universal life insurance policy, insurers must make certain adjustments to the cash value. The company will add the current premium paid and:

Variable life insurance policies and variable annuities are primarily governed by which agency?

An additional amount of premium used to pay for an accidental death benefit provision does not increase the cash value of the policy.

When an insured individual becomes totally and permanently disabled, her condition triggers a provision that keeps the policy in force even though the insured stops making premium payments. This is a/an:

The dividends and cash value continue, and all features of the policy remain in force, even though the insurance company, not the owner, is making the premiums. This is a description of a ..........................rider.

Beth wants to purchase more life insurance through her current policy. She calls you, the agent, and asks your opinion. You know Beth has a guaranteed insurability rider on the policy. She can buy more insurance:

Select the policy riders frequently found in life insurance polices:

Choose the correct statement about a cost of living rider. The policy owner:

Inflation can have a tremendous eroding effect on the purchasing power of benefits that are received from a disability income policy. What type of supplementary benefit rider can be sued by the insured to offset the effects of inflation?

Oscar owns a whole life policy that he has been paying into for many years. He would like to continue having life insurance and can afford to make the premium payments, but he needs about 30% of the cash value for a couple of years. What would be the best course of action for Oscar to take?