Life Insurance Exam Practice Questions (30 Must-Know) – Part 11

30 questions. These are the exact types of questions that you will see on your state exam modeled using AI to mimic real insurance exam simulations. I've helped tens of thousands of people with this model. Now let's jump in and see if you're ready. As you're going through this, I want you to hold yourself to an 80% standard. So treat this like a real test. 80% means that you can only get six wrong as I go through these. As I'm going through the questions, pause before I move on to the answer if you need to, and you can always rewind the video and watch it again to go over the explanations another time. And I highly recommend you do that because these questions are a spitting image of what you're going to get on your actual state exam, regardless of what state that you live in, we've ordered them that way. So treat this like your test. Let's get to it. Number one, when explaining a life insurance policy to a client at delivery, the producer should A, provide only a summary and not discuss specific policy provisions. B, focus exclusively on the death benefit amount and premium cost. C, guarantee that illustrated values will be achieved as shown. Or D, review key provisions, riders, exclusions, and how the policy works. Pause to lock in your answer. I'm going to give you a few seconds after I go through every question. Before we get to the answer, you can always pause the video. I'm moving on now. Okay. When explaining a life insurance policy, the producer should review key provisions, including how the policy works, what riders are attached, what exclusions apply, grace periods, non-forfeiture options, and other important features to ensure the client understands their coverage. Number two, which of the following characteristics distinguishes limited pay, whole life insurance from ordinary all life insurance? So number one are A, limited pay provides temporary coverage for a specific period. B, limited pay accumulates cash value at a slower rate. C, limited pay requires premiums for a specified number of years. Or D, limited pay offers a decreasing death benefit over time. Lock in those answers or pause. All right, answer is C, limited pay, whole life requires premium payments for only a specified number of years, like 20 pay life or life paid up at age 65, after which the policy is fully paid up. Despite the limited payment period, coverage remains permanent. So with limited pay insurance, limited pay whole life insurance, the limited pay, it means that you're only paying on it for a certain number of years. And at that point, the person doesn't have to keep making payments on policy. Ordinary whole life, they pay up until age 100 or 121, depending on the policy type. You're going to see questions like this on your pre-license exam that compare different concepts to the other. So that's why you need to know similarities and differences. And it's really a big vocabulary test. Question three, K wants to move a $100,000 401k from a previous employer to an IRA. K requests a check made payable to K rather than a direct transfer. The amount K will receive is $100,000 because rollovers are tax-free, $80,000 after mandatory 20% withholding, $90,000 after 10% penalty withholding, or $75,000 after taxes and penalties. The answer is B. K receives $80,000. Let me just zoom out there. $80,000 because 20% mandatory withholding or $20,000 applies to indirect rollovers. So to complete the full rollover in 60 days, K must add $20,000 from other funds. The withheld amount is refunded when filing taxes. So this is why direct transfers are strongly preferred. So basically, if you have a 401k and you go to another job and you want to transfer, you need the institution managing that 401k to write a check to the other one for the money so it directly gets transferred over, or they just wire it over. If it comes to you first, they're going to withhold the penalty and you need to put it back into the other 401k after the penalty within 60 days. And then when you do your taxes, they refund the penalty amount. Which of the following is true about third-party ownership? A. The insured controls all policy decisions and changes. B. The owner has all rights, including changing beneficiaries. C. The beneficiary must approve all policy changes. Or D. Only the insurance company can make policy changes. The answer is B. The policy owner has all ownership rights, including changing beneficiaries, if it's a revocable beneficiary, borrowing against cash value, surrendering the policy, making withdrawals, regardless of who's insured. So an example is if a parent owns a policy on a child, then the parent controls all the decisions, even though the child's insured. The previous one you saw was a scenario-based question. You're going to see those. You're also going to see things that say, which of the following is true about this? And you want to look for the options that aren't true so that you can find the one that's true. That helped me when I took it. What are employer matching contributions in 401k plans? A. Required by law for all employers. B. Voluntary employer contributions based on employee deferrals. C. Taxable income to employees immediately. Or D. Limited to $1,000 per year maximum. B. Employer matches are voluntary employer contributions made based on how much employees defer, providing incentive to participate. So a common way to do it is 50% of the first 6% of the salary, or 100% match up to 3%. So the matches are free money essentially for the employee, incentivizing participation in their tax-deferred employee contributions. So it's when the employer will match contributions. A client notices their life insurance policy is rated rather than issue as standard rates as expected. The producer should A. Deliver the policy without mentioning the rating to avoid concern. B. Advise the client to accept it now and try to get it changed later. C. Explain the rating reason and discuss options before delivery. Or D. Tell the client nothing can be done and sign immediately. C. The producer should always explain why the rating occurred and discuss the client's options. So they either accept the rated policy or request a reconsideration with additional medical information saying hey we're gonna we don't think that's right we're gonna submit more medical info or decline the coverage and maybe apply with another company. So transparency maintains trust and informed consent and the client has the right to understand and decide. We're going to go through these a little quicker now. What happens if a policy owner fails to repay a policy loan before the insured's death? Is it A. The beneficiary must repay the loan from personal funds. Is it B. The loan plus interest is deducted from the death benefit. Is it C. The insurer cancels the policy, not cancels, for a non-payment. Or D. The loan is forgiven and the full death benefit is paid. What do you all think? The answer is B. The outstanding loan plus accumulated interest is automatically deducted from the death benefit paid to the beneficiary. The beneficiary receives the death benefit minus the loan balance. They don't have to repay from personal funds. This reduces what beneficiaries receive. So if there's a loan on cash value and the insured dies, the beneficiary gets the death benefit minus the interest owed on that loan. Next, an annuity owner who dies during the accumulation period before annuitization. Forfeiture of all accumulated value to the insurance company. Payment of accumulated value to the named beneficiary. Continuation of annuity payments to a contingent annuitant. Or distribution of only premium payments without interest. B. A lot of these seem to be B answers. If the owner dies during accumulation, this is another example of a scenario question that you will have something pretty much like this on your pre-license exam. So if the owner dies during accumulation, which is before annuitization, the accumulated value, which is the premiums they paid in plus any interest in growth, is paid to the beneficiary. Nothing is forfeited. Once it's annuitized, payouts depend on the life-only period, certain joint life. You need to know your annuity payment options. What payment frequency typically results in the lowest total annual cost? Is that monthly premium payments, quarterly, semi-annual, or annual? I'm going to move on just a second. Annual premium payments are always the lowest total cost because the insurance companies add administrative fees for more frequent billing. They have to process it, have someone actually go through and make sure it was processed and everything else. So the cheapest to most expensive goes annual, every 12 months. Semi-annual, which is every six months. Quarterly, which is every three months. Monthly is every month. So more frequent equals higher total cost due to fees. This is another thing you may see a scenario where it's not. So which of these scenarios is not something? So these can be tough. Under what circumstances double indemnity typically not paid? Death resulting from a commercial airline crash, death caused by skiing accident, death due to complications from diabetes, or death from injuries sustained in a car accident. Okay, double indemnity pays only for accidental death, which is sudden, expected, unexpected, external violence. So death from diabetes, that's a natural cause and disease. It's not an accident, right? So double indemnity usually only pays for accidents. Commercial airline crashes, skiing accidents, those all qualify as accidental deaths that could trigger it. Okay, employer contributions to a simple IRA must be either a 2% non-elective contribution for all eligible employees or a matching contribution of up to what percentage? 1%, 3%, 5%, or 6%. The answer is B, 3%. So simple IRA employers must choose 2% non-elective contribution for all eligible employees regardless of participation or matching up to 3% for employees who contribute. All right, so they can do one or the other. So this is an example of the retirement plans that you're going to want to know about for your pre-license exam. Most choose the 3% match to incentivize employee participation while reducing costs. Most will choose the 3% because they're like, hey, if you're not going to contribute, we're not going to contribute either. Makes sense. Invest in yourself, right? Like everybody here is doing. Everybody's investing in themselves for their future. Thank you for watching the channel. And by the way, if you find any of these things valuable, is that going to be on the next one? If you find these questions valuable, check out our practice exams and courses in the video. There are thousands of questions that we've created with AI just like these to match what you're going to see on your state exam. These are so close that we're almost giving away exactly what they have without giving it away. So yeah, these are as close as you're going to get. So check it out. Also subscribe and drop some comments in the chat if you have any questions in the discussion. More than happy to answer to help you out and do what we can. Which type of group plan requires 100% participation? Is it contributory group plan with employee premiums, employee premium payments, voluntary group plan with optional participation, non-contributory group plan with employer paid premiums where the company pays premiums, or supplemental group plan with varied participation rates? Okay, it's non-contributory plan. So non-contributory is where the employer pays, as you see in the explanation there. In non-contributory, everybody has to participate because the employer covers it and it's automatic coverage to prevent any adverse selection. In contributory plans where the employee pays, they typically have to have 75% or higher participation. Okay, a life insurance policy taken out with the specific intent to commit fraud violates which contract element? It's a consideration because fraud eliminates the value exchange. B, competent parties because fraudulent intent indicates mental incapacity. This is a good one. This is one of the tough ones you're going to see on your test. Offer an acceptance because fraud means no true agreement or legal purpose because fraud is illegal. It's a tough one. Maybe not for some of you all insurance geniuses. D, a policy taken out with the intent to commit fraud violates legal purpose because fraud is illegal and contracts for legal purposes are void from inception. So even if everything is present, you can't be fraudulent. All the following are characteristics of ordinary whole life insurance except level premium payments throughout the insured lifetime. Got my dog chewing her. I have to give her like a chew toy because she just goes nuts. I got a new puppy. Level premium payments through the insured lifetime. Guaranteed cash value accumulation. So this is a common thing too. All of these are this except, okay, premium payments cease at a predetermined age or permanent death benefit protection for the insured. So which of these, when it says all of these are this except, it means which is not, right? Which does not fit. The answer is C, ordinary whole life insurance requires premium to be paid throughout the insured's entire lifetime. They may stop at age 100 or 121, but it's assumed that they're going to pay it for their whole life because most people don't live to age 100. So premium paying ceasing at a certain age could be a limited pay whole life policy, like life paid up at age 65. Why do insurance companies offer life contingency options? Now the vocab word. Guarantee fixed payment amounts regardless of longevity to pool mortality risk among many annuitants. Is it C, to eliminate payments if the annuitant lives too long? Or D, to provide death benefits to beneficiaries? Let's see. I kind of forgot what life contingencies options are, to be honest. C, okay, ordinary whole life requires premiums to be paid throughout the insured's entire lifetime, not ceasing at a predetermined age. Premium payments ceasing at a specific age is characteristic of limited pay, such as, oh wait, I got the wrong one. What am I talking about? Here, sorry. B, to pool mortality risk among annuitants. Okay, you can pause this if you want to read it again. Insurance companies offer these to pool mortality risk, combining many annuitants so those who die early provide funds for those who live longer than actual predictions, okay? So this allows insurers to guarantee lifetime income without knowing how long each person will live. Okay, sorry for my little mess up there, everybody. So a children's writer typically provides, this is cool, this is one of the short questions you're going to get, it's called a STEM, and yeah, term insurance on one child, term insurance for all current and future childs, children, childs, what am I talking about? You can tell I've had a long week. Permanent insurance on all children or coverage until children reach age 10. So this is why it's like a big vocabulary test. You want to know the definition. So a children's writer typically provides term insurance for all of the insured's children under one writer, typically until age 25. There are some children's writers that will, for each individual, the child has, you know, they have to pay for each individual child, but they're usually automatically included with no evidence of insurability, making it highly valuable for growing families or if someone has a child who has some sort of like birth defect or something really, really, you know, tough health condition when they're really young. What's the primary purpose of the grace period provision in a life insurance policy? To allow the insured to change beneficiaries without penalty, to prevent policy lapse for a brief period of time after premium is due, to permit the insured to cancel the policy and receive a refund, or to extend the contestability period by an additional 30 days. To B, the grace period is 30 to 31 days, depends on the state. It prevents policy lapse by allowing a short period of time after the premium is due while coverage continues, so if death occurs during the grace period, the benefit is paid minus the overdue premium. This protects policyholders from the policy lapse, and so it's like you have 30 days to pay your credit card from the due date before you get hit with a late fee or a late thing on your credit, same thing here, except this is with insurance. Under the fixed amount settlement options, payments continue until the beneficiary reaches a certain age, a predetermined time period C, proceeds plus interest are exhausted, or D, the beneficiary dies. It is C. Fixed amount settlement options mean the beneficiary receives a certain dollar amount until the money plus any interest are gone. So the number of payments is not predetermined, it depends on the interest earned, so higher interest equals more payments, lower interest equals fewer payments. What happens to premiums paid during the free look period if the owner returns policy? Premiums are forfeited to cover administrative costs, only 50% of the premiums are refunded, the premiums are refunded in full, or they're applied to a replacement policy. What do y'all think? They're refunded in full. So during the free look period, it's 10 to 30 days depending on the state, if the owner returns the policy, all premiums are refunded in full with no penalty. So the consumer protection allows the owner to review the policy and cancel if they're not satisfied and get a refund, because you apply and you don't know what your rate's gonna be when you apply, right? So you apply for like preferred and then you get it back and it's like substandard, then it's like, okay, well, I don't want that anymore because I thought I was gonna get something else. And they let you get it with the premiums refunded. Okay, which statement about life insurance policy dividends is correct? Is it A, dividends are guaranteed returns on policy's cash value? B, dividends are taxed as ordinary income when received? Dividends represent a return of unused premiums. I thought my camera turned off. Dividends represent a return of excess premiums paid, or dividends are available with universal life policies only. It is C. So dividends are a return of excess premiums when the insurance company's costs are lower than expected. They're not guaranteed, they're not taxable until they exceed the total premiums paid in, and they're available with participating whole life policies, not universal life. So participating whole life policies typically through mutual insurance companies, they're tax-free returns of overpayment. So if they're like, well, you gave us a hundred dollars a month for your premiums last year, but because our expenses were lower and we made more money than we thought, unless people died, paid less claims, we actually could have charged you 95 or whatever, so we're gonna give you money back, 60 bucks, five times 12, whatever. That's kind of the idea of it, so it's not taxed because they position it as just premiums getting refunded back, and then you can do different things with dividends. You're gonna wanna know your dividend options. The automatic premium loan provision prevents policy lapse by A, waiving premium payments during financial hardship, B, using policy cash value to pay overdue premiums, C, extending the grace period to 60 days automatically, or D, reducing the death benefit to cover missed premiums. You can pause it here if you need to. It is B, the automatic premium loan provision automatically borrows from the policy's cash value to pay overdue premiums. It comes out as a loan that accrues interest and it has to be repaid, or it reduces the death benefit. And this typically is usually elected when the person gets the policy, only works if there's cash value there. So it's basically saying like, hey, we're gonna use some of the cash value to make sure that you don't lose your policy. We're gonna pay the premium with it, with a loan against it. Under the reduced paid up non-forfeiture option, you gotta know your non-forfeiture options. The policy owner receives A, the same death benefit with lower premiums required, B, a smaller paid up policy with no further premiums due, C, extended term insurance for the original death benefit amount, or D, cash surrender value as a lump sum. So reduced paid up, that's what you're gonna wanna know. And it's kinda in the words, reduced paid up. Okay, the reduced paid up option, it is B, it's a smaller paid up policy with no premiums due. It uses the cash value to purchase a smaller face amount, whole life policy, and it's permanent, you don't have to make any more payments on it. It's a lower death benefit, but they have coverage for life and they don't have to keep making premiums, so it's pretty cool. The entire contract provision states that the policy application and any attached riders constitute A, only the insurance company's obligations, the complete and entire agreement between the parties, terms can be changed by agents without company approval, or preliminary agreement subject to future modifications. It is B, the entire contract provision states that the policy application and riders are the complete agreement. So that was what the entire contract is. It's something that's gonna be in your pre-license exam. Typically, they ask about the entire contract that's in every state. All these questions are general for every state too, okay? So if you notice, some of them might say, hey, it might change based on your state. You're gonna wanna look at your state laws. We got Sokey, Sokey break. We're gonna say, pretend Sokey's doing the questions. Okay, which settlement option provides income for a specified number of years with remaining payments going to a contingent beneficiary if the primary beneficiary dies? Was that life income option, the fixed period option, fixed amount option, you can tell she's a big fan of this, but the interest only option. No, that's the fixed period option that provides income for a specified number of years. If the primary beneficiary dies before all payments are made, the remaining payments go to a contingent beneficiary. All right, she's done. The reinstatement provision allows, by the way, if this is helping you guys, please, please subscribe, drop a comment, ask a question, anything you need, give me some love. Thank you. Check out our courses. The reinstatement provision allows a lapse policy to be reinstated within what timeframe? Now she's gonna bite my feet. 30 days from the date of lapse, six months from the date of lapse, three years from the date of lapse, or five years from the date of lapse. Three years. The reinstatement provision typically allows a policy to be reinstated within three years of lapsing. It might change based on your state, but generic is three years. You have to pay all the money back, all the premiums back with interest and show evidence of insurability. So you have to still be insurable and have no outstanding policy loans that exceed the cash value, and a new contestability period will begin. Only a few more left. Hang with me, everybody. Which dividend option purchases additional paid-up insurance using the dividend? Is that the cash payment option? Is that the premium reduction option? The paid-up additions option? Or the accumulation at interest option? This one's kind of in the question there. Three seconds. Three, two, one. Paid-up additions uses dividends to buy additional whole life insurance that's paid up at the insured's attained age, no evidence of insurability needed. So this increases the death benefit and the cash value. It's very popular for building large whole life policies over time with a lot of cash value. What is the key feature of the waiver of premium rider? Is it A, premiums are waived if the insured becomes unemployed? Is it B, premiums are waived if the insured becomes disabled? Are premiums waived in the first year of coverage? C, or are they waived if the policy owner dies? I think that one's kind of stupid, right? Obviously the premiums are waived. If they die, no one can pay it. There's a claim. The waiver of premium rider covers the premiums if the insured becomes totally disabled. Policy remains in force with full benefits, keeps growing cash value if it's a whole life. This helps protect against disability issues. The spendthrift clause protects policy proceeds by A, preventing beneficiaries from assigning proceeds to creditors. B, allowing the insurance company to manage beneficiary spending. C, requiring beneficiaries to use proceeds for specific expenses only. Or D, taxing proceeds to prevent excessive distributions. It is A. So the spendthrift clause means that people, they can't, that life insurance benefits cannot be seized if someone owes money to credit card or loans or something like that. So that's what the spendthrift clause is. The suicide clause typically includes death benefits if suicide occurs within how many years of policy issues? A policy issue. Six months, one year, two years, or five years? Two years. Suicide clause excludes suicide death benefit payments for two years of policy issues. Some states it's one year. If suicide occurs in that period, the insured gets, the insurance company refunds all their premiums paid. After the exclusion period, if someone does commit suicide, the full death benefits are paid. 30. What is the typical contestable period for a life insurance policy? Six months from policy issue, one year from policy issue, two years for the insured's lifetime. Kind of goes on the question we just had. It's two years. The typical contestable period is two years. During this time, if the insured dies, the insurance company can contest the policy and deny claims if material misrepresentation is discovered in the application. After two years, they can't contest the claim for anything except fraud or non-payment of premiums. The reason why they have this is so that if someone, say someone applies for insurance, and they're like, I don't have cancer, but they were just diagnosed with cancer, but they lie, right, or they didn't know, and then they die in a year and a half from cancer, and then it comes out that they actually had cancer when they applied for the insurance, but it wasn't disclosed to the insurance company, then obviously the insurance company can deny the claim. But if it happens outside of those two years, the claim still has to be paid. How did you do? 24 or more, right? You're ready for your exam. Go pass that exam. Watch these other videos, though, because don't just base it on these 30. If you can watch all these videos I have of these practice questions, then you are going to do really well. There's a series, and if you can get all these down, you're going to have a really good chance of passing your exam. Make sure you review your state laws, because they're the only things that aren't on here. 80% of what you're going to see on your test, though, is here. You're going to want to watch this other video here, part 10 of these questions. Watch this one next, because there's questions that are going to be on your pre-license exam on here. We've helped thousands of people pass. Literally, I want to help you, too.