Life Insurance Exam Practice Test Questions 9

Welcome to the channel. My name's Justin Vom Eigen, and my goal is to help you pass your life and health insurance exam on the first try or on the next try if you've already taken it and failed. But that's okay. You are not a failure if you failed this test. It can be really difficult. So today, I'm gonna be going through actual practice exam questions from pre-licensed exams. Just a little credential on me. I'm an approved pre-licensed education provider in all 50 states, and I am certified to teach, train, and instruct this material. I've also been teaching people to pass this for like five or six years now, and I've helped thousands of people pass, and I've done it as well on the sales side of the insurance agency side. I've grown a considerable insurance sales team as well. So pretty well-rounded the insurance business. So any questions, please feel free. Drop them in the chat. If you have questions about the material, what's on the test, what you need to know, if this is gonna pertain to your state, which it will, and anything else at all, even about a career in insurance. So what I'm gonna go into here first is I'm gonna be reading the questions and then going over the answers. If you have any questions about any of these, like I said, just drop it in the comments, and feel free to click the link in the description of the video for a free copy of my study guide or to join our Facebook support study group. So the first one, the primary purpose of life insurance is A, to provide coverage for medical expenses, B, to replace lost income after retirement, C, to transfer the financial risk of death to an insurer, or D, to accumulate wealth for investment purposes. Well, the purpose of life insurance is actually to transfer financial risk of death to an insurer. So insurance is simply a transfer of risk. Basically, what you're telling the insurance company is, I can't afford to die tomorrow, or my family, my loved ones cannot afford for me to die tomorrow, so I would like you to help me out financially, help them out if I die. So I'm gonna give you a little bit of money every month, and if I die before I plan, I just know what plans on dying, but if I die before a certain time, then I'd like you to give them a bunch of money, okay? Next, a type of insurance company that is owned by policyholders and may pay dividends to them, okay? So a stock insurance company, the first one is actually owned by stockholders. So an easy way to remember this, stock insurance companies are owned by stockholders, okay? Mutual insurance companies are actually owned by the policyholders, and the mutual insurance companies, if for people who have whole life policies, will often pay dividends to their stockholders. I mean, sorry, their policy owners. These are called participating policies because the policies participate in dividends. Dividends are kind of like company profits. So what it's actually considered is a return of unused premium. That's how the insurance company actually looks at it. So if you got a life insurance policy with a stock company for $100,000, that same exact, say, whole life policy with a mutual insurance company would most likely be more expensive. Mutual insurance companies typically charge more in premiums, but what happens is at the end of the year, most of them say, hey, you're gonna get some of this premium back, and that's used to buy many different things. There's dividend options, which is another part of your pre-license test that you're gonna wanna learn what the dividend options are. I believe it's interest, cash. You can just take a cash deposit. You can use it to buy paid-up additions, which is additional whole life insurance, and you can use it by little term insurance policy. So there's a bunch of different things that you can use the dividend options for, but basically what you wanna know for this is that stock companies are owned by stockholders, and mutual insurance companies are owned by policy holders. Next, the funds set aside by an insurance company to pay future claims are known as actuarial pools, company assets, reserves, or surplus accounts. So it's reserves. Reserves are legally required funds that insurers must maintain to meet future claim obligations, ensuring financial stability and regulatory compliance. So reserves are, it's like money in reserve. It's savings. It's pretty much like their rainy day fund. Not their rainy day fund, but their piggy bank, their whatever, I forget. It's slipping my mind now, but it's like having an emergency fund. It's what insurance companies need set aside to become approved legitimate insurance companies. They can't just willy-nilly start an insurance company with no money. So a lot of the regulatory bodies in each state say, hey, if you wanna start or have an insurance company, you have to have a certain quantity of reserves set aside to pay claims. Next, a client wants a life insurance policy that provides both lifelong coverage and the ability to accumulate cash value. Which policy would be the best option? Would that be term life insurance, whole life insurance, decreasing term insurance, or accidental death insurance? So this is a scenario-based question. You're gonna be running into a lot of scenario-based questions on your pre-licensed exam. Now, a policy that has lifelong, there's a couple triggers here where you're gonna be thinking, okay, something permanent, like a whole life. Lifelong coverage, whole life. I'm gonna have a policy for my whole life, so I want a whole life policy. Term is temporary. Whole life insurance also accumulates cash value. So that's kind of what gives away the answer to this question. If you have any questions so far, please drop them in the comments. I'll reply to anybody's comment here. Check out my free study guide in the description of the video as well, and join the Facebook group if you want to. Which of the following individuals would benefit the most from purchasing an annuity? 28-year-old looking for temporary life insurance coverage, a 40-year-old wanting to protect their mortgage balance, a 65-year-old retiree seeking guaranteed income for life, or a college student seeking low-cost financial protection? So let's look at the first one. Obviously, 28-year-old temporary life insurance, that's not an annuity. An annuity is you put a bunch of money in and you get it back over time in payments. A 40-year-old wanting to protect their mortgage balance, no, because that would be life insurance, a 65-year-old retiree seeking guaranteed income for life. So essentially what that person would do, the retiree, take a bunch of money so that they have saved up from retirement, put it in an annuity so that they can get guaranteed income. So say they have a million dollars in their 401k. Instead of them having a million dollars in their account, they're gonna give it to a life insurance company and they're gonna pay out that money in payments over time to the annuitant. Think of it like if you were a kid and you got a bunch of money for your birthday and your parents didn't want you to have it all at once because maybe you'd go spend it on something stupid, which now like for me, I think like, okay, Pokemon cards. My parents would be like, oh, you're gonna spend it all on Pokemon cards. I wish I did. I probably have made way more than the other stuff they encouraged me to buy with it, like a baseball glove or something. All right, so an individual wants life insurance that allows them to adjust both premium payments and the death benefit while also building cash value. What would be the best choice? So universal life insurance, you wanna think of there's universal applications. So universal life insurance, it's just universal. When you think of universal, you think of broader, right? Like more, like a universal something. It's like, okay, it's everything, everybody. It's got all the stuff. So with universal life, you can adjust the premium and the death benefit. Typically, if you're lowering the premium for the same death benefit, then you have to go through underwriting again. If you're gonna increase the death benefit, typically you have to go through underwriting again, or at least make sure that you're still insurable. What would be the best choice? Universal life that has flexibility with adjustments to both the premium and the death benefit while accumulating cash value. Next, we are going on to David. David is a 45-year-old father. He's a father with a mortgage and young children. That's where all his money's going. He wants an affordable life insurance policy. Oh, that's a funny word. That will provide financial protection for his family until his children have become financially independent. Which policy is most appropriate for him? Well, affordable until, so the until indicates temporary, right? So you wanna look for clues. Like, okay, until, it means like it's a temporary, like he's not gonna have it forever, right? So whatever, I'm just gonna keep it like that. Oh, what the heck? Let me see, until, there we go. So term life, until, temporary, and then affordable, term, cheap, term's cheapest because it's just death benefit. There's no cash value and you only have it for a certain amount of time. A 55-year-old business owner wants a life insurance policy that builds cash value and allows them to invest in different market-based subaccounts. They are comfortable with market risks and want higher potential returns. Which policy should they choose? Variable life insurance. So when you think of investing in different market-based subaccounts, you're gonna think universal life. I'm not, sorry, my bad. Variable life, got distracted here. You're thinking variable. So variable is when they are investing in the market. Okay, next, moving on down. Susan, Susan is 30 years old and concerned about inflation reducing the purchasing power of her life insurance benefits over time. What policy rider should she consider? So when you hear inflation, you wanna think of cost-of-living adjustment rider, COLA. So what cost-of-living adjustment rider does is it increases the policy's death benefit over time to account for inflation, ensuring the payout retains its value in the future. Because if Susan got a million-dollar policy now, well, in 30 years, that million dollars is not gonna have the same effect. So the COLA rider will help make sure that her death benefit has the same purchasing power over time. Next, all of the following are characteristics of mutual insurance companies, except they're owned by policyholders, they issue participating policies, they pay dividends to stockholders, and they may be, or they may be converted into stock companies. So mutual insurance companies, if you remember from the question before, they pay dividends to policyholders, whereas stockholders pay dividends and earnings to shareholders. Okay, the following are strategies used by insurance companies to manage risk, except reinsurance agreement, so that is a way to manage risk. It's insurance for insurance. Risk pooling, it's a way to manage risk. Offering guaranteed coverage to all applicants without underwriting. So that is not a way to manage risk. That is a way to take on a ton of risk. Because with adverse selection, typically the people who want insurance the most are the ones who are most likely to use it, right? Like who's more likely to want life insurance? Someone who's in their 80s who might not have the best health, or someone who's in their 20s who's super healthy. Well, probably in their 80s, not the best health, and they have the shortest lifespan. So adverse selection, because of that, they have to underwrite, and if there's no underwriting, then that increases their risk. So next, a non-forfeiture option in life insurance that allows the policyholder to use the accumulated cash value to purchase a reduced death benefit policy with no further premium payments. So non-forfeiture options. There are a few. There's reduced paid-up insurance, right there. I'm gonna go over what they all are, because they're all here. So cash surrender option. So cash surrender option is where you give up the non-forfeiture. The non-forfeiture option, it's like equity if you have a house. So if you own a home and you pay into it over time, the value of the home exceeds what's owed on the mortgage. So if you sell the house, then you owe less than the house is worth, and that difference is the equity. So that means you leave the transaction with something, with a stored cash value. Life insurance policies, whole life policies, are similar. There's a cash value that the person can leave with as it's stored up, and there's a few options with that. So you can surrender the cash, or you can take reduced paid-up insurance, which is when you take that cash to actually buy a whole life policy that's a lower benefit, but you never have to pay again. And extended term insurance is when you use that to buy a term policy that equals the face amount of the whole life policy, and it lasts for however many years the policy, however many years of a term policy that money buys. Okay, a provision that prevents an insurer from denying a life insurance claim due to misstatements on the application after the policy has been enforced for two years. So when you, this has to do with incontestability. It's not the entire contract or contestability. We'll think of incontestability. Contestability means you can challenge the claim. Incontestability means you can't. So after two years, the policy becomes incontestable, meaning that if the person dies, and there's a misstatement on the application, then the death benefit has to be paid out anyway. So the insurer cannot deny the claim unless there was fraud. Okay, next, which of the following is a necessary element of a legally enforceable insurance contract? The insurer must guarantee investment returns. The contract must be signed by a judge. The contact must have offer and acceptance, consideration, legal purpose, and competent party. So those are the four essential elements of an insurance contract. Offer and acceptance, consideration, legal purpose, and competent parties. By the way, we have five to six simulated, realistic, state-approved practice exams that mimic the actual real exam you're gonna be taking in your state with more specific state law questions and some other things that are tweaked for each state in particular. So these are general questions here, but your state's probably gonna have some questions that will be a little bit different here and there, and it's definitely gonna have some state law questions. So if you're interested in purchasing the actual practice exams, I can get them super cheap to you. Normally it's $99. We have an offer for $37 for five to six practice exams depending on your state. And they're state-specific, the exam vendor that that state uses and everything. So I'll put the link in the description of the video. It's a absolute steal for the amount of time, effort, and energy it took to creating these practice exams. Like, we spent a long time making these. So if you want the best practice exams on the market, the most realistic simulations, then click the link in the description of the video. It's an absolute no-brainer. If I was doing this again, I wish I had those types of exams to take. So it's not just, we didn't just make up some questions. We like actually went through to see how each state asked those questions. You can get those in the description of the video, super cheap. An individual applying for life insurance must have an insurable interest in the insured. Which of the following relationships would best demonstrate an insurable interest? A friend purchasing insurance on a colleague? Nope. A business purchasing insurance on a key employee? A distant relative purchasing insurance on a celebrity? Or a fan purchasing insurance on a musician? So insurable interests exist when one party would suffer financial loss if the insured died. So businesses often have insurable interest in key employees because their loss could impact company finances. So there's typically inherent insurable interest with family, so like spouses and children. Because if that spouse passes, then there's money that would need to be paid, essentially to replace either their income or their time value to the family as well. But for businesses, a business has insurable interest in an employee. For instance, if I don't have life insurance on my employees, like this type of life insurance for key person insurance, but say as we grow, I have large, highly paid executives that took a long time to groom and grow into that way, then if they died, I'd be in trouble. So I'd wanna have money to replace their loss to the company's loss and also to hire, train someone new. Next, John applies for a life insurance policy and submits the first premium with his application. What happens if the insurer decides to issue the policy exactly as requested? Contract is immediately void. The insurer must return the premium. So it's the contract becomes legally binding upon policy issuance. And the applicant must submit another application. So if the insurer decides to issue the policy exactly as requested, then the contract becomes binding upon issuance of the policy. So when the policy is issued, that's it, that's it. Next question here, moving on to two pages. Okay, a type of insurance contract in which only one party makes an enforceable promise. So that's unilateral. So obviously, a unilateral contract is where only one insurance company, or not only one company, only one party in the contract has an enforceable promise. So the insurance company has to pay in a life insurance policy if the insured makes their payments, but the insured is not legally required to pay their premiums, right? So the insured does not have to pay the premiums but the insurance company does have to pay the claim as long as the policy is enforced. Which of the following life insurance policies allows the policyholder to adjust both the premium payments and the death benefit? So we went over this a little bit earlier. That would be universal life insurance, flexible premium, and flexible death benefits. I'm gonna zoom out of this just a little bit. Okay, what is a key characteristic of decreasing term life insurance? The death benefit remains level throughout the policy, while decreasing term is actually that the death benefit decreases over time. Okay, so in decreasing term, the death benefit decreases. The premium does not decrease, the death benefit does. So cash value is not interim insurance, so you know that that wouldn't be the answer, and premiums increase every year. That's more annual renewable term. That's what happens in annual renewable term. So which type of life insurance policy would be best suited, sorry, for someone who wants lifelong coverage and cash accumulation? That would be whole life insurance. Whole life has cash value, and it's a permanent policy. Okay, client wants a life insurance policy that allows investment in market-based subaccounts while still providing a death benefit. Which policy would be the most appropriate? Variable life. Here, we're gonna scroll down. It seems like some are repeating there. A life insurance policy provision that ensures the policy remains in force for a limited period after a missed premium payment. That is a grace period. So in the grace period of life insurance policy, that's the amount of time after the insured misses a payment that they can still keep their policy in force. So it's like if you have a 30-day grace period to make a credit card payment, right, or else you get hit with a 30-day late payment on your credit. The grace period is similar for life insurance policies. It's, hey, if they miss the payment date, it's okay. They have typically 30 to 31 days to make that next payment, or to make that payment until the policy is no longer in force. Which of the following is a primary purpose of underwriting in life insurance? To issue policies to all applicants regardless of risk? No, the purpose of underwriting is actually the opposite. It's to issue policies to people based on their risk. Determine the appropriate premium for each applicant. So that's actually the main purpose, is determine the appropriate premium for each applicant. So underwriting, essentially what they're doing is they are evaluating what are the chances of this person actually using or filing a claim, and then that's what the premiums are based on. So the bigger chance of them using a claim, typically the older they are and the more their health is declined or deteriorating means the bigger risk they pose, so yeah. What is the purpose of a field underwriter in the life insurance application process? You are actually a field underwriter as an agent. You will be a field underwriter. So the purpose of being a field underwriter is not to issue the policy immediately, it's to complete the application and collect the premium. What was it? Field underwriter, cool. An insurance producer is responsible for ensuring that an applicant fully understands their policy benefit before purchase, which of the following actions best fulfills this responsibility? So the policy summary is really gonna give them the best understanding of their policy before purchase. Okay, so reviewing the policy summary. They also can encourage the applicant to read the policy at their own pace. A life insurance applicant's required to disclose all relevant medical information during the application process. Why is this requirement important? Well, it ensures accurate risk assessment and fair premium pricing. So the insurance company wants the applicant to go over everything that they have going on. So what's their health? What medications are they on? They gotta answer some health questions. How old are they? A bunch of other stuff. Okay, so they wanna make sure that the risk is assessed accurately and that the premium is priced fairly. Next, David applies for a life insurance policy and pays his first premium with the application. If the insurer approves the policy, when does coverage become effective? Be on the date the insurer reviews the policy, on the date David receives the policy from the agent, on the date the application was signed or the medical exam was completed. That's when it is. So definitely wanna learn about when policies become active or effective. So it depends on... So a condition or receipt means coverage is effective as of the application date or medical exam date providing the applicant meets the insurer's underwriting requirements. So you'll see here, we have a huge question bank and there are actually like five or six of these per state that we came up with to exactly match the questions as close as possible. Obviously, we don't have... Always gonna have the exact question to have on the state but they're pretty dang close. It's as close as you can get from anything that's out there. Our goal was to simulate the exams exactly. So if you want a copy of these questions in actual testing format, meaning you can log in to a computer program. It's super simple. It's an online access and you take a test just like you take any online test or quiz. Click the link in the description of the video. You can get five, at least five, maybe six, depending on your state, practice exams for only $37. You'll have access to way more questions than we just covered in this video today. Subscribe to the channel, turn on post notifications and if you wanna become part of the Facebook group, then you can click the link in the description of the video for that as well. Thank you guys so much. I hope I was able to help you.