Free Life examination Practice Questions

Sample Practice Questions

Try these 10 sample questions from the Life examination practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A client pays premiums so an insurer will pay a stated death benefit if the insured dies. Which risk-management method is used?

   1. A. Risk transfer to the insurer through pooled premiums
   2. B. Risk retention through the client's own savings
   3. C. Risk avoidance by eliminating the death exposure
   4. D. Risk reduction by lowering the chance of death

   Answer: A

   Explanation: "Insurance - an economic device transferring risk from an individual to a company" The insurer assumes the specified financial death exposure through the insurance contract. Retention, avoidance and reduction describe different ways of handling risk.

   Reference: NAIC Glossary of Insurance Terms — Insurance

2. 2An owner wants permanent life coverage with the option to vary premium payments while paying enough to keep coverage in force. Which policy fits that payment pattern?

   1. A. Whole life insurance
   2. B. Universal life insurance
   3. C. Variable life insurance
   4. D. Limited-payment whole life insurance

   Answer: B

   Explanation: "You typically pay premiums for whole life insurance according to a set schedule. In a universal life insurance policy, you can choose a flexible premium payment pattern as long as you pay enough to keep your policy in force." Universal life allows that flexible pattern. Whole and limited-payment whole life use scheduled premiums; variable life identifies investment exposure rather than the requested premium arrangement.

   Reference: NAIC Life Insurance Buyer's Guide — p. 5, whole life vs. universal life

3. 3A Kentucky life policy names an adult child as beneficiary while its owner and insured are different people. Who is designated to receive the death benefit?

   1. A. The named adult child
   2. B. The policyowner automatically
   3. C. The insured's estate automatically
   4. D. The insurance producer automatically

   Answer: A

   Explanation: "A beneficiary is the person(s) or organization(s) you name to receive your life insurance policy’s death benefit." The named beneficiary is designated for the proceeds. Owner, estate, and producer do not replace that designation merely because of their roles.

   Reference: NAIC Life Insurance Buyer's Guide — p. 6, Choose a Beneficiary

4. 4An insurer sets aside funds to meet expected future claims under life policies already issued. What is that amount called?

   1. A. Policyholder surplus
   2. B. Policy reserve
   3. C. Written premium
   4. D. Policy dividend

   Answer: B

   Explanation: "Policy Reserve - the amount of money allocated specifically for the fulfillment of policy obligations by a life insurance company; reserves are in place to safeguard that the company is able to pay all future claims." A policy reserve is allocated for future policy obligations. Surplus is excess assets, written premium is sales volume, and a dividend is a possible refund to policyholders.

   Reference: NAIC Glossary of Insurance Terms — Policy Reserve

5. 5After a Kentucky ordinary life premium default, the owner timely asks to keep some death coverage without future premiums rather than take cash. Which option addresses this?

   1. A. Cash surrender value
   2. B. Policy loan advance
   3. C. Paid-up nonforfeiture benefit
   4. D. Dividend accumulation at interest

   Answer: C

   Explanation: "the insurer will grant, upon proper request not later than sixty (60) days after the due date of the premium in default, a paid-up nonforfeiture benefit" The timely election preserves a paid-up death benefit after default. Cash surrender ends coverage for cash; loans and dividend accumulation are different policy transactions.

   Reference: Kentucky Revised Statutes KRS 304.15-310 — KRS 304.15-310(1)(a)

6. 6A Kentucky business seeks life insurance on an unrelated contractor. At which point must any required insurable interest in that person's life exist?

   1. A. Only when a claim is paid after death
   2. B. Only when premiums are first renewed
   3. C. When the insurance contract is made
   4. D. When a beneficiary is changed years later

   Answer: C

   Explanation: "at the time when the contract was made, an insurable interest" The statute measures the interest when coverage is procured. Later payment, renewal or beneficiary changes do not replace the formation-time requirement.

   Reference: Kentucky Revised Statutes KRS 304.14-040 — KRS 304.14-040(3)–(4)

7. 7A new employee is insured under a Kentucky group life policy. Which document should be delivered to the employee to state coverage, payee and conversion rights?

   1. A. The employer's master group policy
   2. B. An individual insurance certificate
   3. C. The insurer's annual dividend notice
   4. D. The employee's conditional receipt

   Answer: B

   Explanation: "the insurer will issue to the policyholder, for delivery to each person insured an individual certificate" The insurer issues a certificate through the group policyholder for each insured person, describing protection, payee and statutory rights. The other documents serve different functions.

   Reference: Kentucky Revised Statutes KRS 304.16-180 — KRS 304.16-180

8. 8A living Roth IRA owner is not disabled and is not making a first-home withdrawal. Which distribution of earnings meets both the five-year and age conditions for a qualified distribution?

   1. A. After six tax years, when the owner is age 60
   2. B. After four tax years, when the owner is age 60
   3. C. After six tax years, when the owner is age 55
   4. D. After four tax years, when the owner is age 55

   Answer: A

   Explanation: "It is made after the 5-year period beginning with the first tax year"; "Made on or after the date you reach age 59½," These are the applicable timing and age conditions. Six tax years and age 60 satisfy both; the other choices fail one or both.

   Reference: IRS Publication 590-B — IRS Publication 590-B, What Are Qualified Distributions?

9. 9At delivery, a customer reads a life illustration and assumes every future cash value shown is guaranteed. Which clarification directly addresses the error?

   1. A. Separate guaranteed cash values from values based on current assumptions
   2. B. Compare projected cash values from one policy year to the next
   3. C. Review how premium timing affects interest credited to the policy
   4. D. Check whether scheduled premiums change in later policy years

   Answer: A

   Explanation: "What part of the premium or policy value isn’t guaranteed?" Comparing contractual guarantees with projections directly resolves the customer’s mistaken belief. Year-to-year values, timing of interest, and premium schedules are also real review topics in the guide, but none identifies which illustrated values are promised.

   Reference: NAIC Life Insurance Buyer's Guide — p. 7, Read Your Policy Carefully

10. 10A Kentucky life producer offers a prospective insured a part-time job solely to induce the purchase of a policy. Which item makes the offer violate KRS 304.12-110?

    1. A. The offer of employment
    2. B. The choice of a monthly premium mode
    3. C. The designation of a contingent beneficiary
    4. D. The selection of a fixed-period settlement option

    Answer: A

    Explanation: KRS 304.12-110 prohibits an insurance producer, as an inducement to insurance, from offering "Any employment." Because the job is offered solely to induce the policy purchase, it is the prohibited item.

    Reference: Krs 304 12 110 — KRS 304.12-110(1)