49 Life Insurance Practice Questions & Answers
Every Life Insurance practice question from the Insurance License Practice Test, with the correct answer and a short explanation.
Start practice test →1. Which type of life insurance policy provides coverage for a specified period and pays a death benefit only if the insured dies during that period, with no cash value?
- A.Term life✓ Answer
- B.Universal life
- C.Whole life
- D.Variable life
Term life insurance covers a set period and pays only if death occurs during the term; it builds no cash value.
2. Which permanent life insurance policy features flexible premiums and an adjustable death benefit, with cash value credited an interest rate declared by the insurer?
- A.Universal life✓ Answer
- B.Whole life
- C.Level term
- D.Variable life
Universal life offers flexible premiums and an adjustable death benefit, with cash value earning an interest rate declared by the insurer.
3. In a variable life insurance policy, where are the cash values held and who bears the investment risk?
- A.In the general account; the beneficiary bears the risk
- B.In the insurer's general account; the insurer bears the risk
- C.In a bank escrow; the government bears the risk
- D.In a separate account; the policyowner bears the investment risk✓ Answer
Variable life cash values are held in a separate account invested in subaccounts, and the policyowner bears the investment risk.
4. Under the incontestability provision, after a life insurance policy has been in force for how long may the insurer no longer contest the policy for material misstatements (except fraud where allowed)?
- A.5 years
- B.1 year
- C.2 years✓ Answer
- D.6 months
The standard incontestability period is 2 years, after which the insurer generally cannot contest the policy for misstatements in the application.
5. What is the purpose of the grace period provision in a life insurance policy?
- A.It allows the insurer to cancel the policy without notice
- B.It lets the insured change beneficiaries at any time
- C.It waives all future premiums after a claim
- D.It gives the policyowner time after the due date to pay a late premium without the policy lapsing✓ Answer
The grace period gives the policyowner time (commonly 30 or 31 days) after the premium due date to pay without the policy lapsing.
6. The reinstatement provision of a life insurance policy allows a lapsed policy to be restored, but the insurer may require which of the following?
- A.Payment of overdue premiums with interest and proof of insurability✓ Answer
- B.Doubling the death benefit permanently
- C.Nothing; reinstatement is automatic at any time
- D.A brand-new incontestability period only, with no other conditions
To reinstate a lapsed policy, the insurer typically requires payment of back premiums with interest and proof of insurability.
7. The free look provision in a life insurance policy gives the policyowner the right to do what?
- A.Borrow against the policy immediately
- B.Increase the death benefit without underwriting
- C.Return the policy within a stated period after delivery for a full premium refund✓ Answer
- D.Skip the first premium payment
The free look lets the policyowner return the policy within a stated number of days after delivery for a full refund of premium.
8. The waiver of premium rider on a life insurance policy provides what benefit?
- A.It pays double the death benefit for accidental death
- B.It refunds all premiums when the policy matures
- C.It keeps the policy in force by waiving premiums if the insured becomes totally disabled✓ Answer
- D.It converts term coverage to whole life automatically
The waiver of premium rider keeps the policy in force by waiving premiums if the insured becomes totally disabled, usually after a waiting period.
9. The accidental death benefit rider (often called 'double indemnity') pays an additional benefit when the insured's death results from what?
- A.An accident, typically within a specified time after the injury✓ Answer
- B.Suicide after two years
- C.Any cause, including illness
- D.Old age
The accidental death benefit pays an extra amount only when death results from an accident, usually within a specified period after the injury.
10. A beneficiary whose designation the policyowner cannot change without the beneficiary's written consent is known as what?
- A.Contingent beneficiary
- B.Tertiary beneficiary
- C.Irrevocable beneficiary✓ Answer
- D.Revocable beneficiary
An irrevocable beneficiary's designation cannot be changed by the policyowner without that beneficiary's written consent.
11. Under the common disaster / per capita rules, if the primary beneficiary dies before the insured and no successor is named, the death benefit is generally paid to whom?
- A.The contingent (secondary) beneficiary✓ Answer
- B.The insurer keeps the proceeds
- C.The state automatically
- D.The producer who sold the policy
If the primary beneficiary predeceases the insured, proceeds pass to the contingent (secondary) beneficiary if one is named.
12. Which nonforfeiture option uses a policy's cash value as a single premium to purchase a fully paid-up policy of the same type with a reduced face amount?
- A.Reduced paid-up insurance✓ Answer
- B.Extended term insurance
- C.Automatic premium loan
- D.Cash surrender
Reduced paid-up insurance uses the cash value as a single premium to buy a smaller, fully paid-up policy of the same type.
13. In a deferred annuity, what is the accumulation period?
- A.The time the insurer reviews the application
- B.The period during which annuity payments are made to the annuitant
- C.The period during which premiums are paid in and the annuity grows on a tax-deferred basis✓ Answer
- D.The 10-day free look window
The accumulation period is when premiums are paid in and the annuity value grows tax-deferred, before the payout (annuitization) phase.
14. For a life insurance contract to be valid, insurable interest must exist at what point in time?
- A.At the time the policy is issued (application)✓ Answer
- B.At the time of the insured's death
- C.Both at issue and at death
- D.Only when a claim is paid
In life insurance, insurable interest must exist only at the time of application; it need not continue to exist at the time of death.
15. Which whole life policy variation is designed to be fully paid up by a specified age, such as age 65, with premiums paid only until that age?
- A.Limited-pay whole life✓ Answer
- B.Straight (ordinary) whole life
- C.Single-premium whole life
- D.Modified whole life
Limited-pay whole life (e.g., paid-up at 65) requires premiums only until a set age or number of years, then the policy is fully paid up.
16. A variable universal life (VUL) policy combines flexible premiums with which additional feature?
- A.A guaranteed fixed interest rate set by the state
- B.A death benefit that cannot be adjusted
- C.Mandatory annuitization at age 59½
- D.Policyowner-directed investment of cash value in separate account subaccounts✓ Answer
VUL combines the flexible premiums and adjustable death benefit of universal life with policyowner-directed investment of cash value in separate account subaccounts.
17. An endowment policy is characterized by which of the following?
- A.It pays the face amount only if the insured dies
- B.It has no cash value at any time
- C.It pays the face amount at a set maturity date if the insured is living, or as a death benefit if the insured dies first✓ Answer
- D.It provides coverage only for accidental death
An endowment pays the face amount at maturity if the insured is alive, or as a death benefit if the insured dies before maturity.
18. The guaranteed insurability rider allows the insured to do what?
- A.Purchase additional coverage at specified dates or events without new evidence of insurability✓ Answer
- B.Double the death benefit at no cost
- C.Cancel the policy and receive all premiums back
- D.Skip premiums during unemployment
The guaranteed insurability rider lets the insured buy additional coverage at set option dates or life events without proving insurability again.
19. Which extended coverage is added when a term rider is attached to a permanent life policy?
- A.A savings account paying guaranteed dividends
- B.Coverage that never expires and builds cash value
- C.A permanent doubling of the cash value
- D.Temporary additional death benefit coverage for a specified period, often on the insured, spouse, or children✓ Answer
A term rider adds temporary term coverage to a permanent policy, commonly covering the insured, a spouse, or children for a set period.
20. Under the extended term nonforfeiture option, the policy's cash value is used to do what?
- A.Buy paid-up whole life of a reduced amount
- B.Pay the policy's dividends in cash
- C.Purchase term insurance for the full original face amount for as long as the cash value will provide✓ Answer
- D.Convert the policy to an annuity immediately
Extended term insurance uses the cash value as a single premium to buy term coverage equal to the original face amount for as long a period as the cash value allows.
21. Extended term insurance is typically the automatic (default) nonforfeiture option when which of the following is true?
- A.The policyowner does not select another nonforfeiture option✓ Answer
- B.The policyowner selects reduced paid-up in writing
- C.The policy has no cash value
- D.The insured is over age 100
Extended term insurance is generally the default nonforfeiture option applied automatically when the policyowner does not elect another option.
22. Under the 'paid-up additions' dividend option, policy dividends are used to do what?
- A.Buy small amounts of additional paid-up permanent insurance✓ Answer
- B.Reduce the incontestability period
- C.Pay the agent's commission
- D.Refund the initial premium
The paid-up additions option uses dividends to purchase small amounts of additional paid-up permanent insurance, increasing both death benefit and cash value.
23. Life insurance policy dividends paid to policyowners are generally treated for federal income tax purposes as what?
- A.Fully taxable ordinary income
- B.Tax-deductible contributions
- C.A capital gain taxed at 15%
- D.A nontaxable return of premium (unless total dividends exceed premiums paid)✓ Answer
Dividends are considered a nontaxable return of overpaid premium; they become taxable only if cumulative dividends exceed the premiums the owner has paid.
24. Which settlement option pays the beneficiary equal installments for a guaranteed period until the proceeds plus interest are exhausted, regardless of how long the beneficiary lives?
- A.Life income only
- B.Interest only
- C.Fixed period (period certain)✓ Answer
- D.Lump sum
The fixed-period (period certain) settlement option pays installments over a set number of years until proceeds and interest are exhausted, independent of the beneficiary's lifespan.
25. Under the life income settlement option, payments to the beneficiary continue for how long?
- A.For exactly 10 years
- B.Until the beneficiary reaches age 65
- C.Only until the interest is used up
- D.For the lifetime of the beneficiary✓ Answer
The life income option pays the beneficiary for as long as they live; the amount is based on the beneficiary's life expectancy.
26. Under the misstatement of age or sex provision, if the insured's age was understated on the application, what happens at death?
- A.The policy is automatically void
- B.The full face amount is always paid with no adjustment
- C.The death benefit is adjusted to the amount the premium paid would have purchased at the correct age✓ Answer
- D.The insurer keeps all premiums and pays nothing
With a misstatement of age, the death benefit is adjusted to what the premiums actually paid would have bought at the insured's true age.
27. The suicide provision in a life insurance policy typically states which of the following?
- A.Suicide is never covered under any circumstances
- B.If the insured dies by suicide within a stated period (often 2 years), the insurer refunds premiums instead of paying the face amount✓ Answer
- C.Suicide doubles the death benefit
- D.The policy pays the full face amount immediately regardless of when suicide occurs
During the suicide period (commonly 2 years), death by suicide results in a refund of premiums rather than payment of the face amount; after the period, it is a covered claim.
28. In a per stirpes beneficiary designation, if a named beneficiary predeceases the insured, that beneficiary's share generally goes to whom?
- A.The insurer
- B.That beneficiary's descendants (heirs), who split the deceased beneficiary's share✓ Answer
- C.The surviving named beneficiaries, split equally among all of them
- D.The estate of the policyowner only
Per stirpes ('by branch') passes a deceased beneficiary's share to that beneficiary's descendants, whereas per capita would redistribute it among surviving named beneficiaries.
29. A fixed annuity guarantees which of the following to the annuitant?
- A.Investment returns tied to a stock index with no floor
- B.No guarantees of any kind
- C.Payments that vary with separate account performance
- D.A minimum guaranteed interest rate and fixed payment amounts✓ Answer
A fixed annuity provides a guaranteed minimum interest rate during accumulation and fixed, guaranteed payment amounts during payout.
30. An equity-indexed (fixed indexed) annuity credits interest based on what, while typically guaranteeing a minimum?
- A.The performance of a specified market index, such as the S&P 500✓ Answer
- B.The insurer's dividend scale only
- C.The prime lending rate exclusively
- D.The annuitant's credit score
An equity-indexed annuity credits interest linked to the performance of a market index (like the S&P 500) while guaranteeing a minimum interest rate.
31. Which annuity payout option provides the highest periodic income but stops all payments at the annuitant's death, leaving nothing to beneficiaries?
- A.Life income with period certain
- B.Joint and survivor
- C.Straight life (life only)✓ Answer
- D.Installment refund
Straight life (life only) pays the largest income because payments cease at the annuitant's death with no refund or continued payments to beneficiaries.
32. In a joint and survivor annuity, when do payments stop?
- A.When the first of the two annuitants dies
- B.After a fixed 20-year term regardless of survival
- C.When the last surviving annuitant dies✓ Answer
- D.Immediately upon annuitization
A joint and survivor annuity continues payments until the last surviving annuitant dies, making it common for spouses.
33. During the payout phase of a nonqualified annuity, how is each payment taxed?
- A.The entire payment is tax-free
- B.The entire payment is taxable as ordinary income
- C.The portion representing earnings is taxable as ordinary income; the return of the owner's cost basis is not taxed (exclusion ratio)✓ Answer
- D.The payment is taxed as a long-term capital gain
The exclusion ratio makes the return of the owner's after-tax cost basis nontaxable, while the earnings portion of each annuity payment is taxed as ordinary income.
34. Which of the following is generally the federal income tax treatment of life insurance death benefits paid in a lump sum to a named beneficiary?
- A.Fully taxable as ordinary income
- B.Deductible by the beneficiary
- C.Taxed at a flat 20% rate
- D.Generally income-tax-free to the beneficiary✓ Answer
Lump-sum life insurance death benefits are generally received income-tax-free by the beneficiary, though interest paid on delayed proceeds may be taxable.
35. A life insurance policy that is classified as a Modified Endowment Contract (MEC) loses which tax advantage?
- A.The income-tax-free death benefit
- B.Favorable (FIFO) tax treatment on lifetime distributions; withdrawals and loans become taxable on a gains-first (LIFO) basis and may incur penalties✓ Answer
- C.The right to name a beneficiary
- D.The incontestability provision
A MEC keeps its tax-free death benefit but loses favorable living-distribution treatment: withdrawals and loans are taxed gains-first (LIFO) and may face a 10% penalty before age 59½.
36. In group life insurance, the master contract is issued to whom?
- A.Each individual employee
- B.The employer or other sponsoring group (policyholder)✓ Answer
- C.The state insurance department
- D.The named beneficiaries
In group life, the master contract (policy) is issued to the employer or sponsoring group, and individual members receive certificates of coverage.
37. Group life insurance is typically underwritten based on what, rather than each individual's health?
- A.The characteristics of the group as a whole (group underwriting)✓ Answer
- B.Each member's individual medical exam
- C.The credit score of every member
- D.A mandatory paramedical exam for all
Group life uses group underwriting, evaluating the group as a whole rather than requiring individual medical evidence from each member.
38. Which of the three primary factors used to calculate life insurance premiums reduces the premium when it is assumed to be higher?
- A.Mortality
- B.Expenses (loading)
- C.The interest rate the insurer expects to earn✓ Answer
- D.The agent's commission
The three premium factors are mortality, interest, and expense; a higher assumed interest (investment) rate lowers premiums, while higher mortality or expense raises them.
39. In life insurance underwriting, what is the purpose of the mortality table?
- A.To set the maximum policy loan interest rate
- B.To estimate the number of deaths expected each year within a group at each age, used in pricing✓ Answer
- C.To determine the free look period
- D.To calculate the surrender charge schedule
A mortality table shows the expected number of deaths per year at each age within a large group, and insurers use it to price the mortality component of premiums.
40. An applicant who represents a greater-than-average likelihood of loss and is charged a higher premium is classified as which type of risk?
- A.Preferred risk
- B.Standard risk
- C.Substandard (rated) risk✓ Answer
- D.Declined risk
A substandard (rated) risk has a higher-than-average chance of loss and is charged an increased premium; preferred is better than standard, and declined means coverage is refused.
41. Under the automatic premium loan (APL) provision, what happens if a premium is unpaid at the end of the grace period?
- A.The policy is immediately cancelled with no value
- B.The beneficiary is required to pay the premium
- C.The death benefit is permanently doubled
- D.The insurer automatically pays the overdue premium as a loan against the policy's cash value✓ Answer
The automatic premium loan provision uses available cash value to pay an overdue premium as a policy loan, preventing the policy from lapsing.
42. The entire contract provision means that the insurance contract consists of which of the following?
- A.Only the policy, with any attached application excluded
- B.The policy plus any attached application and riders, and nothing outside it can be incorporated by reference✓ Answer
- C.Whatever the agent verbally promised
- D.The policy plus the insurer's internal underwriting manuals
The entire contract consists of the policy plus any attached application and riders; documents not physically attached cannot be made part of the contract by reference.
43. The ownership rights in a life insurance policy (such as naming beneficiaries and taking loans) belong to whom?
- A.The insured, in all cases
- B.The policyowner✓ Answer
- C.The beneficiary
- D.The producer/agent
The policyowner holds all ownership rights, including naming or changing beneficiaries and taking policy loans; the owner and the insured may or may not be the same person.
44. Under the interest-only settlement option, what does the insurer do with the death benefit proceeds?
- A.Pays the entire amount immediately in one lump sum
- B.Splits the proceeds among all heirs equally
- C.Uses the proceeds to buy a new policy on the beneficiary
- D.Retains the principal and pays the beneficiary only the interest it earns, with the principal paid later✓ Answer
Under the interest-only option, the insurer holds the principal and pays the beneficiary the interest it earns, with the principal distributed at a later date or event.
45. Under the cash (surrender) dividend option, what does the policyowner receive?
- A.A check for the dividend amount✓ Answer
- B.Additional paid-up insurance only
- C.A reduction in the policy's face amount
- D.Extra term insurance for one year
Under the cash dividend option, the insurer sends the policyowner a check for the declared dividend rather than applying it to the policy.
46. Which statement about decreasing term insurance is correct?
- A.The premium increases each year while the death benefit stays level
- B.The death benefit decreases over the term while the premium generally remains level, often used to cover a mortgage✓ Answer
- C.Both the premium and the death benefit increase over time
- D.It builds substantial cash value like whole life
Decreasing term has a death benefit that declines over the term while premiums usually stay level; it is commonly used to cover a declining debt such as a mortgage.
47. A policyowner exchanges one annuity contract for another annuity without triggering current income tax. This is permitted under which provision?
- A.The incontestability clause
- B.The automatic premium loan provision
- C.The free look provision
- D.A Section 1035 exchange✓ Answer
A Section 1035 exchange lets an owner swap a life or annuity contract for a like contract (e.g., annuity for annuity) without immediate taxation of gains.
48. In a single premium immediate annuity (SPIA), when do income payments to the annuitant typically begin?
- A.Within about one payment interval after purchase (e.g., one month or one year)✓ Answer
- B.Only after a 20-year accumulation period
- C.At the annuitant's death
- D.Only when the annuitant reaches age 100
A single premium immediate annuity is funded with one lump sum and begins income payments within one payment period (typically within a month or a year), with no accumulation phase.
49. Who is the party whose life the annuity payout is based on, and whose life expectancy determines the payment amount in a life annuity?
- A.The beneficiary
- B.The annuitant✓ Answer
- C.The producer
- D.The insurer's actuary
The annuitant is the person whose life and life expectancy determine the annuity payout amount and duration in a life annuity.
Practice questions cover general, uniform insurance concepts. State-specific laws and limits vary — study your state's official exam outline before testing. Insurance info (NAIC) →