TheoryLife Health Insurance
Practice Test
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Life Health Insurance exam — full Q&A walkthrough
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30 free Life Health Insurance questions
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Life Insurance Basics & Types
At what point must insurable interest exist for a life insurance policy to be valid?
Correct — A. In life insurance, insurable interest must exist at the inception of the contract. Unlike property insurance, it need not exist at the time of loss. -
Life Insurance Basics & Types
Which relationship would NOT automatically support insurable interest in another person's life?
Correct — C. Insurable interest requires a financial or close-family relationship. A casual acquaintance creates neither love-and-affection nor a financial stake, so no insurable interest exists. -
Life Insurance Basics & Types
What is the defining characteristic of term life insurance?
Correct — B. Term life provides pure death-benefit protection for a stated term and ordinarily accumulates no cash value, making it the lowest-cost coverage per dollar of death benefit. -
Life Insurance Basics & Types
A policyowner has annual renewable term insurance. What happens to the premium at each renewal?
Correct — D. Annual renewable term renews each year without evidence of insurability, but the premium rises because it is recalculated on the insured's higher attained age. -
Life Insurance Basics & Types
Decreasing term insurance is most commonly used to cover which need?
Correct — A. Decreasing term has a death benefit that declines over time, matching it well to an amortizing debt such as a mortgage whose balance falls each year. -
Life Insurance Basics & Types
Which is a feature of ordinary (straight) whole life insurance?
Correct — C. Straight whole life features level premiums payable for life, lifetime protection, and a guaranteed cash value that grows on a tax-deferred basis. -
Life Insurance Basics & Types
In a whole life policy, what is guaranteed to equal the face amount at policy maturity?
Correct — B. A whole life policy endows at maturity, meaning its guaranteed cash value grows to equal the face amount, at which point the policy pays out. -
Life Insurance Basics & Types
A 20-pay whole life policy differs from straight whole life in that:
Correct — D. Limited-pay whole life compresses premium payments into a set period; after that the policy is paid up, yet lifetime coverage continues. -
Life Insurance Basics & Types
A single-premium whole life policy is most likely to be classified as a Modified Endowment Contract because:
Correct — A. A single large premium nearly always exceeds the 7-pay limit, causing the contract to be a MEC, which subjects lifetime distributions to LIFO taxation and possible penalties. -
Life Insurance Basics & Types
A key feature distinguishing universal life from traditional whole life is:
Correct — C. Universal life unbundles the policy, allowing flexible premium payments and adjustable death benefit (subject to insurability for increases), with interest credited to cash value. -
Life Insurance Basics & Types
In a universal life policy, Option B (increasing death benefit) pays which amount at death?
Correct — B. Under UL Option B, the beneficiary receives the level specified amount plus the cash value, so the total death benefit increases as cash value grows. -
Life Insurance Basics & Types
Why must a producer selling variable life insurance hold a securities registration in addition to a life license?
Correct — D. Variable products place cash value in separate-account subaccounts with investment risk borne by the owner; this makes them securities, requiring FINRA registration plus the life license. -
Life Insurance Basics & Types
In a variable life policy, who bears the investment risk of the separate account?
Correct — A. Because separate-account values fluctuate with subaccount performance, the policyowner assumes the investment risk, and the cash value can rise or fall. -
Life Insurance Basics & Types
Adjustable life insurance allows the policyowner to do which of the following?
Correct — B. Adjustable life lets the owner modify premium, face amount, and the term/permanent balance to fit changing needs, within limits and subject to insurability for benefit increases. -
Life Insurance Basics & Types
A traditional endowment policy pays the face amount when:
Correct — C. An endowment pays the face amount at death or endows (pays the living insured) at the stated maturity date; modern tax law made most endowments lose favorable tax treatment. -
Life Insurance Basics & Types
Under a universal life Option A, the death benefit is generally:
Correct — A. UL Option A provides a level death benefit; as cash value grows, the net amount at risk to the insurer declines, helping keep cost-of-insurance charges lower. -
Life Insurance Basics & Types
A participating life insurance policy is one that:
Correct — B. Participating policies, typically issued by mutual insurers, may pay dividends representing a return of overcharged premium; dividends are not guaranteed. -
Life Insurance Basics & Types
Policy dividends from a participating life policy are generally treated for tax purposes as:
Correct — D. The IRS views dividends as a return of overpaid premium, so they are not taxable unless cumulative dividends exceed the total premiums the owner has paid. -
Life Insurance Basics & Types
Which is NOT one of the standard nonforfeiture options in a whole life policy?
Correct — C. The three statutory nonforfeiture options are cash surrender, reduced paid-up, and extended term. Automatic premium loan is a separate provision, not a nonforfeiture option. -
Life Insurance Basics & Types
Choosing the reduced paid-up nonforfeiture option results in:
Correct — B. Reduced paid-up uses the cash value as a single premium to buy a smaller, fully paid-up whole life policy, keeping permanent coverage with no more premiums. -
Life Insurance Basics & Types
The extended term nonforfeiture option provides:
Correct — A. Extended term uses the net cash value as a single premium to continue the full original face amount as term insurance for whatever period that amount will buy. -
Life Insurance Basics & Types
In key-person life insurance, who is the policyowner, premium payer, and beneficiary?
Correct — B. For key-person coverage the business owns the policy, pays the premiums, and is the beneficiary, protecting itself against the financial loss of losing a vital employee. -
Life Insurance Basics & Types
A cross-purchase buy-sell agreement funded with life insurance works such that:
Correct — C. In a cross-purchase plan, each business owner owns and is beneficiary of a policy on each other owner, providing cash to buy a deceased owner's share. -
Life Insurance Basics & Types
Under an entity (stock-redemption) buy-sell plan:
Correct — D. In an entity plan the business itself owns policies on each owner and uses the proceeds to redeem the deceased owner's interest from the estate. -
Life Insurance Basics & Types
A juvenile life insurance policy is one in which:
Correct — A. Juvenile policies insure the life of a minor; an adult (usually a parent) is typically the applicant, owner, and premium payer until the child reaches adulthood. -
Life Insurance Basics & Types
A survivorship (second-to-die) life policy pays the death benefit:
Correct — B. Second-to-die policies insure two lives and pay only after the second death; they are popular for estate-liquidity needs because premiums are lower than two single policies. -
Life Insurance Basics & Types
A first-to-die joint life policy is commonly used to:
Correct — C. First-to-die joint coverage pays on the first death, useful for business partners or spouses who need cash upon the loss of either person. -
Life Insurance Basics & Types
Credit life insurance is designed to:
Correct — B. Credit life pays the outstanding loan balance to the creditor if the insured borrower dies, so the debt does not pass to the estate or co-signers. -
Life Insurance Basics & Types
A modified whole life policy typically has:
Correct — A. Modified whole life charges lower premiums in the first few years, then a higher level premium thereafter, helping buyers who expect rising income. -
Life Insurance Basics & Types
As a whole life policy ages, the net amount at risk to the insurer:
Correct — C. In level whole life, as cash value rises the pure insurance (net amount at risk) shrinks, because the death benefit equals cash value plus net amount at risk.
Life Health Insurance sample questions
Tap any question below to reveal the answer and a plain-English explanation.
Life Insurance Basics & Types Industrial (home service) life insurance is characterized by:
A. Very large face amounts and annual premiums
B. Coverage sold only through the workplace
C. Mandatory medical exams
D. Small face amounts with premiums collected weekly or monthly by an agent ✓
Correct — D. Industrial life features small face amounts with premiums historically collected door-to-door by an agent, originally aimed at burial/final-expense needs.
Annuities The primary purpose of an annuity is to:
A. Provide a death benefit to beneficiaries
B. Provide income that the annuitant cannot outlive ✓
C. Accumulate funds for a child's education
D. Pay off a mortgage
Correct — B. An annuity is fundamentally a tool to liquidate a sum and provide income, often for life, protecting against the risk of outliving one's assets.
Health Insurance A major medical health plan is designed primarily to cover:
A. A broad range of medical expenses including hospital, surgical, and physician costs ✓
B. Only dental care
C. Only prescription drugs
D. Only accidental death
Correct — A. Major medical provides comprehensive coverage for a wide range of healthcare expenses, typically subject to a deductible, coinsurance, and an out-of-pocket maximum.
Disability & Long-Term Care In a disability income policy, the elimination period is:
A. The period benefits are paid
B. A waiting period after disability begins before benefits start ✓
C. The maximum benefit period
D. The premium grace period
Correct — B. The elimination period is the time after a disability begins before benefits become payable; longer elimination periods lower the premium.
Policy Provisions & Riders The grace period in a life insurance policy is:
A. The time to file a death claim
B. A period after the due date during which a late premium can be paid without lapse ✓
C. The free-look period
D. The contestable period
Correct — B. The grace period lets the owner pay an overdue premium and keep coverage in force; if the insured dies during it, the benefit is paid less the premium owed.
Group Insurance & Taxation A key characteristic of group life insurance is that:
A. Coverage is issued under a master contract to a sponsor such as an employer ✓
B. Each member is individually underwritten with a medical exam
C. It always builds cash value
D. It is only sold to one person
Correct — A. Group life is written under one master contract issued to the sponsor; members receive certificates and typically need no individual medical underwriting.
Insurance Law & Ethics Insurance contracts are said to be based on utmost good faith, meaning:
A. Both parties rely on each other to disclose material facts honestly ✓
B. Only the insurer must be honest
C. Only the insured must be honest
D. Neither party owes any duty
Correct — A. Utmost good faith requires both applicant and insurer to deal honestly and disclose all material facts; concealment or misrepresentation can void the contract.
Underwriting & Policy Issue Underwriting in insurance is the process of:
A. Evaluating risk and deciding whether and how to insure an applicant ✓
B. Paying claims
C. Collecting premiums only
D. Designing marketing materials
Correct — A. Underwriting is the risk-selection process: the insurer assesses the applicant's risk and decides to accept, decline, or rate the application and at what premium.
About the Life Health Insurance test
Built around Finance & Accounting, this Life Health Insurance question bank mirrors the real exam format instead of guessing at trick questions. Work through the free sample, read every explanation, then move on to full timed mock exams once you're ready.
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The core topics and terminology you'll be tested on
Rules, standards and best-practice procedures
Real-world scenarios and how to respond
Common mistakes and how to avoid them
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