Life Only Practice Exam.
40 verified questions, instant feedback.
Know the exam before you sit it
the facts most prep sites buryEvery free resource for this exam
family overview →Get a free Life Only study plan
A week-by-week plan plus new practice questions, straight to your inbox.
Browse all questions & answers
1. A candidate pays the registration fee and later must retake the examination, paying the same amount again. What is the total paid across the two attempts?
- A. $39
- B. $68
- C. $78
- D. $98
Show answer & explanation
Answer: C
Each attempt costs $39, so two attempts total $78. This is a calculation over the published fee.2. Which statement accurately describes a key feature of universal life insurance?
- A. The premium is fixed and can never be changed by the policyowner
- B. The cash value is invested in separate account subaccounts chosen by the owner
- C. The policyowner may adjust premiums and the death benefit within limits
- D. The policy builds no cash value of any kind
Show answer & explanation
Answer: C
Universal life is flexible-premium permanent insurance that separates the mortality, expense, and interest components, allowing the policyowner to adjust premiums and death benefits within limits. Its cash value earns a current interest rate subject to a contractual guaranteed minimum; separate account subaccounts describe variable life, not universal life.3. What is the fee required to sit for this examination?
- A. $29
- B. $39
- C. $49
- D. $59
Show answer & explanation
Answer: B
The published exam fee is $39.4. In insurance, the principle that requires an insured to have a legitimate financial stake in the subject of the policy — such that they would suffer a genuine loss if the covered event occurred — is known as what?
- A. Indemnity
- B. Insurable interest
- C. Subrogation
- D. Utmost good faith
Show answer & explanation
Answer: B
Insurable interest is the requirement that the policyowner stand to experience a real financial loss from the insured event; without it, a contract resembles a wager rather than insurance.5. An insurance contract is described as one in which the values exchanged by the two parties are unequal — the insured pays a comparatively small premium while the insurer may owe a much larger benefit. This characteristic identifies the contract as which type?
- A. Aleatory
- B. Bilateral
- C. Unilateral
- D. Conditional
Show answer & explanation
Answer: A
An aleatory contract is one in which the amounts exchanged may be unequal and depend on an uncertain future event, which describes the premium-versus-benefit relationship in insurance.6. The concept describing the potential for loss — the underlying possibility that a covered event might occur — is best labeled as what?
- A. Peril
- B. Hazard
- C. Risk
- D. Exposure
Show answer & explanation
Answer: C
Risk refers to the uncertainty or possibility of loss. A peril is the actual cause of loss, and a hazard is a condition that increases the chance or severity of a loss.7. Which term identifies the actual cause of a loss, such as fire, windstorm, or theft?
- A. Hazard
- B. Peril
- C. Exposure
- D. Loss
Show answer & explanation
Answer: B
A peril is the specific cause of a loss. Fire, windstorm, and theft are all examples of perils against which insurance may provide protection.8. When registering to sit for the examination, what fee must a candidate pay?
- A. $29
- B. $39
- C. $49
- D. $59
Show answer & explanation
Answer: B
The stated exam fee is $39, so choice B is correct. The remaining amounts do not match the published fee.9. The doctrine of indemnity is best understood as serving which purpose?
- A. To allow the insured to profit from a covered loss
- B. To restore the insured to approximately the same financial position held before the loss, without gain
- C. To guarantee replacement with brand-new property regardless of prior condition
- D. To transfer the insurer's obligations to a reinsurer
Show answer & explanation
Answer: B
Indemnity aims to make the insured whole — restoring them to the financial position occupied immediately before the loss — while preventing them from profiting from the event.10. A moral hazard differs from a physical hazard primarily in that a moral hazard arises from:
- A. A tangible condition of the property, such as faulty wiring
- B. An individual's characteristics or tendencies, such as a dishonest intent to cause or exaggerate a loss
- C. An act of nature beyond human control
- D. The statutory language of the policy contract
Show answer & explanation
Answer: B
A moral hazard stems from a person's character or intentions — for example, a dishonest inclination to file a false claim — whereas a physical hazard is a tangible condition that increases the likelihood of loss.11. The principle of utmost good faith in an insurance contract imposes which primary expectation on the parties?
- A. That only the insurer must disclose all material facts
- B. That both parties deal honestly and disclose all material facts relevant to the risk
- C. That the insured waives the right to contest any claim denial
- D. That premiums must always be paid annually in a single installment
Show answer & explanation
Answer: B
Utmost good faith requires both the insurer and the applicant to act honestly and to disclose all material information affecting the risk, so that each party can rely on the representations of the other.12. Priya forgot to pay her life insurance premium on its due date. Which policy provision keeps her coverage in force for a limited time while she catches up?
- A. The reinstatement provision
- B. The incontestability clause
- C. The grace period
- D. The automatic premium loan
Show answer & explanation
Answer: C
The grace period gives the policyowner typically 30 or 31 days after a missed premium during which coverage stays in force. The incontestability clause instead limits the insurer's ability to contest the policy after two years.13. Three years after issuing a policy, an insurer discovers the applicant concealed a medical condition on the application. The premiums are fully paid. What is the insurer's position under the incontestability clause?
- A. It may void the policy because concealment is never protected
- B. It may reduce the death benefit proportionally
- C. It cannot contest the policy, since it has been in force beyond two years
- D. It may contest only if the concealment was intentional
Show answer & explanation
Answer: C
After the policy has been in force for two years, the insurer cannot contest it for misstatements or concealment; the only remaining exception is nonpayment of premium, which does not apply here since premiums are paid. A proportional benefit adjustment applies to misstatement of age or sex, not concealment.14. A policyowner names his spouse as primary beneficiary and his daughter as contingent beneficiary. Under what circumstance would the daughter receive the policy proceeds?
- A. Whenever the daughter requests payment from the insurer
- B. Only if the spouse predeceases the insured
- C. Automatically, splitting the proceeds equally with the spouse
- D. Only if the proceeds are first paid to the insured's estate
Show answer & explanation
Answer: B
A primary beneficiary is first in line; a contingent beneficiary receives proceeds only if the primary predeceases the insured. Payment to the estate occurs only when no beneficiary survives at all.15. Three years after issuing a policy, an insurer discovers the insured materially concealed a health condition on the application. What is the insurer's position under the incontestability clause?
- A. It may void the policy because concealment was material
- B. It may contest the policy only if it refunds all premiums
- C. It cannot contest the policy, because two years have passed
- D. It may reduce the death benefit proportionally
Show answer & explanation
Answer: C
The incontestability clause bars the insurer from contesting the policy for misstatements or concealment once it has been in force for two years, with the exception of nonpayment of premium. At three years, the contestable period has expired.16. An insured dies by suicide 14 months after his life policy is issued. How will the insurer respond?
- A. Pay the full death benefit to the beneficiary
- B. Refund the premiums paid, but not the death benefit
- C. Pay the cash value only
- D. Deny all liability, keeping the premiums
Show answer & explanation
Answer: B
The suicide clause excludes death by suicide during the first two years of the policy and limits the insurer's liability to a refund of premiums paid. Since 14 months is within the two-year exclusion period, only premiums are returned.17. A whole life policyowner can no longer afford premiums but does not want to lose the value she has built up. Which set of options guarantees she receives her accumulated cash value?
- A. Dividend options
- B. Nonforfeiture options
- C. Settlement options
- D. Renewability options
Show answer & explanation
Answer: B
Nonforfeiture options guarantee the policyowner the accumulated cash value if the policy lapses or is surrendered, through cash surrender, reduced paid-up insurance, or extended term insurance.18. A policyowner becomes totally disabled and can no longer work. Which rider keeps his life insurance in force without further out-of-pocket premium payments?
- A. Waiver of premium rider
- B. Accelerated death benefit rider
- C. Guaranteed insurability rider
- D. Return of premium rider
Show answer & explanation
Answer: A
The waiver of premium rider waives premiums if the insured becomes totally disabled, keeping the policy in force. The accelerated death benefit rider instead advances part of the death benefit upon terminal illness, and the guaranteed insurability rider permits purchasing additional coverage without evidence of insurability.19. A policyowner wants to replace his current beneficiary with his new spouse, but the insurer tells him he needs the existing beneficiary's written consent first. What does this indicate about the current designation?
- A. The beneficiary is a contingent beneficiary
- B. The beneficiary was designated irrevocably
- C. The policy is still within its contestable period
- D. The beneficiary is the insured's estate
Show answer & explanation
Answer: B
A revocable beneficiary can be changed at any time by the policyowner, but an irrevocable beneficiary must consent to any change. The consent requirement therefore shows the current beneficiary was named irrevocably.20. An insured named his sister as primary beneficiary and his brother as contingent beneficiary. Both siblings die before the insured, and no other beneficiary is named. When the insured later dies, the policy proceeds are paid to:
- A. The sister's heirs
- B. The brother's heirs
- C. The insured's estate
- D. The state's unclaimed property fund
Show answer & explanation
Answer: C
A contingent beneficiary receives proceeds only if the primary predeceases the insured — but here the contingent also predeceased the insured. When no beneficiary survives the insured, the proceeds are paid to the insured's estate.21. After an insured's death, the insurer learns the insured's age was understated on the application. Under the misstatement of age provision, how is the claim handled?
- A. The claim is denied entirely.
- B. The full face amount is paid, and the beneficiary is billed for back premiums.
- C. The death benefit is adjusted to the amount the premium paid would have purchased at the insured's correct age.
- D. The policy is retroactively voided and premiums are refunded.
Show answer & explanation
Answer: C
The misstatement of age provision does not void the policy or deny the claim; it adjusts the death benefit to what the premium actually paid would have purchased at the correct age.22. During underwriting, an insurer orders an investigative consumer report on an applicant. Which obligation does the Fair Credit Reporting Act impose on the insurer?
- A. It must obtain the applicant's medical records directly from every treating physician.
- B. It must notify the applicant, who has the right to know the nature of the information collected.
- C. It must guarantee the applicant a preferred risk classification.
- D. It must destroy the report within 30 days of the underwriting decision.
Show answer & explanation
Answer: B
Under the Fair Credit Reporting Act, an insurer that obtains a consumer or investigative report must notify the applicant, and the applicant has the right to know the nature of the information collected.23. All of the following are nonforfeiture options that guarantee a policyowner the accumulated cash value EXCEPT:
- A. Cash surrender
- B. Reduced paid-up insurance
- C. Waiver of premium
- D. Extended term insurance
Show answer & explanation
Answer: C
The nonforfeiture options are cash surrender, reduced paid-up insurance, and extended term. Waiver of premium is a rider that waives premiums if the insured becomes totally disabled — it is not a nonforfeiture option.24. A homeowner wants life insurance whose death benefit shrinks over the years to match the declining balance of her 30-year home loan. Which policy design best fits this need?
- A. Level term insurance
- B. Increasing whole life
- C. Decreasing term insurance
- D. Universal life with a level death benefit
Show answer & explanation
Answer: C
Decreasing term reduces the death benefit over time and is often used to cover a mortgage, making it a natural match for a loan balance that declines as it is paid down.25. Under a traditional whole life policy, what happens to the cash value when the contract reaches its maturity date?
- A. It is forfeited to the insurer
- B. It equals the policy's face amount
- C. It converts to an annuity automatically
- D. It is reduced to the sum of premiums paid
Show answer & explanation
Answer: B
In whole life insurance, the cash value grows on a guaranteed fixed schedule and equals the face amount at maturity, which is typically age 100 or 121.26. An insured misses the premium due date on her individual life insurance policy. Under the required grace period provision, which statement is accurate?
- A. The policy lapses at midnight on the premium due date.
- B. Coverage remains in force for a stated period, typically 30 or 31 days, after the missed premium.
- C. The insurer must refund all premiums previously paid.
- D. The death benefit is permanently reduced by the amount of the missed premium.
Show answer & explanation
Answer: B
The grace period provision keeps coverage in force for a stated period after a missed premium, typically 30 or 31 days, so the policy does not lapse the moment a payment is late.27. In life insurance, at what point must insurable interest exist between the policyowner and the insured?
- A. At the inception of the policy only
- B. At the time of the insured's death only
- C. Both at inception and at the time of loss
- D. Continuously throughout the life of the policy
Show answer & explanation
Answer: A
In life insurance, insurable interest must exist only at the inception of the policy, not at the time of the loss. A person is also presumed to have unlimited insurable interest in their own life.28. When must insurable interest exist for a life insurance contract to be validly issued and enforced?
- A. Only at the inception of the policy.
- B. Only at the time of the insured's death.
- C. Both at inception and at the time of loss.
- D. Continuously, verified at every policy anniversary.
Show answer & explanation
Answer: A
In life insurance, insurable interest must exist only when the policy is issued — at inception — not at the time of the loss. This differs from the beneficiary's position at claim time, which does not require insurable interest.29. A policyowner named his sister as irrevocable beneficiary. He now wishes to name his new spouse instead. What does the irrevocable designation require?
- A. Nothing — the owner may change any beneficiary at will.
- B. The sister must consent to the change.
- C. The insurer must approve the change through reunderwriting.
- D. The change is prohibited under all circumstances.
Show answer & explanation
Answer: B
A revocable beneficiary can be changed at any time by the owner, but an irrevocable beneficiary must consent before being replaced. The change is possible, but only with the sister's consent.30. Marcus purchases a policy that will pay a death benefit only if he dies within the next 20 years. The policy accumulates no savings element. What type of life insurance did Marcus buy?
- A. Whole life insurance
- B. Term life insurance
- C. Universal life insurance
- D. Variable life insurance
Show answer & explanation
Answer: B
Term insurance provides protection for a specified period, pays a death benefit only if the insured dies within that term, and builds no cash value. Whole life and universal life are permanent forms that build cash value, and variable life invests cash value in separate accounts.31. An agent holds only a state life insurance license. Why can't she sell variable life policies?
- A. Variable life may be sold only by the insurer's home office
- B. Variable life is a security, so its sale also requires FINRA registration
- C. Variable life requires a separate property and casualty license
- D. Variable life may not be sold by individual producers at all
Show answer & explanation
Answer: B
Because variable life is a security, its sale requires a FINRA registration in addition to a life license. In variable life, cash value is invested in separate account subaccounts and the policyowner bears the investment risk.32. A retiree worries less about dying too soon and more about running out of money during a long retirement. Which product is specifically designed to address that concern, and how?
- A. Term life insurance, by paying a death benefit within a set period
- B. An annuity, by liquidating a principal sum into an income stream
- C. Major medical insurance, by covering hospital and surgical expenses
- D. Disability income insurance, by replacing lost earnings after an elimination period
Show answer & explanation
Answer: B
An annuity liquidates a principal sum into a stream of income and protects against outliving one's assets — the mathematical opposite of life insurance, which protects against dying too soon. The other products address death protection, medical expenses, and lost earnings from disability, not longevity risk.33. An insured misses her premium due date but dies 20 days later without having paid. Which policy provision most likely allows her beneficiary to still collect the death benefit?
- A. The reinstatement provision
- B. The grace period provision
- C. The incontestability clause
- D. The automatic premium loan provision
Show answer & explanation
Answer: B
The grace period gives the policyowner typically 30 or 31 days after a missed premium during which coverage remains in force. Because the insured died only 20 days after the missed payment, death occurred within the grace period, so the claim is payable (usually minus the overdue premium).34. After an insured's death, the insurer learns the application understated his age. Rather than denying the claim, the insurer will:
- A. Void the policy and refund premiums
- B. Pay the face amount as written, since the policy has matured
- C. Adjust the death benefit to what the premium paid would have purchased at the correct age
- D. Bill the estate for the underpaid premiums before paying anything
Show answer & explanation
Answer: C
Under the misstatement of age provision, a misstated age or sex does not void the policy; instead, the death benefit is adjusted to the amount the premium actually paid would have purchased at the insured's correct age.35. Which of the following is NOT one of the standard nonforfeiture options in a whole life policy?
- A. Cash surrender
- B. Reduced paid-up insurance
- C. Extended term insurance
- D. Guaranteed insurability
Show answer & explanation
Answer: D
The three nonforfeiture options are cash surrender, reduced paid-up insurance, and extended term insurance. Guaranteed insurability is a rider that allows the insured to purchase additional coverage at set intervals without evidence of insurability — it is not a nonforfeiture option.36. An insured dies, and both the primary and contingent beneficiaries predeceased her with no other beneficiary named. To whom does the insurer pay the policy proceeds?
- A. The state's unclaimed property fund immediately.
- B. The insured's estate.
- C. The insurer retains the proceeds.
- D. The insured's closest living relative, chosen by the insurer.
Show answer & explanation
Answer: B
When no beneficiary survives the insured, the policy proceeds are paid to the insured's estate. A contingent beneficiary would take only if the primary predeceased the insured and the contingent survived — here neither survived.37. An insured is diagnosed with a terminal illness and wants access to some of her policy's death benefit while still alive to pay for care. Which rider makes this possible?
- A. Waiver of premium
- B. Accelerated death benefit
- C. Extended term
- D. Guaranteed insurability
Show answer & explanation
Answer: B
The accelerated death benefit rider advances a portion of the death benefit to the insured if she is diagnosed as terminally ill. Waiver of premium responds to total disability, extended term is a nonforfeiture option, and guaranteed insurability allows buying additional coverage.38. A life insurance policy has been continuously in force for three years. The insurer then discovers that the applicant concealed a material health condition on the original application. Which action is the insurer permitted to take?
- A. Void the policy for concealment at any time.
- B. Contest the policy only if it obtains a court order.
- C. It may not contest the policy for the concealment, because the contestability period has expired.
- D. Reduce the death benefit in proportion to the concealed risk.
Show answer & explanation
Answer: C
The incontestability clause bars the insurer from contesting a policy for misstatements or concealment once it has been in force for two years, with nonpayment of premium as the exception. Because three years exceeds two years, the insurer cannot contest.39. An insured dies by suicide 14 months after his life policy is issued. Based on the standard suicide clause, what is the insurer obligated to pay?
- A. The full death benefit.
- B. A refund of the premiums paid.
- C. The policy's cash value plus interest.
- D. Nothing at all.
Show answer & explanation
Answer: B
The suicide clause excludes death by suicide during the first two years of the policy, limiting the insurer's liability to a refund of premiums paid. Fourteen months falls within that two-year window, so only the premiums are returned.40. A licensed life producer wants to begin selling variable life insurance. What additional credential does regulation require, and why?
- A. A FINRA registration, because variable life is a security.
- B. A property and casualty license, because the cash value is an asset.
- C. No additional credential; a life license alone is sufficient.
- D. A certified public accountant designation, because subaccount values must be audited.
Show answer & explanation
Answer: A
Variable life invests its cash value in separate account subaccounts and is classified as a security. For that reason, selling it requires a FINRA registration in addition to a life insurance license.