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Indiana Life and Health Insurance EXAM
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Which type of policy pays a benefit if the insured goes blind? a. Whole Life b. Disability Income c. Term Life d. Accidental Death and Dismemberment (AD&D) ✅ Rationale: AD&D covers accidental death and specific injuries like blindness or loss of limbs. P wants a life policy that pays monthly income for 20 years after death and a $20,000 lump sum at the end. What should he buy? a. Family Income Policy b. Whole Life c. Family Maintenance Policy ✅ d. Universal Life Rationale: Family Maintenance provides monthly income for a set period, then a lump sum. Which whole life policy grows cash value the fastest? a. Straight Life b. Limited Pay Life c. 20 - pay Life ✅ d. Single Premium Rationale: A 20-pay life policy builds cash value quickly due to higher early premiums. What type of term policy allows continuation after expiration? a. Convertible b. Renewable ✅ c. Level d. Adjustable Rationale: Renewable term lets the insured renew without proof of insurability. Credit life insurance is usually issued as what type? a. Whole Life b. Adjustable Life
c. Universal Life d. Term ✅ Rationale: Credit policies are issued as term policies to match the loan duration. Adjustable Life insurance satisfies which need? a. Guaranteed returns b. Flexible premiums ✅ c. Level benefits only d. Fixed interest rate Rationale: Adjustable Life allows the policyholder to change premiums and coverage. Which policy has fluctuating death benefits and cash value based on investments? a. Whole Life b. Universal Life c. Variable Life ✅ d. Term Life Rationale: Variable life policies depend on investment performance. Under interest-sensitive whole life, cash value is determined by: a. Premium payments b. Investment returns c. Interest rates ✅ d. Death benefit Rationale: Interest-sensitive whole life ties cash value growth to current interest rates. Which policy starts as temporary and converts to permanent without evidence? a. Adjustable b. Convertible Term ✅ c. Renewable d. Universal Life Rationale: Convertible term allows permanent conversion without a medical exam. Which policy combines investments and term insurance? a. Whole Life b. Variable Life c. Variable Universal Life ✅ d. Adjustable Life Rationale: Variable Universal Life offers investment choices and flexible terms. Which term policy is used to cover a mortgage balance? a. Level b. Renewable c. Convertible d. Decreasing ✅ Rationale: Decreasing term policies match declining mortgage balances.
d. Mortality rate Rationale: These components are listed separately in Universal Life policies. Under Graded Premium Whole Life, premiums: a. Stay level for 10 years b. Are fixed forever c. Increase for a period, then level out ✅ d. Decrease annually Rationale: Graded premiums rise initially, then level for life. Which policy changes death benefit over time per a schedule? a. Variable b. Decreasing Term ✅ c. Universal d. Increasing Term Rationale: Decreasing term adjusts the benefit downward over time. A Family Policy that covers the wife until age 65 will pay all EXCEPT: a. If husband dies at 50 b. If child dies at 18 c. If wife dies at age 66 ✅ d. If husband and wife die in a car accident Rationale: The policy ends for the wife at 65, so no benefit is paid after that. Which type of policy is considered overfunded per IRS guidelines? a. Universal b. Modified Endowment Contract (MEC) ✅ c. Variable Life d. Adjustable Life Rationale: MECs exceed IRS premium limits and lose favorable tax treatment. Under a Renewable Term, the renewal premium is based on: a. Original age b. Policy duration c. Attained age ✅ d. Premium paid Rationale: Premiums increase with age upon renewal. Q wants max temporary protection. What policy is best? a. Whole Life b. Variable c. Term Life ✅ d. Adjustable Rationale: Term life provides the highest death benefit for the lowest cost. Which combines term insurance with an investment component? a. Whole Life b. Universal Life ✅
c. Term d. Graded Premium Life Rationale: Universal Life has both death benefit and investment elements. What life policy pays face value at death or age 100? a. Term b. Variable c. Whole Life ✅ d. Universal Rationale: Whole life guarantees a payout at death or age 100. Under which feature do insurer and insured share the cost of claims? a. Coinsurance b. Payment of Claims provision ✅ c. Premium Sharing d. Coordination of Benefits Rationale: The Payment of Claims provision outlines shared claim responsibilities. XYZ Corp has a group Health policy. Under this plan: a. Each employee is issued a separate policy b. XYZ gets the master policy; employees get certificates ✅ c. The policy covers only executives d. Each employee signs an individual contract Rationale: Group insurance uses a master contract with individual certificates. Bryce's rider allows purchase of more coverage without proof. This rider is: a. Accidental Death b. Return of Premium c. Guaranteed Insurability Rider ✅ d. Waiver of Premium Rationale: This rider locks in future options without health evidence. A qualified retirement plan allows the employer to: a. Avoid filing taxes b. Make tax-deductible contributions ✅ c. Invest in stocks only d. Withdraw anytime without penalty Rationale: Qualified plans offer tax incentives for employer contributions. Which beneficiary designation limits policyowner’s rights? a. Contingent b. Primary c. Irrevocable ✅ d. Tertiary Rationale: With an irrevocable beneficiary, changes require their consent. The Notice of Claims provision requires the insured to: a. File taxes on time b. Submit premium receipts
b. Excess of Loss c. Pro Rata d. Treaty ✅ Rationale: Treaty reinsurance is an automatic arrangement between insurers. Who elects the board of a mutual insurance company? a. Stockholders b. Agents c. Policyholders ✅ d. Executives Rationale: Mutual companies are owned by the policyholders. Applicants must be informed of reputation checks under the: a. HIPAA b. Privacy Act c. Fair Credit Reporting Act (FCRA) ✅ d. Gramm-Leach-Bliley Act Rationale: FCRA requires notice when consumer reports are used. When must the applicant be notified of FCRA rights? a. At delivery b. After approval c. Upon application ✅ d. Only if denied Rationale: FCRA mandates disclosure at the time of application. If a policy pays dividends to its policyholders, it is a: a. Nonparticipating policy b. Term policy c. Participating policy ✅ d. Universal policy Rationale: Participating policies return excess premium through dividends. The minimum amount insurers must hold to meet obligations is called: a. Equity b. Reserves ✅ c. Collateral d. Surplus Rationale: Reserves cover future policy benefits. Which law requires disclosure of credit investigations? a. 1945 McCarran-Ferguson b. Privacy Act c. 1970 Fair Credit Reporting Act ✅ d. HIPAA Rationale: FCRA enforces transparency about personal information collection.
When was the McCarran-Ferguson Act enacted? a. 1933 b. 1950 c. 1965 d. 1945 ✅ Rationale: It gave states authority to regulate insurance. Which describes a participating insurance policy? a. Pays no dividends b. Pays dividends to policyholders ✅ c. Is employer-sponsored d. Provides universal coverage Rationale: Participating policies return surplus funds as dividends. A nonprofit society for its members is called a: a. Captive insurer b. Risk retention group c. Fraternal Benefit Society ✅ d. Reinsurer Rationale: Fraternals provide insurance and operate under a lodge system. Which law requires disclosure of how personal information is obtained? a. HIPAA b. McCarran-Ferguson c. Privacy Act d. Fair Credit Reporting Act ✅ Rationale: FCRA mandates full disclosure on info collection. What makes loss prediction more accurate? a. Reinsurance b. Law of Large Numbers ✅ c. Underwriting d. Coinsurance Rationale: More data helps predict future claims. For a risk to be insurable, it must be: a. Guaranteed b. Controlled c. Predictable ✅ d. Voluntary Rationale: Insurers must be able to estimate loss frequency and cost. Law of Large Numbers involves: a. Small business coverage b. Large group of homogeneous units ✅ c. High premiums
c. Pure ✅ d. Investment Rationale: Only risks involving possible loss (not gain) are insurable. A contract where only the insurer makes a promise is: a. Bilateral b. Conditional c. Unilateral ✅ d. Participating Rationale: The insurer alone promises to pay; the insured pays premiums.
- An insurance contract written by the insurer is a: a. Bilateral agreement b. Contract of Adhesion ✅ c. Mutual policy d. Conditional contract Rationale: Since the insurer writes the terms, the insured must accept it as-is (adhere to it).
- What type of contract only has one party making an enforceable promise? a. Conditional b. Unilateral ✅ c. Reciprocal d. Mutual Rationale: In a unilateral contract, only the insurer promises to act (i.e., pay a claim).
- The consideration given by the insured is: a. Claim filing b. Premium payment and application ✅ c. Health check d. Policy review Rationale: Consideration means what the insured provides (application + premium) for the contract to be binding.
- Insurance contracts are considered: a. Legal partnerships b. Simple agreements c. Legal contracts ✅ d. Business arrangements Rationale: Insurance is governed by contract law and requires all legal elements.
- Insurance is a contract of: a. Promise b. Adhesion ✅ c. Agreement
d. Equity Rationale: Insured adheres to insurer’s terms without negotiation.
- Insurance contracts are conditional because: a. Only valid in certain states b. They require both parties to meet conditions ✅ c. They expire after one year d. They are always renewable Rationale: Claims are paid only if the insured meets policy conditions (like premium payment, proof of loss, etc.).
- A legal term meaning one-sided contract is: a. Bilateral b. Adhesion c. Unilateral ✅ d. Contractual Rationale: Insurers make legally enforceable promises; insured does not promise to continue coverage.
- Legal interpretation usually favors the: a. Insurer b. Agent c. Insured ✅ d. Regulator Rationale: Courts interpret ambiguities in insurance contracts in favor of the policyholder.
- A contract that can't be changed by the insured is called a: a. Mutual agreement b. Contract of adhesion ✅ c. Bilateral contract d. Flexible policy Rationale: The insured must accept or reject the policy as written.
- If an applicant withholds material facts, it is considered: a. Risk adjustment b. Concealment ✅ c. Misstatement d. Fraud Rationale: Concealment is the failure to disclose known material facts.
- Which is not a legal element of an insurance contract? a. Competent parties b. Legal purpose c. Negotiation ✅ d. Agreement Rationale: While negotiation may happen in business, insurance contracts are standardized (adhesion), not negotiated.
c. Proposal d. Partnership Rationale: Insurance policies are legal contracts with binding terms.
- The act of intentionally withholding information is called: a. Misrepresentation b. Fraud c. Concealment ✅ d. Warranty breach Rationale: Concealment involves not disclosing key facts, even without lying.
- Who pays the premium in an individual life policy? a. Employer b. Agent c. Beneficiary d. Policyowner ✅ Rationale: The policyowner is financially responsible for maintaining the policy. When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply?
- ANSWER Conversion provision Term Life Policies that have the ability to be converted to permanent coverage may do so during a specific time period. This conversion period
- ANSWER Varies according to the contract Which of the following consists of an offer, acceptance, and consideration? - ANSWER Contract Which of the following BEST describes a warranty? - ANSWER Statement guaranteed to be true What is the consideration given by an insurer in the consideration clause of a life policy?
- ANSWER Promise to pay a death benefit to a named beneficiary The part of a life insurance policy guaranteed to be true is called a - ANSWER warranty Which of these is NOT considered to be an element of an insurance contract? - ANSWER negotiating Taking receipt of premiums and holding them for the insurance company is an example of - ANSWER Fiduciary responsibility A life insurance arrangement which circumvents insurable interest statutes is called: - ANSWER Investor-Originated Life Insurance
Insurance contracts are known as ____ because certain future conditions or acts must occur before any claims can be paid. - ANSWER Conditional Insurance policies are offered on a "take it or leave it" basis, which make them: - ANSWER Contracts of Adhesion Which of these arrangements allows one to bypass insurable interest laws? - ANSWER Investor-Originated Life Insurance E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to? - ANSWER F Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the following contractual elements? - ANSWER Legal Purpose (Insurable Interest) Life and health insurance policies are: - ANSWER unilateral contracts When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have - ANSWER Insurable interest in the proposed insured A policy of adhesion can only be modified by whom? - ANSWER The insurance company The consideration clause of an insurance contract includes: - ANSWER The schedule and amount of premium payments A contract where one party either accepts or rejects the terms of a contract written by another party is called a contract of - ANSWER Adhesion Insurance policies are considered aleatory contracts because - ANSWER Performance is conditioned upon a future occurrence At what point does an informal agreement become a binding contract? - ANSWER When consideration is provided by one of the parties to the contract If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of? - ANSWER Insured
G purchased a Family Income policy at age 40, The policy has a 20-year rider period. If G were to die at age 50, how long would G's family receive an income? - ANSWER 10 years Which statement is correct regarding the premium payment schedule for whole life policies? - ANSWER Premiums are payable throughout the insured's lifetime/ coverage lasts until death of the insured A(n) ________ life policy offers the owner investment in products such as moneymarket funds, long-term bonds and equities. - ANSWER Variable Which statement about a whole life policy is true? - ANSWER Cash value may be borrowed against Which provision allows the policyowner to change a term life policy to a permanent one without providing proof of good health? - ANSWER conversion Whole Life insurance is sometimes referred to as "Straight Life." What does the word "straight" indicate when using this phrase? - ANSWER The duration of premium payments Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10 - year Term coverage for his wife on the same policy. Which of these policies did Y purchase? - ANSWER Whole life policy with an other insured rider P owns a $25,000 Life Policy that pays the face amount to him if he lives to age 70, or to his beneficiary if he dies before age 70. What kind of policy does P own? - ANSWER Endowment at age 70 S, age 40, is looking to buy a Life Insurance policy that will allow for increases or decreases in coverage as his needs change. The policy best suited for S would be - ANSWER Universal Life D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed? - ANSWER Level Term Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling? - ANSWER Variable Life S is covered by a whole life policy. Which insurance product can cover his children? - ANSWER Child term rider
What does a Face Amount Plus Cash Value Policy supposed to pay at the insured's death? - ANSWER Face amount plus the policy's cash value Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit? - ANSWER Variable Life A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision? - ANSWER Payor provision At what point does a Whole Life insurance policy endow? - ANSWER When the cash value equals the death benefit Which of the following policies is characterized by a flexible premium and death benefit and allows the policy owner control of the investment aspect of the plan? - ANSWER Variable universal life Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies? - ANSWER Policyowner Which of these is an element of a Variable Life Policy? - ANSWER A fixed, level premium What type of life insurance incorporates flexible premiums and an adjustable death benefit? - ANSWER Universal Life Which of the following features of a group term life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability? - ANSWER Conversion privilege Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options? - ANSWER Variable life A 15-year mortgage is best protected by what kind of life policy? - ANSWER 15-year decreasing term What kind of life insurance policy pays a specified monthly income to a beneficiary for 30 years and then pays a lump sum benefit at the end of that 30 years? - ANSWER Family maintenance policy How long does the coverage normally remain on a limited-pay life policy? - ANSWER age 100
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary? - ANSWER 20,000 death benefit Which of the following life insurance policies combine term insurance with an investment element? - ANSWER Universal Life What type of life policy covers two people and pays upon the death of the last insured? - ANSWER Survivorship Which of these life products is NOT considered interest-sensitive? - ANSWER Modified Whole Life K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this? - ANSWER Modified Whole Life Variable Whole Life Insurance can be described as - ANSWER both an insurance and securities product K is looking to purchase Renewable Term insurance. Which of these types of Term insurance may be renewable? - ANSWER Level Which of the following information is NOT required to be included in a Whole Life policy?
- ANSWER Policy's guaranteed dividend table Whole Life insurance policies are contractually guaranteed to provide each of the following EXCEPT - ANSWER Partial withdrawal features beyonh a surrender charge period What type of life policy covers two lives and pays the face amount after the first one dies? - ANSWER Joint Life Policy When is the face amount of a whole life policy paid? - ANSWER When the insured dies or at the policy's maturity date, whichever happens first Which of these statements describe a Modified Endowment Contract (MEC)? - ANSWER Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract Credit Life Insurance is: - ANSWER issued in an amount not to exceed the amount of the loan
J is issued a Life Insurance policy with a death benefit of $100,000. She pays $600 per year in premium for the first 5 years. The premium then increases to $900 per year in the sixth year, and remains level thereafter. The policy's death benefit also remains at $100,000. Which type of Life Insurance policy is this? - ANSWER Modified Premium Life Which of these would be considered a Limited-Pay Life policy? - ANSWER Life paid-up at age 70 Which of the following is considered an element of a Variable Life Policy - ANSWER Underlying equity investment All of these insurance products require an agent to have proper FINRA securities registration in order to sell them, EXCEPT for: - ANSWER Modified Whole Life A term life insurance policy matures: - ANSWER upon the insured's death during the term of the policy What type of policy would offer a 40-year old the quickest accumulation of cash value? - ANSWER 20-pay Life The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is: - ANSWER The cost A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct? - ANSWER 20-pay Life accumulates cash value faster than straight life Credit life insurance is typically issued with which of the following types of coverage? - ANSWER Decreasing Term Stranger-Owned Life Insurance (STOLI) is when a person purchases life insurance only to sell to a(n): - ANSWER Third-party with no insurable interest Under a Graded Premium policy, the premiums - ANSWER are lower during the policy's early years S owns a life insurance policy with cash values that fluctuate according to the underlying investment performance of common stocks. Which of these policies does S own? - ANSWER Variable Whole Life
