Life & Health Insurance Practice Test
Insurance Life Policy Types Practice Questions
Life Policy Types makes up 6 of every 50 questions on a Tigertest Insurance practice test. Here are 10 of the 24 questions on it, each with the answer and the reason.
Updated by the Tigertest team. General portion only, on the NAIC model and standard prelicensing texts. Your state portion is separate.
1. Kevin and Lisa have a 30-year, $300,000 mortgage and want coverage that shrinks as the loan balance falls. Which policy fits best?
- A.Increasing term
- B.Decreasing term
- C.Limited pay whole life
- D.Level term
Answer: B. Decreasing term has a level premium and a face amount that declines over the term, roughly matching a mortgage balance. Level term would keep paying the full $300,000 even after much of the loan is repaid, costing more than needed.
2. A 28-year-old parent with two toddlers needs $1,000,000 of coverage but has a tight budget. Which policy provides the most death benefit per premium dollar?
- A.Straight whole life
- B.Variable universal life
- C.Single premium whole life
- D.Level term life
Answer: D. Term insurance is pure protection with no cash value, so it has the lowest initial premium for a large face amount. Whole life builds cash value and costs several times more for the same death benefit.
3. A renewable feature in a term life policy allows the policyowner to:
- A.Renew for another term without evidence of insurability
- B.Renew at the original issue-age premium rate
- C.Receive premiums back if the insured survives
- D.Exchange it for whole life without evidence of insurability
Answer: A. Renewability lets the owner extend coverage for another term without evidence of insurability, though the premium rises to the insured's attained age. Exchanging for whole life without evidence is the convertible feature, not renewability.
4. Tom bought 20-year convertible term at age 30. At 45 he is diagnosed with diabetes and wants lifelong coverage. What can he do?
- A.Apply for whole life with a new medical exam
- B.Add an increasing term rider to extend the coverage
- C.Convert to whole life without evidence of insurability
- D.Renew the term for another 20 years at the original rate
Answer: C. The conversion privilege lets Tom exchange term for permanent insurance without proving insurability, usually at his attained age. Applying with a new exam would expose him to a rating or decline because of the diabetes.
5. A client wants term coverage but dislikes paying for nothing if she outlives the term. Which option refunds her premiums at the end?
- A.Convertible term
- B.Annually renewable term
- C.Return of premium term
- D.Decreasing term
Answer: C. Return of premium term refunds the premiums paid if the insured survives the term, in exchange for a noticeably higher premium than level term. Convertible term lets her switch to permanent coverage but does not refund premiums.
6. Which type of term insurance has a death benefit that grows over the term and is usually sold as a rider?
- A.Increasing term
- B.Annually renewable term
- C.Decreasing term
- D.Level term
Answer: A. Increasing term raises the face amount over time by a set amount or percentage and is typically attached as a rider, such as a cost-of-living or return of premium rider. Annually renewable term keeps the face level while the premium rises each year.
7. Under a straight whole life policy, when does the cash value equal the face amount?
- A.After premiums have been paid for 20 years
- B.At age 65, when premiums stop
- C.At the end of the incontestable period
- D.At maturity, age 100 or 121
Answer: D. Straight whole life charges a level premium for life, and the cash value grows to equal the face amount when the policy endows at age 100 or 121, depending on the mortality table. Premiums stopping at 65 describes a limited pay policy.
8. Dr. Chen, 40, wants permanent coverage but wants no premiums due after she retires at 65. Which policy fits?
- A.20-year level term
- B.Life paid-up at 65
- C.Modified whole life
- D.Straight whole life
Answer: B. Limited pay whole life compresses premiums into a set period, such as to age 65, after which the policy is paid up for life. Straight whole life requires premiums for the insured's entire life.
9. A retiree uses an inheritance to buy a whole life policy with one lump-sum payment. What is a likely tax consequence?
- A.The premium is deductible in the year paid
- B.It is a modified endowment contract
- C.The death benefit becomes taxable to heirs
- D.Cash value growth is taxed every year
Answer: B. Single premium whole life fails the 7-pay test, so it is a MEC and loans or withdrawals are taxed LIFO with a possible 10% penalty before 59 1/2. The death benefit remains income tax-free to the beneficiary.
10. A recent graduate wants whole life with lower premiums for the first few years, then one higher level premium. Which policy is designed for this?
- A.Limited pay whole life
- B.Single premium whole life
- C.Graded premium whole life
- D.Modified whole life
Answer: D. Modified whole life charges a reduced premium for the first 3 to 5 years, then a higher level premium for life. Graded premium whole life instead raises the premium every year for 5 to 10 years before it levels off.
Practice all 24 life policy types questions, and the rest of the 200-question bank, in the free Insurance training sets. Questions you miss come back until you have mastered them.
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