Life & Health Insurance Practice Test

Sample practice questions

A few real questions from this free bank, with full explanations. Use the practice tool above for the whole set.

1. 1. Accident & Health Fundamentals

   A consumer enrolls in a California Health Maintenance Organization (HMO). Which state agency has primary regulatory authority over that HMO?

   • a.California Department of Insurance, Consumer Services
   • b.California Department of Managed Health Care (DMHC)
   • c.Centers for Medicare & Medicaid Services (CMS)
   • d.California Department of Public Health (CDPH)

   Answer: b

   Explanation: Under the Knox-Keene Health Care Service Plan Act, California HMOs are regulated by the Department of Managed Health Care (DMHC), not the CDI. The CDI regulates indemnity health insurance and PPO products, but full-service HMOs fall under DMHC.

   Source: Cal. Health & Safety Code §1340 et seq. (Knox-Keene Act)

2. 2. California Insurance Code & Ethics

   An agent advertises an "educational lunch seminar" for seniors at a local hotel. Under §789.9, which of the following is prohibited?

   • a.Failing to disclose in any solicitation that an insurance agent will be present and insurance products may be offered
   • b.Serving any meal or refreshment to attendees, because §789.9 forbids using food to induce seniors to attend an insurance seminar
   • c.Disclosing the names of the insurers being represented before any specific product is discussed with attendees
   • d.Mentioning that annuities will be discussed whenever the invited audience includes anyone under the age of 65

   Answer: a

   Explanation: §789.9 requires that any solicitation to a senior for a seminar or meeting clearly disclose that an insurance agent will be present and that insurance products may be discussed or sold. Hiding the sales nature behind "education" or "estate planning" is a violation.

   Source: Cal. Ins. Code §789.9

3. 3. Life Insurance Fundamentals

   Single-premium whole life is most likely to be classified as which of the following for federal tax purposes?

   • a.Annually renewable term life insurance
   • b.Tax-qualified annuity contract
   • c.Modified Endowment Contract (MEC)
   • d.Employer group term insurance

   Answer: c

   Explanation: Funding a permanent life policy with a single large payment usually fails the IRC §7702A 'seven-pay test,' classifying it as a Modified Endowment Contract. While the death benefit remains income-tax-free, withdrawals and loans are taxed less favorably (LIFO basis, possible 10% penalty before age 59½).

   Source: Standard insurance principles

4. 4. Medicare & Senior Insurance

   How long is the federal Medigap Open Enrollment Period during which guaranteed-issue applies?

   • a.There is no guaranteed-issue period
   • b.6 months
   • c.24 months
   • d.12 months

   Answer: b

   Explanation: The federal Medigap Open Enrollment Period is a one-time 6-month window that starts the first month the beneficiary is both age 65 or older and enrolled in Part B. During this window the insurer cannot use medical underwriting.

   Source: 42 U.S.C. §1395ss(s)

5. 5. Life Insurance Fundamentals

   A 'juvenile life' policy with a 'payor benefit rider' on a 7-year-old child provides that:

   • a.The child becomes the owner of the policy at birth and controls the cash value and the beneficiary designation from that moment, so the adult who pays the premiums holds no rights in the contract and may neither surrender nor borrow against it
   • b.The child's coverage terminates automatically if either parent dies before the child reaches the stated age, and the insurer's only remaining obligation is to refund the premiums collected to the surviving parent, with no further benefit payable on the child's life
   • c.The insurer doubles the death benefit if the child survives to age 18, treating that birthday as an endowment date, and the increase is granted with no evidence of insurability, no change in the premium, and a contractual guarantee of the doubled amount
   • d.If the adult payor (typically a parent) dies or becomes totally disabled before the child reaches a stated age (commonly 21 or 25), the insurer will waive future premiums and the policy remains in force on the child's life

   Answer: d

   Explanation: A juvenile life policy is a permanent life contract issued on a minor (typically age 0 to 14). The 'payor benefit' or 'payor rider' is a key feature: if the adult payor (parent or guardian) responsible for premiums dies or becomes totally disabled before the child reaches a stated age (commonly 21 or 25, but sometimes earlier), the insurer waives future premiums and the policy remains fully in force on the child's life until the rider expires. The rider protects the child's coverage during the years when the family most needs the safety net. The statement that the child's coverage terminates on a parent's death with only a premium refund to the surviving parent is wrong; the policy continues either via the payor rider or via the child taking over premiums. The statement that the child owns the policy and controls the cash value and beneficiary designation from birth is wrong; the adult is the owner until the child reaches age of majority (typically 18 or 21, then ownership may transfer). And doubling the death benefit for survival to age 18 is fabricated; juvenile policies do not bonus-out at age 18.

   Source: California Insurance Code §10168 (life products); standard juvenile policies

6. 6. General Insurance Principles

   A misrepresentation on an application generally allows an insurer to void the policy only when the misstatement was:

   • a.Discovered more than two years after issue, which would usually fall outside the incontestable period and bar the insurer entirely
   • b.Material to the insurer's decision to issue the policy or set the premium
   • c.Made verbally to the producer
   • d.Related to the choice of beneficiary

   Answer: b

   Explanation: A misrepresentation must be material, meaning that had the insurer known the truth it would have declined the risk or charged a different premium, before it can serve as grounds to rescind the policy. Whether the statement was verbal or written is not the deciding factor. The beneficiary designation is generally not a material underwriting fact. And a misstatement discovered after the incontestability period usually cannot be used at all, so late discovery works against the insurer rather than for it.

7. 7. Group Life & Annuities

   In an annuity contract, the person whose life expectancy is used to determine the income payments is the:

   • a.Beneficiary
   • b.Annuitant
   • c.Owner
   • d.Insurer

   Answer: b

   Explanation: The annuitant is the measuring life on whom the income payments and their duration are based, much as the insured is the key life in a life insurance policy. The owner funds and controls the contract but is not necessarily the measuring life. The beneficiary receives any death benefit. The insurer issues and administers the contract. Payments under a life payout option are calculated from the annuitant's age and life expectancy.

8. 8. Accident & Health Fundamentals

   A hospital indemnity (hospital confinement) policy pays:

   • a.Only the cost of surgery performed during the insured's hospital stay, and nothing else
   • b.A fixed dollar amount for each day the insured is hospitalized, never an itemized reimbursement
   • c.The exact amount of the hospital's itemized bill for each confinement after the deductible and coinsurance
   • d.Nothing toward a hospital stay unless the insured is also confined in intensive care

   Answer: b

   Explanation: A hospital indemnity policy pays a predetermined flat amount (for example, a set dollar figure per day of confinement) whenever the insured is hospitalized, no matter what the actual bill is, and the insured may use the cash for any purpose. It does not reimburse the exact bill (that is a medical expense plan), is not limited to surgery, and does provide a hospital benefit. Because it is a limited, fixed-benefit product, it supplements rather than replaces comprehensive medical coverage.

9. 9. Life Policy Provisions

   An applicant pays the initial premium with the application and receives a conditional receipt. Coverage becomes effective:

   • a.As of the receipt or exam date, provided the applicant is found insurable under the insurer's standards
   • b.Only after the policy is delivered and a second premium is paid
   • c.Only after the policy's free-look examination period has completely ended and the owner has formally decided to keep the delivered contract
   • d.Immediately and unconditionally, regardless of the applicant's health

   Answer: a

   Explanation: A conditional receipt provides coverage retroactive to the application or exam date, but only if the applicant proves insurable as applied for; it is not a guarantee for an uninsurable applicant. Coverage does not wait for delivery or the end of the free-look.

10. 10. Disability & Long-Term Care

    If an employer pays the disability income premiums and does not include them in the employee's income, the disability benefits the employee later receives are:

    • a.Fully deductible by the employee
    • b.Taxable as income to the employee
    • c.Received completely income-tax-free
    • d.Exempt from all federal payroll tax

    Answer: b

    Explanation: When the employer deducts the premiums and does not tax them to the employee, the resulting benefits are taxable to the employee. The flip side of tax-free premiums is taxable benefits.