Life & Health Insurance Exam Life & Health Insurance Types of Life Policies 3 — Questions and Answers
Question 1: Which of the following life policies is classified as 'interest-sensitive'?
- 20-year term
- Whole life
- Universal life (Correct answer)
- Decreasing term
Correct answer: Universal life
Universal life is interest-sensitive because its cash value growth and required premiums are affected by the current interest rates declared by the insurer.
Question 2: A variable life insurance policy transfers investment risk to the:
- Insurance company
- State guaranty association
- Policyowner (Correct answer)
- Beneficiary
Correct answer: Policyowner
In variable life, the policyowner selects investment subaccounts and bears the full investment risk, meaning the cash value and potentially the death benefit can decrease.
Question 3: What license is required to sell variable life insurance products in addition to a life insurance license?
- A property and casualty license
- A FINRA securities registration (Series 6 or 7) (Correct answer)
- A surplus lines license
- A health insurance license
Correct answer: A FINRA securities registration (Series 6 or 7)
Variable products are classified as securities, so agents must hold both a state life insurance license and a FINRA securities registration to sell them.
Question 4: A modified whole life policy is characterized by:
- Higher premiums in the early years that decrease later
- Lower premiums in the early years that increase after a specified period (Correct answer)
- Premiums tied to the policyholder's investment choices
- A death benefit that decreases over time
Correct answer: Lower premiums in the early years that increase after a specified period
Modified whole life charges reduced premiums for an initial period (commonly 3–5 years) and then increases them to a higher level-premium rate for the rest of the policy.
Question 5: Which of the following policies provides the HIGHEST initial face amount for the lowest premium?
- Whole life
- 20-pay life
- Term life (Correct answer)
- Endowment at age 65
Correct answer: Term life
Term insurance provides pure death protection with no cash value, allowing insurers to offer large face amounts at minimal initial cost.
Question 6: At what point does an endowment policy's face value become payable to the policyowner while still living?
- When the insured reaches the stated age or end of the endowment period (Correct answer)
- When the insured becomes permanently disabled
- When the policy has been in force for 20 years regardless of age
- When the cash value exceeds the annual premium by 10 times
Correct answer: When the insured reaches the stated age or end of the endowment period
An endowment policy matures and pays the face amount to the living policyowner at the end of the endowment period or at the specified age, whichever comes first.
Question 7: Credit life insurance is most commonly written as which type of policy?
- Whole life
- Decreasing term (Correct answer)
- Universal life
- Variable life
Correct answer: Decreasing term
Credit life is typically issued as decreasing term insurance, with the benefit amount declining in step with the outstanding loan balance.
Life & Health Insurance Exam Life & Health Insurance Types of Life Policies 3
Which of the following life policies is classified as 'interest-sensitive'?