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DC Life & Health study materials
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DC Life & Health practice questions

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Question 1Insurance Regulation

Which agency regulates the business of insurance in the District of Columbia?

  1. The DC Office of Tax and Revenue, which licenses all businesses
  2. The DC Department of Insurance, Securities and Banking Correct answer.
  3. The federal Department of Health and Human Services
  4. The DC Board of Real Estate and Professional Licensing

Explanation

The Department of Insurance, Securities and Banking (DISB), headed by the Commissioner, administers DC's insurance laws, licenses producers, and examines insurers. Taxation, real estate licensing, and federal health programs are handled by other bodies.

Question 2Insurance Regulation

To legally solicit and sell life insurance products in DC, a person must first obtain:

  1. a producer license from DISB for the life line of authority Correct answer.
  2. written permission from the insurer's home-state insurance regulator
  3. a certificate of authority from the National Association of Insurance Commissioners
  4. a general business license from the DC Department of Licensing and Consumer Protection

Explanation

Selling insurance for compensation requires a producer license issued by the Commissioner, with the appropriate line of authority. A general business license does not authorize insurance sales.

Question 3Insurance Regulation

Premiums a producer collects from policyholders are held in a fiduciary capacity, which means the producer must:

  1. deposit them in the producer's personal account until the end of the month
  2. hold the funds in trust and remit them promptly to the insurer Correct answer.
  3. invest them in securities for the producer's own benefit
  4. use them to cover agency operating expenses before remitting the balance

Explanation

Fiduciary handling requires premiums to be kept separate from the producer's personal and business funds and forwarded to the insurer without improper delay. Using premium funds for the producer's own purposes is a prohibited practice.

Question 4Insurance Regulation

Which of the following practices is prohibited under DC insurance law?

  1. Sharing part of the commission with the applicant as an inducement Correct answer.
  2. Giving the policyholder a copy of the policy
  3. Explaining the policy's exclusions to an applicant
  4. Charging the premium stated in the policy

Explanation

Rebating, which is offering a policyholder anything of value not stated in the policy to induce a purchase, is an unfair trade practice. Charging the filed premium, delivering the contract, and disclosing exclusions are proper conduct.

Question 5Insurance Regulation

For a life insurance policy to be valid, insurable interest must exist:

  1. at the time the application is made Correct answer.
  2. at both the time of application and the time of death
  3. only at the time of the insured's death
  4. only if the beneficiary is a family member

Explanation

Insurable interest is tested when the contract is formed, because that is when the incentive to insure another person must be genuine. The beneficiary need not show insurable interest at the insured's death.

Question 6Insurance Regulation

Under DC law, an individual life insurance policy delivered to a purchaser generally must allow the owner to return it for a premium refund within:

  1. 10 days Correct answer.
  2. 3 days
  3. 20 days
  4. 45 days

Explanation

DC gives an individual life insurance buyer a free-look period of at least 10 days after delivery to review the contract and return it for a refund. The right protects buyers who find the policy does not meet their needs.

Question 7Insurance Regulation

DC-licensed life and health producers must complete continuing education consisting of:

  1. 12 hours every two years, including 1 hour of ethics
  2. 40 hours every three years, including 10 hours of ethics
  3. 8 hours each year, with no ethics component
  4. 24 hours biennially, including 3 hours of ethics Correct answer.

Explanation

DC requires producers to complete 24 continuing education credit hours every two years, and at least 3 of those hours must cover ethics. The requirement keeps licensed producers current on products and standards.

Question 8Insurance Regulation

When an insurer appoints a producer to act on its behalf in DC, the insurer must:

  1. defer the appointment until the producer's next renewal cycle
  2. obtain the prior written approval of the producer's former insurer
  3. notify the Commissioner of the appointment as regulations require Correct answer.
  4. post a surety bond with the Commissioner for every appointment

Explanation

Appointment is the insurer's act of authorizing a licensed producer to represent it, and the insurer must report the appointment to the Commissioner in the form and timeframe the regulations specify. Prior insurers and bonds are not part of the appointment process.

Question 9Insurance Regulation

Which of the following is an unfair claim settlement practice?

  1. Failing to act promptly on claim communications Correct answer.
  2. Requesting a signed proof-of-loss statement
  3. Investigating a claim that shows signs of fraud
  4. Denying a claim that falls outside the policy's terms

Explanation

Unfair claim practices include failing to acknowledge or act reasonably promptly on communications about a claim. Requesting proof of loss, investigating suspected fraud, and applying policy exclusions are legitimate activities.

Question 10Insurance Regulation

A producer who misrepresents an existing policy's terms to persuade a policyholder to lapse it and buy a new policy is engaging in:

  1. Defamation
  2. Twisting Correct answer.
  3. Rebating
  4. Coercion

Explanation

Twisting is inducing a policyholder to drop existing coverage through misrepresentation or incomplete comparison. It harms consumers by causing unnecessary lapse and replacement.

Question 11Insurance Regulation

When a life insurance sale will replace existing coverage, DC rules generally require the producer to:

  1. complete the sale without discussing the existing policy
  2. obtain the existing insurer's written permission first
  3. cancel the existing policy before the new one is issued
  4. present the replacement notice to the applicant and leave a copy Correct answer.

Explanation

Replacement rules require disclosure so the buyer can compare the old and new contracts. The producer must present a replacement notice, obtain any required signatures, and leave the applicant a copy.

Question 12Insurance Regulation

The DC Life and Health Insurance Guaranty Association protects covered policyholders when a member insurer becomes insolvent, up to statutory limits. For a life insurance death benefit, the limit is generally:

  1. $100,000
  2. $200,000
  3. $50,000
  4. $300,000 Correct answer.

Explanation

The guaranty association covers a life insurance death benefit up to $300,000, with separate lower limits for cash surrender values and health benefits. The association is a backstop funded by member insurers, not a general government fund.

Question 13Insurance Regulation

Under federal and DC privacy rules, a health insurer generally must:

  1. disclose all of a customer's medical records to anyone who requests them
  2. obtain a court order before sharing information with the customer
  3. give customers a privacy notice describing information-sharing practices Correct answer.
  4. post each customer's medical records on the insurer's public website

Explanation

Privacy rules require insurers to provide a clear notice of how personal information is used and shared and to limit disclosure to permitted purposes. Customers retain access to their own information, but the public has no right to it.

Question 14Insurance Regulation

Knowingly submitting a false claim to an insurer in DC is:

  1. a minor infraction handled only by the insurer
  2. legal as long as the claim is later withdrawn
  3. insurance fraud punishable as a crime Correct answer.
  4. permitted if the claim amount is under $500

Explanation

Insurance fraud includes knowingly presenting false or misleading information to obtain payment and may be prosecuted criminally in addition to any civil or contractual consequences. The amount involved affects severity, not legality.

Question 15Insurance Regulation

A licensed producer who changes residence must:

  1. wait until the next license renewal cycle to update the address
  2. notify only the appointing insurer and not the Commissioner
  3. surrender the license and reapply as a new applicant
  4. notify the Commissioner of the change as regulations require Correct answer.

Explanation

Producers must keep their licensing records current, including a change of address reported to the Commissioner within the required timeframe. This ensures official notices and service of process reach the licensee.

Question 16Insurance Regulation

Before an insurer may transact insurance business in DC, it must:

  1. obtain a federal insurance charter from the Treasury
  2. join the National Association of Insurance Commissioners
  3. hold a certificate of authority from the Commissioner Correct answer.
  4. file its policy forms with the U.S. Department of Health and Human Services

Explanation

An insurer must be authorized by the Commissioner through a certificate of authority before it may transact insurance in the District. Authorization is a state function; there is no federal charter for general insurance.

Question 17Insurance Regulation

An advertisement describing a policy as providing 'lifetime coverage with no premium increase' when the insurer may raise premiums is:

  1. acceptable if the producer honestly believed the statement
  2. acceptable if the applicant never read the advertisement
  3. permitted during the policy's first year
  4. misrepresentation and an unfair trade practice Correct answer.

Explanation

Advertising that misstates policy terms, benefits, or costs is misrepresentation regardless of the producer's belief. Insurers and producers are responsible for accurate marketing materials.

Question 18Insurance Regulation

Under DC law, an individual health insurance policy must generally include a grace period of at least:

  1. 7 days
  2. 30 days Correct answer.
  3. 45 days
  4. 60 days

Explanation

Individual health policies must allow at least a 30-day grace period for payment of premium after the due date, during which coverage remains in force. Group policies follow their own statutory grace-period rules.

Question 19Insurance Regulation

A producer may share commissions from a DC insurance sale with:

  1. a friend who referred the client to the producer
  2. another producer who holds a valid DC license Correct answer.
  3. the policyholder, as an inducement to buy
  4. an unlicensed assistant who completes the application

Explanation

Commissions may be split only with persons properly licensed to sell the same line of insurance. Paying an unlicensed person or rebating to a policyholder violates unfair trade practice laws.

Question 20Insurance Regulation

If a licensed producer dies or becomes incapacitated, DC law may allow a temporary producer to:

  1. rewrite all of the deceased producer's existing policies
  2. increase commissions on the existing book of business
  3. solicit new lines of insurance the producer never held
  4. service the existing book of business for a limited time Correct answer.

Explanation

A temporary license can be issued so policyholders are not left without service after a producer dies or is disabled. Its authority is limited to servicing the existing business, not expanding it.

Question 21General Insurance Concepts

A person who wants to protect a family against the financial loss that would result from the person's premature death purchases a life insurance policy. Which method of handling risk does this represent?

  1. Risk retention
  2. Risk reduction
  3. Risk avoidance
  4. Risk transfer Correct answer.

Explanation

Buying insurance transfers the financial consequences of a loss to an insurer in exchange for a premium. Avoidance would mean eliminating the exposure entirely, and retention would mean bearing the loss personally.

Question 22General Insurance Concepts

In a life insurance transaction, insurable interest must exist at which time?

  1. Only at the time of the insured's death
  2. Only when a death claim is submitted
  3. At both the time of application and the time of death
  4. At the time the policy is applied for Correct answer.

Explanation

For life insurance, insurable interest needs to exist only at the time the contract is formed; the relationship does not have to continue afterward. This rule allows coverage to remain in force even if circumstances such as employment or marriage later change.

Question 23General Insurance Concepts

The principle of indemnity provides that an insured should be:

  1. Guaranteed a return of all premiums paid
  2. Allowed to profit from a covered loss
  3. Restored to approximately the same financial position held before the loss Correct answer.
  4. Required to carry insurance equal to the full value of the property insured

Explanation

Indemnity means the insured is made whole, no better and no worse, after a covered loss. The principle prevents a person from collecting more than the value of the loss.

Question 24General Insurance Concepts

An applicant admits to an agent that he overstated his income on earlier applications to obtain larger policies and then collected the benefits. This pattern of behavior is best described as:

  1. A morale hazard
  2. A physical hazard
  3. A speculative risk
  4. A moral hazard Correct answer.

Explanation

A moral hazard exists when an applicant's dishonesty or questionable character increases the likelihood of loss. It is distinguished from a morale hazard, which involves carelessness or indifference rather than deliberate wrongdoing.

Question 25General Insurance Concepts

Why is an insurance policy described as a unilateral contract?

  1. Both parties exchange promises of equal value
  2. The policy is prepared entirely by the insurer
  3. The insured may cancel at any time
  4. Only the insurer makes a legally enforceable promise Correct answer.

Explanation

In a unilateral contract, only one party makes an enforceable promise: the insurer promises to pay covered claims, while the insured's payment of premium is a condition of that promise rather than a promise of future performance.

Question 26General Insurance Concepts

An insurance contract in which the amount one party receives may be far greater or far less than the amount paid is known as:

  1. A commutative contract
  2. A bilateral contract
  3. An aleatory contract Correct answer.
  4. A void contract

Explanation

Aleatory means the exchange depends on an uncertain event, so the values exchanged are not necessarily equal. A small premium may produce a large claim payment, or no payment at all.

Question 27General Insurance Concepts

The principle of utmost good faith requires an applicant for insurance to:

  1. Pay the premium before coverage begins
  2. Report claims promptly after a loss occurs
  3. Read the entire policy before signing it
  4. Disclose all material facts that affect the risk Correct answer.

Explanation

Utmost good faith obligates each party, especially the applicant, to reveal material facts the insurer needs to evaluate and price the risk. Concealment or misrepresentation of such facts can give the insurer grounds to rescind the contract.

Question 28General Insurance Concepts

A primary insurer transfers part of its risk to another insurer. The primary insurer in this arrangement is called the:

  1. Ceding company Correct answer.
  2. Beneficiary insurer
  3. Retrocessionaire
  4. Assuming company

Explanation

The insurer that transfers risk is the ceding company, while the insurer that accepts the risk is the reinsurer, also called the assuming company. Reinsurance spreads large or unusual exposures among insurers.

Question 29General Insurance Concepts

People with serious health problems are more likely to apply for life insurance than people in excellent health. This tendency is known as:

  1. Adverse selection Correct answer.
  2. The law of large numbers
  3. Risk pooling
  4. Subrogation

Explanation

Adverse selection is the tendency of higher-risk individuals to seek coverage disproportionately. Insurers control it through underwriting, policy exclusions, and rates that reflect risk.

Question 30General Insurance Concepts

Which principle allows an insurer to predict future claim costs with greater confidence as the number of similar insureds increases?

  1. Adverse selection
  2. Indemnity
  3. Utmost good faith
  4. The law of large numbers Correct answer.

Explanation

As the number of independent, similar exposure units grows, actual loss experience tends to approach the expected rate. This predictability is the foundation of rate-making and reserve estimation.

Question 31General Insurance Concepts

An agent collects a premium payment from an applicant. In handling those funds, the agent acts in a fiduciary capacity, which means the agent must:

  1. Deposit the funds in a personal account until the commission is earned
  2. Remit the funds to the insurer only when the insurer requests them
  3. Hold the funds in trust and account for them to the insurer Correct answer.
  4. Apply the funds to the agency's operating expenses when needed

Explanation

A fiduciary duty means the agent holds money belonging to another in trust and must account for it properly. Premiums belong to the insurer and must be handled separately from the agent's own funds.

Question 32General Insurance Concepts

An insurer has knowingly accepted late premium payments for several months. When a later payment is late, the insurer denies coverage for a claim. A court is most likely to prevent the denial under the doctrine of:

  1. Consideration
  2. Reformation
  3. Estoppel Correct answer.
  4. Subrogation

Explanation

Estoppel prevents a party from asserting a right after its own conduct has led the other party to rely on a different position. A condition waived and relied upon generally cannot be enforced later.

Question 33General Insurance Concepts

Statements made by an applicant on an insurance application that the applicant believes to be true to the best of his or her knowledge are called:

  1. Exclusions
  2. Warranties
  3. Representations Correct answer.
  4. Conditions

Explanation

Representations are statements the applicant believes to be true to the best of his or her knowledge. A warranty, by contrast, is a statement guaranteed to be literally true, and a material misrepresentation may allow the insurer to rescind coverage.

Question 34General Insurance Concepts

An insurer that is owned by its policyholders and may issue participating policies is a:

  1. Fraternal benefit society
  2. Mutual insurer Correct answer.
  3. Reciprocal insurer
  4. Stock insurer

Explanation

A mutual insurer is owned by its policyholders, who may receive dividends from surplus in their capacity as owners. A stock insurer, in contrast, is owned by shareholders.

Question 35General Insurance Concepts

Because the insurer writes the policy and the applicant generally must accept or reject its terms, an insurance policy is classified as a contract of:

  1. Adhesion Correct answer.
  2. Indemnity
  3. Utmost good faith
  4. Warranty

Explanation

A contract of adhesion is prepared by one party and offered on a take-it-or-leave-it basis. Because the insured has no real bargaining power over the wording, ambiguities are construed against the insurer.

Question 36General Insurance Concepts

An insurer places applicants with similar age, health, and lifestyle characteristics into the same group so that each group pays a rate matching its expected loss experience. This practice is called:

  1. Adverse selection
  2. Subrogation
  3. Reinsurance
  4. Risk classification Correct answer.

Explanation

Risk classification groups insureds with similar expected loss costs so that each class is charged a rate consistent with its risk. It keeps low-risk insureds from excessively subsidizing high-risk insureds.

Question 37General Insurance Concepts

A health insurer pays a member's hospital bill caused by another driver's negligence, then pursues the at-fault driver to recover the amount paid. This right is known as:

  1. Contribution
  2. Salvage
  3. Subrogation Correct answer.
  4. Coinsurance

Explanation

Subrogation allows the insurer to stand in the insured's shoes and recover from the party responsible for the loss, which prevents double recovery by the insured. It reinforces the indemnity principle.

Question 38General Insurance Concepts

Which arrangement would most clearly indicate a lack of insurable interest?

  1. A lender insuring a borrower's life up to the outstanding loan balance
  2. A business insuring a key employee whose death would cause the business financial loss
  3. An investor with no relationship to the insured buys a policy on that person's life Correct answer.
  4. A spouse insuring a spouse

Explanation

Insurable interest requires a relationship in which the policyholder would suffer a financial loss from the insured's death. An unrelated investor with no such exposure is effectively wagering on a life, which is prohibited.

Question 39General Insurance Concepts

Which statement correctly describes coverage under a conditional receipt?

  1. Coverage begins on the application date if the applicant proves insurable under the insurer's rules Correct answer.
  2. Coverage begins only when the policy is physically delivered to the applicant and accepted
  3. Coverage begins when the applicant signs the delivery receipt after the free-look period
  4. Coverage begins on the application date even if the applicant is later found to be uninsurable by the insurer

Explanation

A conditional receipt provides interim coverage that depends on the applicant meeting the insurer's underwriting requirements. If the applicant does not prove insurable under those rules, no coverage attaches for the period before the policy is issued.

Question 40General Insurance Concepts

What is the primary purpose of an entire contract clause in an insurance policy?

  1. It gives the policyowner a stated period to return the policy for a full refund
  2. It sets the time limit within which a claim may be filed
  3. It allows the insurer to amend the policy by attaching a new endorsement at any time
  4. It prevents the insurer from incorporating outside documents into the agreement Correct answer.

Explanation

The entire contract clause states that the policy and the attached application constitute the whole agreement between the parties. It protects the insured by barring the insurer from relying on outside documents or changing the contract without the owner's consent.

Question 41Life Insurance Basics

When must insurable interest exist for a life insurance policy to be valid?

  1. At the time the policy is applied for Correct answer.
  2. At the time of the insured's death
  3. Continuously throughout the policy term
  4. Only when a claim is submitted

Explanation

Insurable interest is required only at the inception of a life insurance contract, meaning when the application is made and the policy is issued. After that point the policy remains enforceable even if the relationship between the parties later ends.

Question 42Life Insurance Basics

In a stock life insurance company, dividends are paid to whom?

  1. To agents as renewal commissions
  2. To the state insurance department
  3. To policyowners as a return of surplus
  4. To shareholders from company profits Correct answer.

Explanation

A stock insurer is owned by its shareholders, and any dividend distribution represents a share of company profits paid to those shareholders. Policyowner dividends, by contrast, are a feature of mutual (participating) insurers.

Question 43Life Insurance Basics

What happens to coverage during the grace period if a life insurance premium is not paid by its due date?

  1. Coverage remains in force and any claim is paid Correct answer.
  2. The insurer may cancel the policy immediately
  3. Coverage is suspended until the premium is paid
  4. The policy's cash value is automatically forfeited

Explanation

The grace period keeps the policy fully in force for a set number of days after the due date. If the insured dies during that window, the insurer pays the claim after deducting the overdue premium.

Question 44Life Insurance Basics

What right does the policyowner keep when the beneficiary designation is revocable?

  1. Only the right to add a second beneficiary
  2. Only the right to change the beneficiary with consent
  3. The right to change the beneficiary without consent Correct answer.
  4. None; the beneficiary designation is locked in place

Explanation

A revocable designation reserves to the policyowner the power to change or remove the beneficiary at any time without that person's permission. Consent is needed only when the designation has been made irrevocable.

Question 45Life Insurance Basics

Under a standard suicide clause, if the insured dies by suicide during the first two policy years, the insurer will typically:

  1. Rescind the policy and keep the premiums collected
  2. Pay the full face amount to the named beneficiary
  3. Pay the accumulated cash value plus interest
  4. Refund premiums paid and deny the death benefit Correct answer.

Explanation

The suicide clause limits the insurer's liability during an initial period, usually two years, to a return of premiums paid rather than payment of the face amount. After that period expires, a suicide death is treated like any other cause of death.

Question 46Life Insurance Basics

The free look provision gives a policyowner the right to:

  1. Skip the first premium payment entirely
  2. Borrow against cash value without any interest
  3. Cancel the policy at any time without any charge
  4. Return the policy for a full refund Correct answer.

Explanation

The free look provision allows the owner to examine the delivered policy and return it within a stated number of days for a full premium refund. It is a one-time right that expires at the end of that review period.

Question 47Life Insurance Basics

Adverse selection in life insurance refers to:

  1. The tendency of healthy applicants to buy large policies
  2. Insurers rejecting applicants who pose a high risk
  3. The tendency of high-risk applicants to seek coverage Correct answer.
  4. The practice of charging all applicants the same rate

Explanation

Adverse selection is the risk that people with poorer health or greater hazards are more eager to buy coverage than those in good health. Insurers counter it through underwriting and by classifying risks so premiums reflect expected mortality.

Question 48Life Insurance Basics

Why does a primary insurer purchase reinsurance?

  1. To avoid paying state premium taxes
  2. To spread the risk of large claims with another insurer Correct answer.
  3. To increase the number of policies it can write directly
  4. To comply with state beneficiary designation rules

Explanation

Reinsurance transfers part of the insurer's risk on larger or unusual exposures to a reinsurer in exchange for a share of premium. It protects the insurer's surplus and lets it accept risks larger than it could retain alone.

Question 49Life Insurance Basics

How are dividends paid on a participating whole life policy generally treated for federal income tax purposes?

  1. They are taxable only when taken in cash
  2. They are treated as a return of premium Correct answer.
  3. They are taxed as capital gains when received
  4. They are fully taxable as ordinary income each year

Explanation

Dividends on participating policies are considered a return of the premium the policyowner paid, so they are not taxable income when received. Once cumulative dividends exceed the total premiums paid, the excess becomes taxable.

Question 50Life Insurance Basics

An agent who collects an initial premium from an applicant is acting in what capacity?

  1. As an outside contractor with no special duty
  2. As a fiduciary who must remit funds to the insurer Correct answer.
  3. As a creditor of the applicant
  4. As a trustee for the beneficiary

Explanation

Premiums collected from applicants belong to the insurer, and the agent holds them in a fiduciary capacity. Commingling those funds or failing to remit them promptly is a breach of that duty and can support license discipline.