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DE Life & Health study materials
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DE Life & Health practice questions

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Question 1Insurance Regulation

Which entity has primary responsibility for administering and enforcing Delaware's insurance laws?

  1. The Attorney General's consumer protection division
  2. The Delaware Insurance Commissioner Correct answer.
  3. The Delaware Secretary of State
  4. The State Banking Commissioner

Explanation

Delaware's Insurance Commissioner heads the Department of Insurance, which licenses insurers and producers, examines market conduct, holds hearings, and imposes penalties for violations of the Insurance Code. Other state officials may touch insurance matters incidentally, but the Commissioner is the primary regulator.

Question 2Insurance Regulation

Under Delaware law, which activity requires a resident insurance producer license?

  1. Giving a friend's name to a licensed agent
  2. Distributing brochures on behalf of an authorized insurer
  3. Negotiating the terms of a life policy for a commission Correct answer.
  4. Handing a client a copy of an issued policy

Explanation

A license is required to solicit, negotiate, sell, or service insurance for compensation. Clerical or administrative tasks and the mere furnishing of names without discussion of policy terms fall outside the licensing requirement.

Question 3Insurance Regulation

A producer collects an initial premium from a life insurance applicant. How must those funds be handled?

  1. As trust funds held in a fiduciary capacity that may not be commingled Correct answer.
  2. As general agency revenue available for operating expenses
  3. As compensation fully earned when the application is signed
  4. As a loan to the agency until the policy is issued

Explanation

Premiums and returned premiums collected by a producer are held in a fiduciary capacity and must be accounted for and remitted promptly. Commingling those funds with the producer's personal or operating money is prohibited.

Question 4Insurance Regulation

What is Delaware's continuing education requirement for a resident life and health producer over each two-year licensing period?

  1. 30 hours, including 6 hours of ethics
  2. 16 hours, including 1 hour of ethics
  3. 12 hours, with no ethics requirement
  4. 24 hours, including 3 hours of ethics Correct answer.

Explanation

Delaware requires resident producers to complete 24 credit hours of approved continuing education every two years, at least 3 of which must be ethics. Coursework must be approved and reported to the Department of Insurance.

Question 5Insurance Regulation

Which practice is regulated as rebating?

  1. Charging a lower premium because underwriting classified the risk as preferred
  2. Crediting a dividend that the policy's terms provide for
  3. Offering a prospect part of the producer's commission as an inducement to buy Correct answer.
  4. Applying a discount disclosed in the policy for a health-improvement program

Explanation

Rebating is offering anything of value not specified in the policy as an inducement to purchase insurance. Rate classifications, dividends, and discounts written into the contract are lawful because they are part of the policy terms.

Question 6Insurance Regulation

Before an insurer may issue life insurance policies in Delaware, it must:

  1. Join a state guaranty association
  2. Hold a certificate of authority from the Insurance Commissioner Correct answer.
  3. Register as a foreign corporation with the federal government
  4. File its annual report with the Secretary of State

Explanation

An insurer must be authorized, meaning it holds a certificate of authority issued by the Insurance Commissioner, before transacting insurance in Delaware. Issuing policies without that authority is an unauthorized-insurer violation.

Question 7Insurance Regulation

An insurer ends a producer's appointment. Within how many days must the insurer notify the Delaware Insurance Commissioner?

  1. 90 days
  2. 15 days
  3. 30 days Correct answer.
  4. 5 days

Explanation

Delaware requires the insurer to file notice of the termination of an appointment with the Commissioner within 30 days. The insurer must also give the producer notice of the termination.

Question 8Insurance Regulation

A resident producer moves to a new home address. The producer must notify the Commissioner of the change within:

  1. 10 days
  2. 20 days
  3. 30 days Correct answer.
  4. 15 days

Explanation

Licensees must keep their licensing record current and report a change of address to the Department within 30 days. Notice may be given electronically through the Department's licensing system.

Question 9Insurance Regulation

A licensed Delaware producer may share a commission on a life policy with:

  1. Any person who regularly supplies the producer with client names
  2. An unlicensed office manager who arranged the appointment
  3. Another producer properly licensed for life insurance Correct answer.
  4. A paralegal who explained policy features to the client

Explanation

Commissions may be divided only among persons properly licensed to sell the class of insurance involved. Paying compensation for selling or negotiating insurance to an unlicensed person is prohibited.

Question 10Insurance Regulation

When a producer recommends replacing an existing life insurance policy in Delaware, the producer must:

  1. Present and deliver a replacement notice along with a list of the existing policies to the applicant Correct answer.
  2. Obtain the Commissioner's written approval before submitting the application
  3. Delay submitting the application for at least 30 days
  4. Complete the replacement before the existing insurer is told anything

Explanation

Replacement rules require the producer to give the applicant a replacement notice and a listing of the existing coverage being replaced, with copies signed by the producer and applicant. The notice lets the consumer compare the old and new contracts before completing the transaction.

Question 11Insurance Regulation

Which of the following is an unfair claim settlement practice?

  1. Failing to affirm or deny coverage within a reasonable time Correct answer.
  2. Explaining in writing why a claim was denied
  3. Requesting medical records needed to evaluate a claim
  4. Paying a valid claim within the period the policy allows

Explanation

Unfair claim settlement practices include failing to acknowledge and act promptly on communications, and failing to affirm or deny coverage within a reasonable time after proof of loss is received. Investigating a claim and explaining a denial are proper insurer conduct.

Question 12Insurance Regulation

Another state's insurance regulator suspends a producer's license. Within what period must the producer report this to the Delaware Commissioner?

  1. 30 days after the final disposition Correct answer.
  2. 15 days after the order
  3. 60 days after the order
  4. 10 days after the order

Explanation

A producer must report administrative actions taken by another jurisdiction, and criminal prosecutions, to the Commissioner within 30 days of the final disposition. The report is required even if the matter is on appeal.

Question 13Insurance Regulation

Before soliciting long-term care insurance in Delaware, a producer must complete:

  1. A course only when selling partnership-qualified policies
  2. A 4-hour course once every four years
  3. An 8-hour initial long-term care training course, plus ongoing training Correct answer.
  4. A 20-hour course in Medicare law

Explanation

Producers selling long-term care coverage must complete an initial 8-hour training course before solicitation and then satisfy ongoing training requirements in later renewal periods. The requirement applies to long-term care sales generally, not only partnership policies.

Question 14Insurance Regulation

A producer tells a client that her current insurer is 'about to go bankrupt' so that she will surrender her policy and buy a new one. This conduct is best described as:

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

Explanation

Twisting is a misrepresentation made to induce a policyholder to lapse, surrender, or replace coverage. Defamation involves false statements about an insurer's financial condition made to the public generally, not a falsehood used to move one client's business.

Question 15Insurance Regulation

The Commissioner conducts an examination of an authorized insurer's books and records. Such an examination is:

  1. Permitted only after a policyholder files a formal complaint
  2. Authorized by statute, with the insurer bearing the cost Correct answer.
  3. Optional for the insurer to allow
  4. Limited to records for the current calendar year

Explanation

Market conduct and financial examinations are authorized by statute, and the examined insurer pays the expense of the examination. The Commissioner does not need a consumer complaint before ordering one.

Question 16Insurance Regulation

An appointed producer collects a premium and submits an application to an authorized insurer. As a result, the insurer is:

  1. Not responsible because the producer is an independent contractor
  2. Responsible only if the producer held written authority for that specific act
  3. Responsible only after the home office ratifies the application in writing
  4. Bound by the producer's acts within the scope of the authority granted Correct answer.

Explanation

An insurer is bound by the acts of its appointed producers performed within the actual or apparent scope of authority, including collecting premiums and taking applications. The producer's status as an independent contractor does not insulate the insurer.

Question 17Insurance Regulation

After exhausting administrative remedies, a person aggrieved by a final order of the Delaware Insurance Commissioner may seek judicial review in:

  1. A justice of the peace court
  2. The Delaware Superior Court Correct answer.
  3. The federal district court for Delaware
  4. The Delaware Court of Chancery

Explanation

Delaware law provides that a party aggrieved by a final order of the Commissioner may appeal to the Superior Court after the administrative process is complete. The appeal reviews the Commissioner's record rather than starting a new trial in a court of equity.

Question 18Insurance Regulation

Which statement about the Delaware Life and Health Insurance Guaranty Association is accurate?

  1. It guarantees all policy benefits regardless of statutory limits
  2. It is funded by appropriations from state tax revenue
  3. Producers may cite its protection as a reason to buy a policy
  4. It protects covered policyholders of insolvent insurers up to statutory limits Correct answer.

Explanation

The guaranty association pays covered claims of policyholders of insolvent member insurers, subject to statutory caps by benefit type. It is funded by assessments on member insurers, and citing its protection as a sales inducement is prohibited.

Question 19Insurance Regulation

With a producer's help, an applicant knowingly conceals a serious health condition on a life application to obtain a lower premium. This conduct is:

  1. Permitted once the policy's contestable period has run
  2. A permissible risk the insurer accepts when it issues the policy
  3. A civil matter only if a claim is later submitted
  4. Insurance fraud, exposing the parties to criminal and civil penalties Correct answer.

Explanation

Knowingly presenting false or incomplete material information to obtain insurance is insurance fraud, and both the applicant and a producer who participates may face criminal prosecution and civil liability. The violation occurs at the time of the misrepresentation, not only when a claim is filed.

Question 20Insurance Regulation

A 78-year-old client with modest savings who will need funds within two years is recommended a deferred annuity carrying a nine-year surrender charge. Under Delaware's annuity suitability standards, the producer must:

  1. Leave the suitability determination to the insurer after submission
  2. Complete the sale if the client signs a suitability acknowledgment
  3. Have reasonable grounds that the recommendation suits the client's profile Correct answer.
  4. Disclose the surrender charge and proceed regardless of the client's needs

Explanation

Suitability rules require the producer to obtain consumer profile information - age, financial situation, needs, objectives, and risk tolerance - and to have reasonable grounds for believing the recommendation is suitable. A signed acknowledgment or disclosure does not replace that analysis.

Question 21General Insurance Concepts

An insurer repeatedly accepts premiums paid after the grace period, then denies coverage when a later payment is late. This conduct is best described as:

  1. Subrogation
  2. Contract of adhesion
  3. Concealment
  4. Waiver and estoppel Correct answer.

Explanation

By knowingly accepting late payments, the insurer voluntarily gives up (waives) the prompt-payment requirement, and estoppel prevents it from later asserting that requirement to the insured's detriment.

Question 22General Insurance Concepts

Which arrangement is a stranger-originated life insurance (STOLI) transaction?

  1. Two business partners insure each other to fund a buy-sell agreement
  2. An investor with no insurable interest buys a policy on a stranger Correct answer.
  3. A parent buys coverage on a minor child
  4. A business buys coverage on a key employee

Explanation

STOLI involves an investor who lacks insurable interest procuring or financing a policy on another person's life, usually intending to resell it in the life settlement market, which violates insurable interest principles.

Question 23General Insurance Concepts

The principle of indemnity is not applied strictly to life insurance because:

  1. Life policies are always annually renewable
  2. Human life cannot be valued in money Correct answer.
  3. A life policy is a contract of adhesion
  4. Beneficiaries must be family members

Explanation

Indemnity restores the insured to the pre-loss financial position, which is impossible after a death; life insurance therefore pays a stated face amount rather than a measured amount of loss.

Question 24General Insurance Concepts

Moral hazard is best described as:

  1. A risk that affects an entire economy
  2. Carelessness that increases the chance of loss
  3. A physical condition that increases the chance of loss
  4. Dishonest intent to cause or exaggerate a loss Correct answer.

Explanation

Moral hazard involves dishonesty, such as intentionally causing a loss or inflating a claim. Carelessness is morale hazard, a tangible condition is a physical hazard, and economy-wide risk is a fundamental risk.

Question 25General Insurance Concepts

Subrogation gives an insurer that has paid a claim the right to:

  1. Refuse to pay a claim that is covered by the policy
  2. Recover the payment from the party at fault Correct answer.
  3. Cancel the policy without giving the required notice
  4. Raise the premium retroactively

Explanation

Subrogation transfers the insured's right of recovery against a responsible third party to the insurer, which prevents double recovery and helps hold down premiums.

Question 26General Insurance Concepts

Which contract characteristic means the dollar amounts exchanged by the parties may be unequal and depend on chance?

  1. Aleatory Correct answer.
  2. Adhesion
  3. Utmost good faith
  4. Conditional

Explanation

An aleatory contract exchanges values that may be unequal and are contingent on an uncertain event, so a small premium can purchase a large claim payment.

Question 27General Insurance Concepts

Which set of elements is required for a contract to be legally enforceable?

  1. Approval by a regulator and a policy number
  2. A written document, a notarized signature, and delivery
  3. Offer, acceptance, consideration, and legal purpose Correct answer.
  4. A beneficiary and a premium deposit

Explanation

The basic requirements are agreement (offer and acceptance), consideration, legal purpose, and competent parties; insurance adds insurable interest, but a writing is not required in every case.

Question 28General Insurance Concepts

In life insurance, when must insurable interest exist?

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

Explanation

For life insurance, insurable interest must exist at the inception of the policy but need not continue until death. Property insurance, in contrast, requires insurable interest at the time of loss.

Question 29General Insurance Concepts

Leaving the car keys in the ignition because the owner knows insurance will pay for a theft is an example of:

  1. Physical hazard
  2. Morale hazard Correct answer.
  3. Speculative risk
  4. Moral hazard

Explanation

Morale hazard is indifference or carelessness toward loss created by the existence of insurance; no dishonesty is involved in this conduct.

Question 30General Insurance Concepts

Which type of risk involves only the chance of loss or no loss, with no possibility of gain?

  1. Particular risk
  2. Fundamental risk
  3. Pure risk Correct answer.
  4. Speculative risk

Explanation

Pure risk involves only loss or no loss and is the type insurance is designed to handle; speculative risk includes the possibility of gain as well as loss.

Question 31General Insurance Concepts

A conditional receipt gives the applicant coverage:

  1. Regardless of the applicant's insurability
  2. Only if the applicant proves insurable Correct answer.
  3. Only after the policy is physically delivered
  4. Only if death results from an accident

Explanation

A conditional receipt provides interim coverage that takes effect only if the applicant satisfies the insurer's underwriting requirements as of the date of the application or medical examination.

Question 32General Insurance Concepts

The primary purpose of reinsurance is to:

  1. Let insureds buy more than one policy on the same risk
  2. Spread risk among insurers and add capacity Correct answer.
  3. Eliminate the need for loss reserves
  4. Guarantee a profit for the ceding insurer

Explanation

Reinsurance transfers part of a risk from the ceding insurer to a reinsurer, spreading large or concentrated exposures and freeing capacity to write additional business.

Question 33General Insurance Concepts

A statement in an application that the applicant guarantees to be absolutely true is a:

  1. Representation
  2. Concealment
  3. Waiver
  4. Warranty Correct answer.

Explanation

A warranty is a statement guaranteed to be true, while a representation is a statement the applicant believes to be true to the best of his or her knowledge.

Question 34General Insurance Concepts

A policy is prepared entirely by the insurer and offered to the applicant on a take-it-or-leave-it basis. This makes the contract one of:

  1. Adhesion Correct answer.
  2. Unilateral
  3. Conditional
  4. Aleatory

Explanation

A contract of adhesion is drafted by one party and accepted or rejected by the other; because the insurer drafts it, ambiguities are construed against the insurer.

Question 35General Insurance Concepts

A binder issued by an agent is best described as:

  1. Temporary coverage until the policy is issued Correct answer.
  2. A substitute for paying the first premium
  3. A promise that the applicant is insurable
  4. A permanent policy with a lower premium

Explanation

A binder provides temporary evidence of coverage while the application is being underwritten; it does not guarantee that a policy will ultimately be issued.

Question 36General Insurance Concepts

Adverse selection is a problem because it occurs when:

  1. Insurers writing more policies than their administrative staff can handle
  2. Loss ratios improving more than expected
  3. High-risk people seek coverage more often than low-risk people Correct answer.
  4. Marketing costs rising faster than premium income

Explanation

Adverse selection is the tendency of poorer-than-average risks to seek insurance, which can push claim costs above the level assumed in pricing; underwriting and exclusions are used to control it.

Question 37General Insurance Concepts

An insurance contract is unilateral because:

  1. The insured may cancel the policy at any time
  2. The insurer must always renew the policy
  3. Only the insurer is bound by an enforceable promise Correct answer.
  4. Both parties exchange promises that the law can enforce

Explanation

In a unilateral contract only one party, the insurer, is legally obligated to perform; the insured's payment of premium is an act rather than an enforceable promise to continue paying.

Question 38General Insurance Concepts

The law of large numbers helps an insurer because it:

  1. Sets premiums from each individual's past claims only
  2. Makes losses more predictable as exposures increase Correct answer.
  3. Removes the need for underwriting
  4. Guarantees that no insured will file a claim

Explanation

As the number of similar independent exposure units grows, actual experience tends to approach the expected rate, making losses more predictable and rates more reliable.

Question 39General Insurance Concepts

A material misrepresentation on a life insurance application generally allows the insurer to:

  1. Deny all future claims regardless of cause
  2. Rescind the policy during the contestability period Correct answer.
  3. Report the applicant to the state guaranty association
  4. Increase the premium but never rescind the policy

Explanation

A material misrepresentation makes the contract voidable, so the insurer may rescind within the contestability period, typically two years, and return premiums; afterward it generally cannot contest the policy absent fraud.

Question 40General Insurance Concepts

An applicant intentionally fails to disclose a material fact that the application asks about. This is:

  1. Estoppel
  2. Subrogation
  3. Waiver
  4. Concealment Correct answer.

Explanation

Concealment is the intentional withholding of a material fact, and it can give the insurer grounds to rescind the policy.

Question 41Life Insurance Basics

Insurable interest in a life insurance policy must exist at which point in time?

  1. When the policy is applied for and issued. Correct answer.
  2. Whenever the beneficiary is changed.
  3. For the entire duration of the policy.
  4. At the time a death claim is submitted.

Explanation

For life insurance, insurable interest is required only at the time the contract is formed; the policy may remain valid after the relationship ends, as with a divorced spouse who keeps a policy purchased during the marriage. Property insurance is different because insurable interest must exist at the time of loss.

Question 42Life Insurance Basics

Which statement describes the function of reinsurance?

  1. It permits an insurer to sell policies in additional states.
  2. It replaces the protection provided by state guaranty associations.
  3. It allows policyholders to buy coverage from several insurers at once.
  4. It spreads a portion of an insurer's risk to another insurer. Correct answer.

Explanation

Reinsurance is insurance for insurers: the ceding company transfers part of its risk to a reinsurer, which improves surplus and capacity. The original policyholder's contract remains with the ceding insurer.

Question 43Life Insurance Basics

A mutual life insurance company is owned by:

  1. the state in which it is chartered
  2. its policyholders Correct answer.
  3. its stockholders
  4. its producing agents

Explanation

A mutual insurer is owned by its policyholders, who may receive dividends when results are favorable. A stock insurer, by contrast, is owned by shareholders.

Question 44Life Insurance Basics

Under a typical individual life insurance policy, the grace period allowed for a late premium is:

  1. 30 or 31 days Correct answer.
  2. 90 days
  3. 10 days
  4. 7 days

Explanation

Individual life policies generally provide a grace period of one month (30 or 31 days) for payment of an overdue premium. Coverage stays in force during that period, and the insurer may deduct the unpaid premium from any claim.

Question 45Life Insurance Basics

Premiums collected by a producer from an applicant are held in trust for the insurer. This is an example of the producer's:

  1. fiduciary duty Correct answer.
  2. express authority
  3. warranty of fitness
  4. implied authority

Explanation

Handling money that belongs to another party creates a fiduciary relationship, so premiums must be accounted for and remitted promptly. Misuse of those funds can result in license discipline as well as civil liability.

Question 46Life Insurance Basics

In a life insurance contract, the applicant's consideration consists of:

  1. payment of the initial premium and the representations in the application Correct answer.
  2. a promise to keep the policy in force
  3. the completed application alone
  4. the insurer's promise to pay the death benefit

Explanation

The consideration clause states that the applicant gives the initial premium plus the statements made in the application, in exchange for the insurer's promise. Statements in an application are treated as representations, not warranties.

Question 47Life Insurance Basics

Which statement about policy dividends from a mutual insurer is correct?

  1. They are treated as a return of premium and are generally not taxable. Correct answer.
  2. They are guaranteed each year by the policy contract.
  3. They must be paid in cash; no other option is permitted.
  4. They are taxable as ordinary income in the year paid.

Explanation

Dividends are a distribution of divisible surplus to participating policyholders and are treated as a non-taxable return of premium until cumulative dividends exceed the premiums paid. They are never guaranteed and may be taken in cash, applied to premiums, left on deposit, or used to buy paid-up additions.

Question 48Life Insurance Basics

Which nonforfeiture option uses the policy's net cash value as a single premium to buy term coverage for a limited period?

  1. Cash surrender
  2. Extended term insurance Correct answer.
  3. Automatic premium loan
  4. Reduced paid-up insurance

Explanation

Extended term insurance applies the net cash value as a single premium to continue the full face amount as term coverage for whatever period that amount will purchase. Reduced paid-up instead provides a smaller permanent face amount with no further premiums.

Question 49Life Insurance Basics

Which settlement option pays the proceeds in equal installments for a stated number of years, with the payment amount set when the option is chosen?

  1. Fixed period Correct answer.
  2. Fixed amount
  3. Interest only
  4. Life income with a 10-year certain period

Explanation

Under a fixed-period option the number of years is selected and the insurer calculates equal payments that exhaust the proceeds over that time. Fixed amount reverses the variables by fixing the payment and letting the duration vary.

Question 50Life Insurance Basics

After a life policy has been in force for two years during the insured's lifetime, the incontestability clause generally bars the insurer from denying a claim because of:

  1. material misstatements made in the application Correct answer.
  2. nonpayment of the required premium
  3. the absence of insurable interest when the policy was issued
  4. a beneficiary who intentionally caused the insured's death

Explanation

The incontestability clause prevents the insurer from rescinding for misrepresentation in the application once two years have passed during the insured's lifetime. Defenses such as nonpayment of premium, slayer statutes, and void ab initio problems are not cut off by that clause.