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KS Life & Health practice questions

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Question 1Life Insurance

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

  1. On each policy anniversary
  2. When the policy is applied for Correct answer.
  3. When the beneficiary files a claim
  4. At the moment of the insured's death

Explanation

Insurable interest is a legal requirement at the time the contract is formed, meaning the owner must reasonably expect financial loss from the insured's death at that moment. Once the policy is issued, the interest does not need to continue for the death benefit to be paid.

Question 2Life Insurance

Under the incontestability provision, an insurer can no longer contest an individual life policy for material misrepresentation after which point?

  1. Two years from the policy date Correct answer.
  2. When the free-look period ends
  3. Upon payment of the first premium
  4. Immediately upon policy delivery

Explanation

The incontestability clause bars the insurer from contesting the contract for misstatements after it has been in force for two years from issue. Nonpayment of premium is an exception that is never subject to the time limit.

Question 3Life Insurance

A whole life premium is due January 1 and is still unpaid when the insured dies on January 20. How will the insurer typically settle the claim?

  1. Rescind the policy for nonpayment of premium
  2. Pay only if the beneficiary pays a double premium
  3. Deny the claim because the premium was never paid
  4. Pay the death benefit minus the unpaid premium Correct answer.

Explanation

Standard life policies include a grace period, commonly 31 days, during which coverage continues after the due date. A death during that window is covered, with the overdue premium simply deducted from the proceeds.

Question 4Life Insurance

An insurer approves reinstatement of a lapsed life policy. Which period begins anew?

  1. The free-look period
  2. The policy's loan interest rate
  3. The premium payment schedule
  4. The contestability period Correct answer.

Explanation

Reinstatement revives a lapsed contract but treats it like new business for purposes of contestability, so a fresh two-year contestable and suicide period generally applies. The original issue age, premium and policy date normally remain unchanged.

Question 5Life Insurance

An insurer discovers at the death claim that the insured's age was understated by five years on the application. What is the usual result?

  1. Benefits are reduced to what the premium would have bought at the true age Correct answer.
  2. The claim is denied outright because the application contained a misstatement
  3. The full face amount is paid because the contestable period has expired
  4. The policy is voided and only the premiums are refunded to the beneficiary

Explanation

The misstatement of age provision adjusts the benefit to the amount the premium actually paid would have purchased at the correct age. This adjustment is not limited by the expiry of the contestable period, so the policy remains valid.

Question 6Life Insurance

If an insured dies by suicide 18 months after a life policy is issued, what does the insurer typically pay?

  1. A refund of the premiums paid Correct answer.
  2. Nothing, because suicide is excluded forever
  3. The cash value plus accrued interest
  4. The full face amount plus accumulated dividends

Explanation

The suicide clause limits the insurer's liability during the first two years to a return of premiums paid. If death by suicide occurs after that period, the full death benefit is payable like any other claim.

Question 7Life Insurance

A policyowner receives a newly issued whole life policy and returns it to the insurer during the free-look period. What is the effect?

  1. The insurer refunds the premium but keeps the policy in force
  2. The policy is exchanged for a term contract of equal value
  3. The insurer refunds only the cash value of the policy
  4. The premium is refunded and the policy is void from the start Correct answer.

Explanation

The free-look provision lets the owner return a delivered policy within a set period, commonly 10 days, for a full refund of premium. The contract is then treated as though it was never issued.

Question 8Life Insurance

Under the entire contract provision, the life insurance agreement consists of the policy plus which of the following?

  1. The insurer's bylaws and charter
  2. Any riders the insurer mails at a later date
  3. The agent's written sales illustration
  4. The attached copy of the application Correct answer.

Explanation

The entire contract clause states that the policy and the attached application form the whole agreement. Neither the insurer nor the agent can modify the contract with outside documents or statements.

Question 9Life Insurance

A policyowner wants to change a beneficiary designation that was made irrevocable. What is required?

  1. Approval of the change by the state insurance department
  2. Nothing, since the owner always keeps the right to change
  3. Written consent from the irrevocable beneficiary Correct answer.
  4. A written request to the insurer signed by the owner

Explanation

An irrevocable beneficiary holds a vested interest in the proceeds, so the owner cannot change, surrender or assign the policy without that beneficiary's written consent. A revocable designation, by contrast, can be changed by the owner alone.

Question 10Life Insurance

A policy names the insured's three children equally, per stirpes. One child dies before the insured, leaving two children of her own. How is the death benefit divided?

  1. The two surviving children each take one-half, and the grandchildren receive nothing
  2. All five survivors share the proceeds in equal one-fifth shares
  3. The insurer pays the entire benefit to the insured's estate for probate
  4. Each surviving child takes one-third, and the grandchildren split the remaining third Correct answer.

Explanation

Per stirpes means by branch: a deceased child's share passes down to that child's descendants. Each living child therefore takes one-third, and the deceased child's one-third is divided between her two children.

Question 11Life Insurance

The insured and the primary beneficiary die in the same accident, and state law presumes the beneficiary died first. Who receives the proceeds?

  1. No one until a court determines the order of death
  2. The contingent beneficiary Correct answer.
  3. The insured's creditors as priority claimants
  4. The primary beneficiary's estate

Explanation

Because the primary beneficiary is treated as having predeceased the insured, the designation fails and the contingent beneficiary takes the proceeds. This keeps the money out of the primary beneficiary's estate.

Question 12Life Insurance

What is the function of a spendthrift clause in a life insurance settlement?

  1. It shields the proceeds from the beneficiary's creditors Correct answer.
  2. It lets the owner change beneficiaries without consent
  3. It allows the beneficiary to borrow against unpaid proceeds
  4. It guarantees the beneficiary a single lump-sum payment

Explanation

A spendthrift clause restricts the beneficiary from assigning or encumbering proceeds and generally protects the funds from the beneficiary's creditors while the insurer holds them. It is common when proceeds are left on a settlement option.

Question 13Life Insurance

Which dividend option increases both the death benefit and the cash value without new underwriting?

  1. Cash payment
  2. Paid-up additions Correct answer.
  3. Premium reduction
  4. Accumulation at interest

Explanation

Paid-up additions use each dividend to buy a small amount of single-premium whole life coverage at the insured's attained age. That permanently raises both the death benefit and the cash value with no medical evidence.

Question 14Life Insurance

Under the extended term nonforfeiture option, the policyowner receives which of the following?

  1. An immediate annuity funded by the policy's cash value
  2. Term coverage for the full face amount for a limited period Correct answer.
  3. A refund of all premiums paid, less any outstanding loans
  4. A reduced paid-up policy for the rest of the insured's life

Explanation

The extended term option applies the net cash value as a single premium to buy term insurance equal to the policy's face amount. Coverage lasts for whatever period that premium will purchase at the insured's attained age.

Question 15Life Insurance

A whole life policy with a $100,000 face amount and $30,000 net cash value is switched to the reduced paid-up option. What does the owner now hold?

  1. The same $100,000 face amount with premiums continuing
  2. A lower face amount that stays in force for life Correct answer.
  3. Term coverage of $100,000 for a limited number of years
  4. A refund of the $30,000 cash value with the policy cancelled

Explanation

Reduced paid-up uses the net cash value as a single premium to purchase a smaller policy that remains in force for the insured's lifetime. No further premiums are due, but the death benefit is permanently reduced.

Question 16Life Insurance

If a policy loan is still outstanding when the insured dies, the insurer will do which of the following?

  1. Pay the face amount only after the beneficiary repays the loan
  2. Deduct the loan and interest from the proceeds Correct answer.
  3. Forgive the loan as part of the death benefit
  4. Pay the full face amount and bill the insured's estate

Explanation

A policy loan is a debt secured by the contract, so any unpaid principal and accrued interest are subtracted from the death benefit. If unpaid interest erodes the cash value, the policy itself can lapse.

Question 17Life Insurance

The purpose of the automatic premium loan provision is to do which of the following?

  1. Waive premiums while the insured is disabled
  2. Increase the death benefit for early premium payment
  3. Use cash value to pay overdue premiums Correct answer.
  4. Convert the policy to extended term insurance

Explanation

The automatic premium loan provision advances an unpaid premium from available cash value on its due date, preventing an unintended lapse. Each advance is treated as a loan bearing interest and reduces both cash value and death benefit.

Question 18Life Insurance

An insured with a waiver of premium rider becomes totally disabled. Premiums are generally waived beginning after which point?

  1. The insurer's next scheduled premium notice
  2. The first day of disability
  3. A waiting period, commonly six months Correct answer.
  4. The policy anniversary following the disability

Explanation

Waiver of premium riders typically require total disability to continue through a waiting period, often six months, before premiums are waived. Many policies then waive premiums retroactively to the start of the disability.

Question 19Life Insurance

What benefit does an accidental death rider provide?

  1. The face amount plus a refund of all premiums paid
  2. An amount equal to the policy's cash value
  3. The face amount only if death occurs within one year
  4. An extra amount if death results from an accident Correct answer.

Explanation

An accidental death rider, often called double indemnity, pays an additional sum when death results from accidental bodily injury, usually within a stated period such as 90 days. Death from natural causes still pays the base face amount.

Question 20Life Insurance

The guaranteed insurability rider allows the insured to do which of the following?

  1. Increase the death benefit at no additional premium
  2. Reinstate a lapsed policy without proving insurability
  3. Buy more coverage without new evidence of insurability Correct answer.
  4. Convert term coverage to whole life at any age

Explanation

The guaranteed insurability rider lets the insured purchase specified amounts of additional coverage on stated option dates regardless of health. The new coverage is priced at the insured's attained age when the option is exercised.

Question 21Life Insurance

A five-year renewable term policy allows the insured to renew coverage in which manner?

  1. Only by first converting to whole life insurance
  2. Without providing new evidence of insurability Correct answer.
  3. Only after completing a new medical examination
  4. At a lower premium each time it is renewed

Explanation

Renewable term guarantees the right to continue coverage at the end of each term without proving insurability. The premium rises at each renewal because it is based on the insured's attained age.

Question 22Life Insurance

Which feature distinguishes whole life insurance from term insurance?

  1. It can be renewed only until age 65
  2. It is issued only to applicants over age 50
  3. It has no fixed premium schedule
  4. Lifetime coverage that builds cash value Correct answer.

Explanation

Whole life charges a level premium for the insured's entire lifetime and accumulates a guaranteed cash value. Term insurance provides pure protection for a set period and has no cash value component.

Question 23Life Insurance

Which statement best describes universal life insurance?

  1. Its mortality, expense and cash value elements are separately identified Correct answer.
  2. Premiums are fixed for life and the cash value grows at a guaranteed rate
  3. It is a term policy that the owner can convert at any time
  4. It has no cash value and pays only a death benefit

Explanation

Universal life unbundles the mortality charge, expense charges and cash value, crediting current interest subject to a guaranteed minimum. Premiums are flexible as long as the policy remains sufficiently funded to cover its charges.

Question 24Life Insurance

Selling variable life insurance requires which of the following in addition to a state insurance license?

  1. Approval by the state guaranty association
  2. Premiums paid only in a single lump sum
  3. Registration as a security with the SEC Correct answer.
  4. A guaranteed minimum cash value set by the insurer

Explanation

Variable life cash values are invested in separate-account subaccounts and the owner bears the investment risk, which makes the product a security. Producers must hold the appropriate securities registration and deliver a prospectus.

Question 25Life Insurance

An applicant pays the initial premium and is given a conditional receipt. Coverage becomes effective at which point?

  1. Only when the policy is physically delivered to the owner
  2. On the date the insurer places the policy in the mail
  3. Immediately, regardless of the applicant's insurability
  4. As of the application date, if the applicant was insurable Correct answer.

Explanation

A conditional receipt provides interim coverage retroactive to the date of application or medical examination, but only if the applicant meets the insurer's underwriting requirements. If the applicant is not insurable, no coverage ever attaches.

Question 26Life Insurance

Before an insurer will issue a life insurance policy, the applicant generally must demonstrate which of the following?

  1. A medical examination showing good health
  2. A promise to pay the insured's future debts
  3. A court order naming the applicant as beneficiary
  4. An insurable interest in the insured Correct answer.

Explanation

Life insurance requires insurable interest at the time the policy is issued, which prevents the contract from being a wager on someone else's life. A debt, court order, or medical exam does not by itself create that interest.

Question 27Life Insurance

After a life insurance policy has been in force for two years during the insured's lifetime, the insurer generally may no longer do which of the following?

  1. Rescind the policy for a material application misstatement Correct answer.
  2. Increase the premium because of a change in the insured's health
  3. Reduce the death benefit because of a policy loan
  4. Require proof of continued insurability at renewal

Explanation

The incontestability clause bars the insurer from contesting the policy after it has been in force for a stated period, usually two years, because of misstatements on the application. It does not freeze premiums or prohibit a policy loan offset.

Question 28Life Insurance

If a policyowner forgets to pay a premium on a whole life policy, the grace period allows the policy to remain in force for how long in most states?

  1. 15 days
  2. 30 or 31 days Correct answer.
  3. 7 days
  4. 90 days

Explanation

State law generally requires a grace period of 30 or 31 days after a premium due date, during which the policy remains in force. If the insured dies during the grace period, the unpaid premium is usually deducted from the death benefit.

Question 29Life Insurance

A policy lapsed because the owner missed premium payments. To reinstate the original policy, the owner generally must do which of the following?

  1. Wait until the two-year contestability period has ended before requesting reinstatement
  2. Surrender the cash value and apply for a new policy
  3. Pay only the next scheduled premium
  4. Show insurability and pay overdue premiums with interest Correct answer.

Explanation

Reinstatement restores a lapsed policy after the grace period, but the insurer usually requires evidence of insurability and payment of all overdue premiums plus interest. The original policy's cash value and contestability period may then continue.

Question 30Life Insurance

If the insurer discovers after the insured's death that the insured's age was understated on the application, the insurer will generally do which of the following?

  1. Pay the full face amount and then bill the estate for the additional premium owed
  2. Cancel the policy retroactively to its issue date
  3. Reduce the death benefit to what the correct age would have purchased Correct answer.
  4. Deny the claim entirely because of fraud

Explanation

A misstatement-of-age clause lets the insurer adjust the death benefit to the amount the premium paid would have purchased at the insured's correct age. The claim is not automatically denied, and the policy is not cancelled retroactively.

Question 31Life Insurance

A policyowner transfers all ownership rights in a life insurance policy to a lender as security for a loan. This transaction is which type of assignment?

  1. Irrevocable beneficiary designation
  2. Collateral assignment Correct answer.
  3. Absolute assignment
  4. Viatical assignment

Explanation

A collateral assignment pledges the policy as security for a debt, so the lender's rights are limited to the amount owed. An absolute assignment transfers all ownership rights permanently.

Question 32Life Insurance

If the owner of a life insurance policy names the insured's estate as beneficiary, the death benefit will generally be paid in which manner?

  1. Through probate and subject to the insured's creditors Correct answer.
  2. To the policyowner's named contingent beneficiary
  3. Directly to the insured's surviving spouse by operation of law
  4. To the funeral home that handles the burial

Explanation

Naming the estate makes the proceeds part of the probate estate, where they can be reached by creditors and may be reduced by estate expenses. A named living beneficiary, by contrast, generally receives the proceeds outside probate.

Question 33Life Insurance

A policyowner names a 10-year-old child as the sole primary beneficiary. If the insured dies while the child is still a minor, the insurer will typically do which of the following?

  1. Pay the proceeds to the child's school for safekeeping
  2. Hold the proceeds in a trust department until the child reaches the age of majority
  3. Require a guardian or custodian to receive the proceeds for the child Correct answer.
  4. Pay the proceeds directly to the child upon proof of age

Explanation

A minor generally cannot give the insurer a valid receipt for life insurance proceeds, so a guardian, custodian, or trustee must receive the money for the child. The insurer does not simply hold the funds until the child reaches majority unless a settlement option provides for that.

Question 34Life Insurance

What is the purpose of a facility-of-payment clause in a life insurance policy?

  1. To permit the insurer to delay payment until all claims and competing beneficiary claims are fully investigated
  2. To let the policyowner borrow against the death benefit before death
  3. To let the insurer pay a limited amount to a relative or caretaker when no beneficiary exists Correct answer.
  4. To require the beneficiary to pay the insured's funeral expenses

Explanation

A facility-of-payment clause allows the insurer to pay a limited amount to a person who cared for the insured, such as a relative or funeral home, when there is no valid beneficiary. It protects the insurer and helps cover final expenses.

Question 35Life Insurance

Under the interest-only settlement option, the insurer does which of the following with the death benefit?

  1. Uses the proceeds to purchase paid-up additional insurance
  2. Retains the proceeds and pays interest to the beneficiary Correct answer.
  3. Converts the proceeds into a lifetime annuity with no refund
  4. Pays the entire proceeds in one lump sum immediately

Explanation

With interest-only, the insurer keeps the death benefit and pays the beneficiary only the interest it earns for a chosen period or until the beneficiary requests the principal. The principal remains available for later distribution.

Question 36Life Insurance

A beneficiary chooses a fixed-period settlement option for a $120,000 death benefit to be paid over 10 years. What determines the amount of each payment?

  1. The insured's age at death
  2. The policy's cash value at the date of death
  3. The face amount plus interest, divided over the chosen number of years Correct answer.
  4. The beneficiary's remaining life expectancy as determined by the insurer

Explanation

A fixed-period option pays the proceeds plus interest over a selected number of years, so the payment amount is calculated from the total fund and the chosen period. Life expectancy is not the controlling factor.

Question 37Life Insurance

A beneficiary selects a life income with a 20-year period certain settlement option. What does the period certain guarantee?

  1. That the beneficiary will receive payments for at least 20 years even if the insurer becomes insolvent
  2. That the beneficiary will receive a lump sum after 20 years
  3. That payments will continue to a contingent payee if the beneficiary dies before the 20 years end Correct answer.
  4. That the beneficiary can increase the payment amount at any time

Explanation

A life income with period certain guarantees payments for the beneficiary's life, but if death occurs before the period certain ends, the remaining payments go to a contingent payee. The guarantee does not protect against insurer insolvency or create a lump sum.

Question 38Life Insurance

An employee covered under a group term life plan leaves the job. What does the conversion privilege generally allow the employee to do?

  1. Convert to an individual policy without evidence of insurability Correct answer.
  2. Receive the group policy's cash value in a lump sum
  3. Continue the group term coverage at the group rate indefinitely after leaving the job
  4. Add the former employer as a beneficiary

Explanation

Group life conversion lets a departing employee convert to an individual policy, usually within 31 days, without proving insurability. The new premium is based on the individual policy, not the group rate.

Question 39Life Insurance

Credit life insurance is designed primarily to do which of the following?

  1. Cover the lender's business overhead expenses
  2. Replace the borrower's group life coverage
  3. Provide retirement income for the borrower
  4. Pay off the borrower's debt if the borrower dies Correct answer.

Explanation

Credit life insurance is usually decreasing term coverage that pays the lender the remaining balance of a loan if the borrower dies. It protects the lender and relieves the borrower's estate of that debt.

Question 40Life Insurance

A married couple wants a policy that pays the death benefit when the first spouse dies. Which policy design fits this need?

  1. Survivorship life insurance
  2. Modified endowment contract
  3. Joint life insurance Correct answer.
  4. Single premium whole life

Explanation

Joint life insurance, often called first-to-die, pays the death benefit when the first of two insureds dies. Survivorship life, by contrast, pays at the second death.

Question 41Life Insurance

How does modified whole life insurance typically structure premiums?

  1. Premiums are level for life but the death benefit decreases each year
  2. Premiums increase every year and are never level
  3. Premiums are paid only in the first five years
  4. Premiums start lower and then increase after an initial period Correct answer.

Explanation

Modified whole life charges lower premiums in the early policy years and higher level premiums later. The coverage remains whole life, but the premium pattern is altered to help with early affordability.

Question 42Life Insurance

In a 20-pay whole life policy, the policyowner does which of the following?

  1. Pays a single premium and receives 20 years of coverage
  2. Pays premiums for 20 years and keeps coverage for life Correct answer.
  3. Pays premiums for life and receives coverage for 20 years
  4. Pays premiums for 20 years and receives only term coverage

Explanation

A 20-pay whole life policy is fully paid up after 20 years of premiums, but the death benefit remains in force for the insured's lifetime. The shorter payment period makes each premium higher than under straight whole life.

Question 43Life Insurance

A return-of-premium term life policy generally does which of the following if the insured outlives the term?

  1. Refunds the premiums paid, often without interest Correct answer.
  2. Pays the face amount as an endowment
  3. Refunds only the policy's cash value minus surrender charges
  4. Converts automatically to whole life with no premium increase

Explanation

Return-of-premium term returns the premiums paid if the insured survives the term, and it charges a higher premium for that feature. It does not normally pay interest or convert automatically without underwriting.

Question 44Life Insurance

What does a family income rider add to a life insurance policy?

  1. A guarantee that premiums will never increase
  2. A monthly benefit paid only if the insured becomes disabled
  3. A monthly income for a set period after the insured dies Correct answer.
  4. A lump sum equal to the policy's cash value at death

Explanation

A family income rider pays a monthly income to the family for a specified period, such as 10 or 20 years, after the insured dies. It is paid in addition to the policy's face amount.

Question 45Life Insurance

An accelerated death benefit rider allows a terminally ill insured to do which of the following?

  1. Transfer ownership of the policy to a charity
  2. Increase the policy's face amount without underwriting
  3. Borrow the entire face amount interest-free
  4. Receive a portion of the death benefit before death Correct answer.

Explanation

An accelerated death benefit rider lets an insured with a terminal or qualifying illness receive part of the death benefit early. The remaining benefit is reduced by the amount accelerated.

Question 46Life Insurance

In a viatical settlement, a person with a terminal illness typically does which of the following?

  1. Purchases a new policy with no medical underwriting and no insurable interest
  2. Exchanges a life policy for an annuity tax-free
  3. Sells an existing policy to a third party for less than its face amount Correct answer.
  4. Borrows against the policy at the insurer's guaranteed rate

Explanation

A viatical settlement is the sale of an existing life insurance policy by a terminally ill insured to a third party for a lump sum that is less than the face amount. The buyer becomes the beneficiary and receives the death benefit later.

Question 47Life Insurance

Which situation best describes stranger-originated life insurance (STOLI)?

  1. A parent insures a child to fund future education
  2. An employer insures a key employee to protect the business against the employee's death
  3. An investor without insurable interest buys a policy on a stranger for resale Correct answer.
  4. A spouse insures a partner to replace lost income

Explanation

STOLI occurs when an investor with no insurable interest procures or finances a life policy on a stranger primarily to sell the death benefit. It is generally prohibited because it is a wagering contract.

Question 48Life Insurance

When a producer replaces an existing life insurance policy, state replacement regulations generally require which of the following?

  1. The producer to give a replacement notice and compare the policies Correct answer.
  2. The producer to cancel the old policy before submitting the new application
  3. The new insurer to match the old policy's cash value
  4. The old insurer to waive any surrender charges

Explanation

Replacement rules require the producer to give the applicant a replacement notice and to compare the old and new policies so the buyer understands the costs and benefits. The old policy is not cancelled before the new application, and insurers do not have to match cash value.

Question 49Life Insurance

Which transaction qualifies for tax-deferred treatment under Section 1035?

  1. Surrendering a life policy and using the cash value to buy a car
  2. Exchanging an annuity for a life insurance policy
  3. Exchanging one life insurance policy for another life policy Correct answer.
  4. Exchanging a life policy for a qualified retirement plan

Explanation

Section 1035 permits tax-deferred exchanges of a life insurance policy for another life policy or an annuity, and an annuity for another annuity. It does not allow an annuity-to-life-insurance exchange or a personal purchase.

Question 50Life Insurance

What happens when a life insurance policy fails the seven-pay test and becomes a modified endowment contract (MEC)?

  1. The policy loses its insurance status and must be surrendered
  2. The death benefit becomes fully taxable to the beneficiary as ordinary income in the year received
  3. Policy loans and withdrawals are taxed LIFO and may face a 10% penalty before age 59½ Correct answer.
  4. Premiums are no longer tax-deductible to the owner

Explanation

A MEC keeps its life insurance status, but distributions, including loans, are taxed first as income and then as basis, with a possible 10% penalty before age 59½. The death benefit generally remains income-tax-free to the beneficiary.