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NV Life & Health practice questions

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Question 1Insurance Regulation

Which action may the Nevada Insurance Commissioner take when investigating an insurer's compliance with state insurance laws?

  1. Set the insurer's premium rates without a hearing
  2. Guarantee the insurer's solvency
  3. Represent the insurer in a rate dispute
  4. Examine the insurer's books and records Correct answer.

Explanation

The Commissioner has statutory examination authority and may inspect an insurer's books, records, and affairs to determine compliance. That authority supports market conduct and financial oversight. The Commissioner does not guarantee solvency or act as the insurer's advocate.

Question 2Insurance Regulation

To sell life insurance in Nevada, a person generally must hold what credential from the state?

  1. A state producer license Correct answer.
  2. A business license only
  3. A securities registration
  4. A certificate of authority issued to the insurer

Explanation

Nevada requires individuals who solicit or sell insurance to hold a producer license issued by the Commissioner. A business license alone does not authorize insurance sales. The insurer's certificate of authority is separate from the producer's license.

Question 3Insurance Regulation

An individual applying for life insurance on another person must generally have what at the time of application?

  1. A court order approving the purchase
  2. A written power of attorney signed by the insured
  3. An insurable interest in the insured Correct answer.
  4. The insured's verbal consent alone

Explanation

Life insurance requires an insurable interest at the time the contract is formed, such as a family or financial relationship. Consent alone is not a substitute for insurable interest. A court order or power of attorney is not generally required.

Question 4Insurance Regulation

The Nevada Life and Health Insurance Guaranty Association exists primarily to do what?

  1. Audit claims for accuracy and timeliness
  2. Set and approve premium rates for member insurers
  3. Regulate the licensing and conduct of insurance producers
  4. Pay covered claims of insolvent insurers Correct answer.

Explanation

Guaranty associations protect policyholders when a member insurer is declared insolvent and unable to meet covered obligations. They do not regulate producers, set rates, or audit claims as their primary function. Coverage is limited by statute.

Question 5Insurance Regulation

Which order may the Commissioner issue to stop an insurer from continuing a practice that violates insurance law?

  1. A policy endorsement
  2. A cease and desist order Correct answer.
  3. A certificate of authority
  4. A premium tax credit

Explanation

The Commissioner may issue a cease and desist order to halt conduct that violates insurance laws or rules. A certificate of authority permits an insurer to transact business; it is not an enforcement order. Endorsements and tax credits are not enforcement tools.

Question 6Insurance Regulation

Offering a prospective buyer a cash payment outside the policy terms to induce a life insurance purchase is known as what?

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

Explanation

Rebating is giving or offering an inducement not specified in the policy, such as cash or gifts, to persuade someone to buy insurance. Twisting involves misrepresentation to induce replacement. Coercion involves compulsion rather than a financial inducement.

Question 7Insurance Regulation

Premiums collected by a producer on behalf of an insurer are held in what capacity?

  1. In a fiduciary capacity Correct answer.
  2. As a loan from the insurer
  3. As personal income until the policy is delivered
  4. As a charitable contribution

Explanation

Premiums collected for an insurer are trust funds held in a fiduciary capacity. The producer must account for and remit them promptly. Treating them as personal funds is a serious violation.

Question 8Insurance Regulation

How does a person become Nevada Insurance Commissioner?

  1. Appointed by the Governor Correct answer.
  2. Appointed by insurers
  3. Elected by voters
  4. Chosen by the legislature

Explanation

The Nevada Insurance Commissioner is appointed by the Governor to head the Division of Insurance. The position is not filled by a statewide election or by insurer selection. The Commissioner oversees regulation of the insurance industry.

Question 9Insurance Regulation

A producer receives premium from a client but deposits it into the producer's personal checking account before remitting it to the insurer. This conduct is best characterized as what?

  1. Commingling fiduciary funds Correct answer.
  2. A permissible short-term loan
  3. A lawful commission advance
  4. A routine premium financing arrangement

Explanation

Premium funds belong to the insurer or the person entitled to them and must be kept separate from the producer's personal funds. Depositing them into a personal account commingles fiduciary funds and can lead to license discipline. It is not a loan, financing arrangement, or commission advance.

Question 10Insurance Regulation

An agent persuades a client to lapse an existing life policy by making misleading comparisons about the new policy's benefits. This practice is called what?

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

Explanation

Twisting is inducing a policyholder to surrender or lapse coverage through misrepresentation or incomplete comparison. The harm is to the existing insurer and the client's coverage. Rebating involves inducements, while defamation involves false statements about an insurer.

Question 11Insurance Regulation

Before replacing an existing life insurance policy, a Nevada producer generally must do what?

  1. Obtain the Commissioner's written approval before any contact
  2. Increase the new policy's face amount to match the old one
  3. Give the required replacement notice Correct answer.
  4. Cancel the old policy immediately upon application

Explanation

Replacement rules require the producer to provide the applicant with required notices and comparisons so the client can make an informed decision. The old policy is not automatically cancelled, and the Commissioner does not approve each replacement. The face amount need not match.

Question 12Insurance Regulation

Who appoints a producer to act on behalf of an insurer in Nevada?

  1. The insured
  2. The insurer Correct answer.
  3. The Commissioner
  4. The National Association of Insurance Commissioners

Explanation

An appointment is the insurer's authorization for a producer to represent it. The Commissioner licenses producers but does not appoint them for insurers. The NAIC is an association of regulators, not an appointing authority.

Question 13Insurance Regulation

A Nevada producer places a client's life coverage with an insurer that is not authorized to transact business in Nevada, and the producer does so knowingly. What is the likely regulatory consequence?

  1. No consequence if the client signs a consent form
  2. Guaranteed coverage by the state guaranty association
  3. Disciplinary action against the producer's license Correct answer.
  4. Automatic federal approval of the policy

Explanation

Knowingly placing coverage with an unauthorized insurer violates Nevada insurance law and can result in license discipline. The guaranty association does not cover unauthorized insurers. A client consent form does not cure the violation.

Question 14Insurance Regulation

Under insurance privacy rules, an insurer generally may disclose a consumer's nonpublic personal financial information to a nonaffiliated third party without authorization only when what is true?

  1. The third party is a licensed producer
  2. The information is used for any marketing purpose the insurer chooses
  3. A legal exception applies or notice and opt-out were given Correct answer.
  4. The consumer has filed a claim under the policy

Explanation

Privacy law permits certain disclosures without authorization only through specific exceptions or after required notice and opt-out rights. Filing a claim or using a producer does not eliminate privacy protections. Marketing use is not unlimited.

Question 15Insurance Regulation

An applicant knowingly omits a serious medical condition on a life insurance application to obtain a lower premium. This is best described as what?

  1. Innocent misstatement
  2. A rescission request
  3. Permissible simplification
  4. Insurance fraud Correct answer.

Explanation

A knowing material misrepresentation to obtain insurance at a lower premium is insurance fraud. It can lead to rescission, claim denial, and civil or criminal penalties. It is not innocent or permissible simplification.

Question 16Insurance Regulation

An insurance advertisement states that a policy's dividends are 'guaranteed' when they are not. This advertisement is problematic because it does what?

  1. Uses an excessive amount of technical jargon
  2. Omits the producer's principal business address
  3. Offers a rebate that is expressly permitted by law
  4. Presents a non-guaranteed benefit as guaranteed Correct answer.

Explanation

Advertising must not misrepresent policy benefits, including implying that non-guaranteed dividends are guaranteed. Such a statement is misleading and can be an unfair trade practice. Technical jargon or a lawful rebate is not the core problem here.

Question 17Insurance Regulation

After the Commissioner issues an adverse order against a producer, the producer generally has what right?

  1. No right to contest the order at all
  2. An automatic right to replace the Commissioner
  3. A hearing and judicial review Correct answer.
  4. A right to have the insurer pay all fines

Explanation

Administrative enforcement must provide due process, including an opportunity for a hearing and review by a court under state law. The producer cannot replace the Commissioner or shift fines to the insurer. An adverse order is not automatically final without review rights.

Question 18Insurance Regulation

Continuing education requirements for Nevada insurance producers are designed primarily to do what?

  1. Maintain and update producer knowledge Correct answer.
  2. Limit the number of licensed producers
  3. Replace the initial licensing exam
  4. Guarantee commissions

Explanation

Continuing education keeps licensed producers current on insurance laws, products, and ethical obligations. It does not replace the licensing exam or guarantee income. It is not a market-entry restriction.

Question 19Insurance Regulation

A producer licensed in another state who wants to sell insurance in Nevada generally may obtain what type of license?

  1. A temporary license limited to auto dealerships
  2. A surplus lines broker license only
  3. A nonresident producer license Correct answer.
  4. A certificate of authority issued to an insurer

Explanation

Nevada issues nonresident producer licenses, often based on reciprocity with the producer's home state. A certificate of authority is issued to insurers, not producers. A surplus lines license is a separate specialty.

Question 20Insurance Regulation

When a producer receives a premium refund owed to a client, the producer should do what?

  1. Keep it as an administrative fee
  2. Remit it promptly to the client Correct answer.
  3. Hold it indefinitely
  4. Apply it to the producer's own policy

Explanation

Refunded premium belongs to the person entitled to it and must be transmitted promptly. Retaining it without authorization can be conversion or misappropriation. The producer may not apply it to personal use.

Question 21Insurance Regulation

An insurer's claims handling, marketing, and producer oversight are most likely to be reviewed in what type of examination?

  1. A rate hearing
  2. A guaranty association assessment
  3. A market conduct examination Correct answer.
  4. A financial statement audit only

Explanation

Market conduct examinations focus on how an insurer treats policyholders and complies with trade practices laws, including claims, marketing, and producer oversight. Financial audits focus on solvency and financial statements. Rate hearings address rates, not overall market behavior.

Question 22Insurance Regulation

A producer who is entrusted with premiums and fails to remit them may face which combination of consequences?

  1. Automatic policy reinstatement for all clients
  2. Federal antitrust immunity
  3. Only a warning letter with no record
  4. License discipline and criminal exposure Correct answer.

Explanation

Misappropriating premium trust funds breaches fiduciary duties and can lead to license suspension or revocation, fines, restitution, and criminal theft charges. A warning alone is not the typical consequence. Neither reinstatement nor antitrust immunity applies.

Question 23Insurance Regulation

An insurer tells a lending institution that it will stop doing business with the lender unless the lender requires borrowers to buy insurance from that insurer. This conduct is best described as what?

  1. Permissible cross-selling
  2. Replacement
  3. Coercion Correct answer.
  4. Lawful underwriting

Explanation

Coercion occurs when an insurer or producer uses economic pressure to compel a person to buy insurance. Conditioning business on required purchases is an unfair trade practice. It is not lawful underwriting, cross-selling, or replacement.

Question 24Insurance Regulation

An agent makes false oral statements to clients that another insurer is financially unstable, intending to harm that insurer's reputation. This practice is known as what?

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

Explanation

Defamation includes false statements made to harm an insurer's reputation, whether spoken (slander) or written (libel). Twisting concerns inducing replacement, and rebating is an unlawful inducement. Misrepresentation is broader, but the targeted reputational harm fits defamation.

Question 25Insurance Regulation

The Commissioner determines that an insurer violated a state insurance law but also finds the violation was unintentional. What action is most consistent with the Commissioner's regulatory authority?

  1. Dismiss the matter automatically because intent was lacking
  2. Refer the matter to the federal government because intent is required
  3. Allow the insurer to choose its own penalty without review
  4. Impose an appropriate administrative remedy Correct answer.

Explanation

Insurance violations generally do not require proof of intent for administrative enforcement. The Commissioner may impose remedies such as fines, orders, or corrective action based on the facts. The insurer does not select its own penalty.

Question 26General Insurance Concepts

Which type of risk is insurable because the only possible outcomes are loss or no loss?

  1. Investment risk
  2. Pure risk Correct answer.
  3. Market risk
  4. Speculative risk

Explanation

Insurance is designed to handle pure risk, where the only possible outcomes are loss or no change in status. Speculative risk involves a chance of gain and is therefore not insurable.

Question 27General Insurance Concepts

To have insurable interest in a life insurance policy, the policyowner must:

  1. Be related to the insured by blood or by marriage
  2. Hold a current insurance producer license in the state
  3. Designate the insured person as the policy's beneficiary
  4. Face a financial loss if the insured event occurs Correct answer.

Explanation

Insurable interest is a financial stake in the subject of insurance, so that the policyowner benefits from the insured's continued existence and loses financially if the insured event occurs. The legal test is financial loss, not relationship or licensing.

Question 28General Insurance Concepts

An insurance policy is a contract of adhesion, which means that the policy is:

  1. Drafted by the insurer; the insured has little bargaining power Correct answer.
  2. Freely negotiated with equal bargaining power on both sides
  3. Enforceable only after a covered loss has actually occurred
  4. Voidable at the option of either party at any time

Explanation

In a contract of adhesion, one party (the insurer) drafts the terms and the other party (the applicant) must accept or reject them as written. This unequal bargaining position is why policy ambiguities are construed against the insurer.

Question 29General Insurance Concepts

An insurance contract is aleatory, which means that:

  1. Only the insured makes an enforceable promise
  2. The insured must perform before coverage begins
  3. The values exchanged may be unequal Correct answer.
  4. Both parties exchange promises of exactly equal value

Explanation

Aleatory means the exchange is contingent on an uncertain event, so what one party receives may be far greater or smaller than what it gave. A modest premium can produce a very large claim payment.

Question 30General Insurance Concepts

Insurers apply the law of large numbers in order to:

  1. Avoid the need to hold reserves for unexpected claims
  2. Predict losses more accurately as similar exposures increase Correct answer.
  3. Eliminate the possibility that a single insured suffers a loss
  4. Set premium rates that are identical for every policyholder

Explanation

The law of large numbers holds that actual results approach expected results as the number of similar independent exposure units grows. Insurers rely on it to forecast aggregate losses and price coverage.

Question 31General Insurance Concepts

Intentionally setting fire to one's own building to collect the insurance money is an example of:

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

Explanation

A moral hazard is a dishonest act or intent, such as deliberately causing a loss in order to collect benefits. Insurers underwrite and investigate for it because it involves conscious wrongdoing.

Question 32General Insurance Concepts

In life insurance, the applicant's completed application together with payment of the initial premium usually constitutes the:

  1. Offer Correct answer.
  2. Acceptance
  3. Counteroffer
  4. Consideration

Explanation

The applicant makes the offer by submitting the application and, in life insurance, typically the initial premium; the insurer accepts by issuing the policy as applied for. With a conditional receipt, coverage may begin when the offer is made.

Question 33General Insurance Concepts

A mutual insurance company is legally owned by its:

  1. Board of directors
  2. State insurance department
  3. Stockholders
  4. Policyholders Correct answer.

Explanation

A mutual insurer is owned by its policyholders, and favorable earnings may be returned to them as dividends. A stock insurer, by contrast, is owned by shareholders.

Question 34General Insurance Concepts

After paying a covered auto claim, an insurer pursues the at-fault driver to recover the amount paid. This right is called:

  1. Subrogation Correct answer.
  2. Assignment
  3. Contribution
  4. Indemnification

Explanation

Subrogation lets an insurer that has paid a loss stand in the insured's shoes and recover from the party legally responsible. It supports indemnity by preventing the insured from collecting twice.

Question 35General Insurance Concepts

A court finds a genuine ambiguity in a policy term. The court will most likely:

  1. Interpret the term in favor of the insured Correct answer.
  2. Declare the entire policy void
  3. Interpret the term in favor of the insurer
  4. Refer the dispute to the state insurance department

Explanation

Because insurance is a contract of adhesion drafted by the insurer, ambiguities are construed against the drafter and in favor of the insured. This rule discourages unclear policy language.

Question 36General Insurance Concepts

A producer acts without actual authority, but the insurer's own conduct led the public to believe the producer was authorized. The producer is acting with:

  1. Express authority
  2. Apparent authority Correct answer.
  3. Fiduciary authority
  4. Implied authority

Explanation

Apparent authority arises from the insurer's actions or representations that lead a third party to reasonably believe the producer may act for the insurer. The insurer may be bound by the producer's acts.

Question 37General Insurance Concepts

A building with a $400,000 replacement cost is insured for $240,000 under a policy with an 80% coinsurance clause. A $100,000 covered loss occurs. Ignoring deductibles, how much will the insurer pay?

  1. $75,000 Correct answer.
  2. $100,000
  3. $80,000
  4. $60,000

Explanation

The coinsurance requirement is 80% of $400,000, or $320,000. Because only $240,000 was carried, the insurer pays (240,000 / 320,000) x $100,000 = $75,000, subject to the policy limit.

Question 38General Insurance Concepts

The primary purpose of a deductible in a property insurance policy is to:

  1. Increase the policy limit after each loss
  2. Add coverage for otherwise excluded perils
  3. Reduce small, frequent claims and lower premiums Correct answer.
  4. Transfer the entire loss to the insured

Explanation

A deductible is the amount the insured absorbs before the insurer pays anything. It removes costly small claims from the insurer's book and lowers the premium because less loss exposure is transferred.

Question 39General Insurance Concepts

Reinsurance is best described as:

  1. A second policy purchased by an insured for the same property
  2. Insurance bought by an insurer to cover catastrophic losses Correct answer.
  3. A state pool that covers drivers who lack insurance
  4. Coverage written by a surplus lines carrier for unusual risks

Explanation

Reinsurance is insurance for insurers: a ceding company transfers part of its risk to a reinsurer. It shields the insurer's surplus from unusually large or numerous losses.

Question 40General Insurance Concepts

State life and health insurance guaranty associations exist primarily to:

  1. Regulate the premium rates charged by authorized insurers
  2. Pay claims of insolvent insurers, within statutory limits Correct answer.
  3. Guarantee that every policyholder will earn a dividend
  4. License the producers who sell life and health insurance

Explanation

Guaranty associations protect policyholders when a member insurer becomes insolvent by paying covered claims up to statutory limits. They do not guarantee dividends and do not replace state regulation.

Question 41General Insurance Concepts

A false statement on an application that would have caused the insurer to reject the risk, had it known the truth, is called:

  1. A warranty
  2. A material misrepresentation Correct answer.
  3. A waiver
  4. A concealment

Explanation

A misrepresentation is a false statement of fact, and it is material when it would have influenced the insurer's decision to accept the risk or set the premium. A material misrepresentation may allow the insurer to rescind the policy.

Question 42General Insurance Concepts

An insurer finds it is writing a large volume of business for applicants with serious health problems. The insurer is most likely experiencing:

  1. Retention of risk rather than transfer
  2. A treaty reinsurance arrangement
  3. Adverse selection Correct answer.
  4. The law of large numbers working as intended

Explanation

Adverse selection occurs when those most likely to have claims seek or keep coverage more aggressively than better risks. Insurers counter it through underwriting so that premiums reflect the risk actually assumed.

Question 43General Insurance Concepts

An insurance policy is a conditional contract, which means that:

  1. The insurer pays only if the insured meets stated conditions Correct answer.
  2. It is issued by the insurer on a strict take-it-or-leave-it basis
  3. It may be cancelled only at the option of the insured
  4. Both parties must perform their duties at the same time

Explanation

Conditions are policy provisions such as prompt notice of loss, proof of loss, and cooperation that must be satisfied before the insurer is obligated to pay. Failing to meet them can affect the claim.

Question 44General Insurance Concepts

The part of an insurance policy that states the insurer's basic promise to pay for covered losses is the:

  1. Exclusions
  2. Declarations
  3. Conditions
  4. Insuring agreement Correct answer.

Explanation

The insuring agreement identifies the perils covered and contains the insurer's promise to pay. The declarations identify the insured and limits, conditions set out duties, and exclusions remove coverage.

Question 45General Insurance Concepts

The same loss is covered by two policies with other-insurance clauses: Policy A has a $100,000 limit and Policy B has a $300,000 limit. On a $40,000 loss, Policy B will pay:

  1. $10,000
  2. $20,000
  3. $30,000 Correct answer.
  4. $40,000

Explanation

Under pro rata liability each policy pays its share of the total insurance in force: $300,000 / $400,000 = 75%, and 75% of $40,000 = $30,000. Policy A pays the remaining $10,000.

Question 46General Insurance Concepts

An applicant for life insurance conceals a known terminal illness, and the insurer issues the policy. The insured dies eight months later, well within the contestable period. The insurer's usual remedy is to:

  1. Pay the full face amount because the policy was already issued
  2. Pay only the accumulated cash value of the policy
  3. Reduce the benefit by the amount of any unpaid premium
  4. Rescind the policy and refund the premiums paid Correct answer.

Explanation

A material misrepresentation or concealment in the application gives the insurer the right to rescind during the contestability period. Rescission returns the parties to their pre-contract positions, so premiums are refunded and no death benefit is paid.

Question 47General Insurance Concepts

An insurer continues to accept premium payments after learning that the insured breached a policy condition. A court will most likely:

  1. Permit the insurer to deny coverage for the earlier breach
  2. Hold that the insurer waived its right to deny coverage Correct answer.
  3. Require the insured to reapply for coverage
  4. Void the policy back to its original effective date

Explanation

Waiver is the voluntary relinquishment of a known right. Once the insurer knows of the breach and still accepts premiums, it gives up the right to use that breach as a ground for denying a claim.

Question 48General Insurance Concepts

A producer misrepresents the benefits of a client's current policy in order to persuade the client to drop it and buy a new one. This illegal practice is called:

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

Explanation

Twisting is an unfair trade practice in which misrepresentation or an incomplete comparison induces a policyholder to lapse, surrender, or replace coverage. Replacement activity must be disclosed and compared fairly.

Question 49General Insurance Concepts

Statements made by an applicant on an insurance application are generally treated as representations, which means they must be:

  1. Absolutely true in every detail, without any exception at all
  2. Confirmed by a medical examination before issue
  3. Material to the insurer's decision to accept the risk Correct answer.
  4. Verified in writing by the producing agent

Explanation

A representation is a statement believed true to the best of the applicant's knowledge and need not be literally perfect. Only statements that are material, meaning they would affect the insurer's decision, can support rescission or denial.

Question 50General Insurance Concepts

A building with an actual cash value of $200,000 is insured for $300,000 and is destroyed by a covered fire. Under the principle of indemnity, the insurer will pay:

  1. $200,000, the amount of the actual loss Correct answer.
  2. Nothing, because the policy exceeds the value
  3. $300,000, the full policy limit
  4. $100,000, the difference between the limit and the value

Explanation

Indemnity restores the insured to the same financial position as before the loss, no better. Even though the limit is $300,000, recovery is capped at the value of the loss, $200,000, less any deductible.