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SD Life & Health practice questions

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Question 1Insurance Regulation and State Requirements

Which entity is primarily responsible for administering and enforcing South Dakota's insurance laws and regulations?

  1. The state banking commission
  2. The Division of Insurance Correct answer.
  3. The Office of the Attorney General
  4. The Secretary of State's office

Explanation

The Division of Insurance, headed by its Director, is the state agency that administers the insurance code, licenses insurers and producers, and investigates violations. Other state offices handle corporate filings, general law enforcement, or banking, not insurance regulation.

Question 2Insurance Regulation and State Requirements

A producer who holds an active resident license in Nebraska wants to sell life insurance in South Dakota. Which requirement must that producer satisfy?

  1. Hold a valid home-state license in good standing Correct answer.
  2. Post a surety bond with the state treasurer
  3. Open a business office inside the state
  4. Complete South Dakota's prelicensing education course

Explanation

Nonresident licensing is built on reciprocity: the applicant must already hold a valid, active resident license in the home state and be in good standing there. The home state submits the clearinghouse certification rather than requiring the applicant to repeat prelicensing education.

Question 3Insurance Regulation and State Requirements

What does it mean when an insurer "appoints" a producer?

  1. The insurer files notice authorizing the producer to represent it Correct answer.
  2. The producer is hired as a full-time employee of the insurer
  3. The producer has passed the state licensing examination
  4. The producer is cleared to sell every line of insurance

Explanation

An appointment is the insurer's authorization, filed with the Division of Insurance, that permits the producer to act as that insurer's agent. The license comes from the state; the appointment comes from the insurer and is limited to the lines the insurer is authorized to write.

Question 4Insurance Regulation and State Requirements

An insurer that is incorporated and organized under the laws of South Dakota is classified as which of the following?

  1. Domestic Correct answer.
  2. Foreign
  3. Alien
  4. Nonadmitted

Explanation

An insurer is a domestic insurer in the state where it is chartered. The same company would be a foreign insurer in every other state and an alien insurer in any country outside the United States.

Question 5Insurance Regulation and State Requirements

A producer deposits collected premium checks into a personal checking account and uses part of the money to cover office expenses. This conduct is best described as which of the following?

  1. A lawful advance of commission
  2. Commingling of fiduciary funds Correct answer.
  3. Twisting an existing policy
  4. Rebating a portion of premium

Explanation

Premiums collected from applicants belong to the insurer or the insured and are held by the producer in a fiduciary capacity. Mixing those funds with personal or business money, or spending them before remitting, is commingling and can lead to license suspension or revocation.

Question 6Insurance Regulation and State Requirements

To close a sale, a producer offers to pay the applicant's first monthly premium out of her own pocket. This practice is best identified as which of the following?

  1. Acceptable if the insurer approves it
  2. A legitimate discount offered to all buyers
  3. Permitted for policies above $100,000
  4. Rebating, an unlawful inducement Correct answer.

Explanation

Rebating is offering any inducement not stated in the policy contract, such as paying part of the premium, to persuade a buyer to purchase. It is an unfair trade practice and is unlawful regardless of the insurer's approval or the size of the policy.

Question 7Insurance Regulation and State Requirements

Inducing a policyholder to drop an existing policy by using a misleading or incomplete comparison of coverage is known as which of the following?

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

Explanation

Twisting is a misrepresentation or incomplete comparison used to persuade a policyholder to lapse, surrender, or replace existing coverage. It is an unfair trade practice because the replacement decision is based on inaccurate information.

Question 8Insurance Regulation and State Requirements

An agent circulates a written statement falsely claiming that a competing insurer is on the verge of insolvency. This conduct is best described as which of the following?

  1. An unfair claim practice
  2. Lawful if the statement is partly true
  3. Permissible opinion
  4. Defamation of an insurer Correct answer.

Explanation

Publishing a false statement that is derogatory to the financial condition of an insurer is defamation under the unfair trade practice statutes. Truth is a defense; a statement that is only partly true but still conveys a false impression does not escape the rule.

Question 9Insurance Regulation and State Requirements

Several insurers agree among themselves to refuse to write coverage for any agency that also represents a new competitor, hoping to force agencies to drop that competitor. This agreement is best characterized as which of the following?

  1. A reinsurance arrangement
  2. A lawful market conduct practice
  3. An unlawful boycott Correct answer.
  4. A permitted underwriting guideline

Explanation

An agreement among insurers to refuse to deal with a person or entity in order to restrain competition is a boycott and is prohibited as an unfair trade practice. Concerted refusal to deal is unlawful even when each insurer could individually decline the business.

Question 10Insurance Regulation and State Requirements

A life insurance policy delivered in South Dakota must give the owner how many days to return it for a full premium refund?

  1. Thirty days
  2. Three days
  3. Ten days Correct answer.
  4. Twenty days

Explanation

The free-look provision gives the policyowner a limited period, generally ten days after delivery, to examine the contract and return it for a full refund of premium. The period runs from delivery, not from the application date.

Question 11Insurance Regulation and State Requirements

A life insurance premium is unpaid, and the insured dies on the twentieth day of the grace period. How will the insurer generally respond?

  1. Pay the face amount minus the unpaid premium Correct answer.
  2. Deny the claim because coverage had already lapsed
  3. Pay the full face amount with no deduction
  4. Pay only the policy's cash surrender value

Explanation

During the grace period the policy remains in force, so a death during that window is covered. The insurer simply deducts the overdue premium from the proceeds, because coverage was never actually interrupted.

Question 12Insurance Regulation and State Requirements

An insurer is declared insolvent and an unpaid life insurance death benefit of $500,000 remains. What will the state guaranty association generally provide?

  1. Nothing, because beneficiaries rank as unsecured creditors
  2. Fifty percent of the face amount as a compromise
  3. Payment up to the statutory cap, commonly $300,000 Correct answer.
  4. The entire $500,000 from state general funds

Explanation

Guaranty associations pay covered claims up to statutory limits when a member insurer fails; for life insurance the death benefit cap is commonly $300,000, with separate lower limits for cash surrender values. Amounts above the cap are not covered by the association.

Question 13Insurance Regulation and State Requirements

Before submitting an application for coverage that will replace an existing life insurance policy, the producer must do which of the following?

  1. Require the applicant to retake a licensing exam
  2. Obtain written approval from the Commissioner
  3. Surrender the old policy on the applicant's behalf
  4. Deliver a replacement notice to the applicant Correct answer.

Explanation

Replacement rules require the producer to present and deliver a notice regarding replacement so the applicant understands the consequences of dropping existing coverage. A copy of the notice and the application are also furnished to the replacing insurer.

Question 14Insurance Regulation and State Requirements

A producer may lawfully share commissions from a sale with which of the following?

  1. Any referral source who supplied the lead
  2. An unlicensed assistant who delivered the policy
  3. Another properly licensed producer on the sale Correct answer.
  4. The applicant, as a sales incentive

Explanation

Commission splitting is permitted only between licensed producers, and generally only with the knowledge of the insurer involved. Paying compensation for the sale or solicitation of insurance to an unlicensed person is prohibited.

Question 15Insurance Regulation and State Requirements

Before the Director of Insurance issues an order directing a producer to stop an alleged violation, the producer is entitled to which of the following?

  1. Notice of the charges and a hearing Correct answer.
  2. Immunity from any later civil action
  3. A six-month period to correct the conduct
  4. A jury trial in circuit court

Explanation

Administrative enforcement requires due process: the Director must give the licensee notice of the charges and an opportunity to be heard before imposing an order or penalty. Only after the hearing may the Director issue findings and a cease-and-desist order or other sanction.

Question 16Insurance Regulation and State Requirements

A person must hold an insurance producer license in order to do which of the following?

  1. Refer a friend to an agent by name
  2. Sell, solicit, or negotiate insurance contracts Correct answer.
  3. Maintain an insurer's policy records
  4. Distribute brochures prepared by an insurer

Explanation

The licensing statutes reach anyone who sells, solicits, or negotiates insurance for compensation. Purely clerical or administrative tasks do not require a license as long as no solicitation or negotiation occurs.

Question 17Insurance Regulation and State Requirements

A producer's book of business consists almost entirely of policies written on herself, her spouse, and her employer. Her license is subject to which of the following?

  1. Renewal only after a market conduct exam
  2. Automatic conversion to a nonresident license
  3. No scrutiny, since each policy is lawful
  4. Revocation for writing controlled business Correct answer.

Explanation

A license obtained or used primarily to write coverage on the licensee, relatives, or the licensee's employer is controlled business, and the state may refuse, suspend, or revoke the license for it. The concern is that the license was procured for the producer's own benefit rather than to serve the public.

Question 18Insurance Regulation and State Requirements

Which of the following is an unfair claim settlement practice?

  1. Failing to settle promptly when liability is clear Correct answer.
  2. Explaining the policy's exclusions to the claimant
  3. Requesting a proof of loss from the claimant
  4. Investigating a claim within thirty days of notice

Explanation

Unfair claim practices include failing to attempt a prompt, fair, and equitable settlement once liability has become reasonably clear. Requesting documentation and explaining policy terms are ordinary, lawful claim-handling steps.

Question 19Insurance Regulation and State Requirements

Which of the following is insurance fraud?

  1. Falsifying an application to obtain a lower premium Correct answer.
  2. Asking the agent to explain a policy exclusion
  3. Reporting a covered loss a week after it happens
  4. Purchasing a policy after a loss but dating the application earlier

Explanation

Insurance fraud is an intentional deception made to obtain coverage, a benefit, or a more favorable rate. Knowingly misstating facts on an application is a classic example and can result in criminal penalties as well as rescission of the policy.

Question 20Insurance Regulation and State Requirements

Before an insurer may transact insurance business in South Dakota, it must obtain which of the following?

  1. A federal insurance charter
  2. An actuarial certification for each product
  3. A certificate of authority from the Division Correct answer.
  4. A surety bond from each producer

Explanation

Insurers must be authorized by the state before doing business there, and the evidence of that authority is the certificate of authority. Transacting insurance without one is unlawful and subjects the insurer to penalties.

Question 21Insurance Regulation and State Requirements

Under state privacy rules, a consumer must generally receive which of the following before an insurer may share nonpublic personal financial information with a nonaffiliated third party?

  1. A copy of the insurer's annual financial statement
  2. A summary of the producer's commission schedule
  3. A privacy notice and an opt-out right Correct answer.
  4. Written approval from the Division of Insurance

Explanation

Privacy rules require clear notice of an insurer's information practices and, before disclosing nonpublic personal financial information to a nonaffiliated third party, a meaningful opportunity to opt out. Certain disclosures, such as those needed to service the policy, are excepted.

Question 22Insurance Regulation and State Requirements

For a life insurance policy, insurable interest must exist at which point?

  1. Throughout the first two policy years
  2. At the time the claim is paid
  3. At every policy anniversary
  4. When the policy is applied for and issued Correct answer.

Explanation

Insurable interest in a life insurance contract is tested at inception, when the applicant has a reasonable expectation of benefit from the insured's continued life. Once the policy is issued, the coverage may remain in force even if the relationship later changes.

Question 23Insurance Regulation and State Requirements

An applicant reasonably believes a producer may act for a company because the insurer supplied her with company application forms and business cards bearing its name. The producer's power in this situation rests on which of the following?

  1. Implied authority created by statute
  2. Express authority
  3. Apparent authority Correct answer.
  4. The producer's fiduciary capacity

Explanation

Apparent authority arises when the insurer's own conduct leads a reasonable third party to believe the producer has authority, even if the insurer did not expressly grant it. The insurer may be bound by acts taken in reliance on that appearance.

Question 24Insurance Regulation and State Requirements

Which requirement applies to all insurance advertisements in South Dakota?

  1. They must display the producer's license number
  2. They must be retained for one year only
  3. They must be pre-approved by the Commissioner
  4. They must be truthful and not misleading Correct answer.

Explanation

Advertising rules require that any material representing an insurer or a policy be truthful, clear, and not misleading, whether the ad is in print, broadcast, or online. Records of advertisements must also be kept available for examination by the Division.

Question 25Insurance Regulation and State Requirements

How much continuing education must a South Dakota insurance producer complete during each two-year license term?

  1. 12 hours, including 1 hour of ethics
  2. 24 hours, including 3 hours of ethics Correct answer.
  3. 16 hours with no ethics requirement
  4. 40 hours, including 8 hours of ethics

Explanation

Producers must complete a set number of continuing education hours every two years, and a portion of those hours must cover ethics. Courses generally must be approved and reported to the Division to count toward the requirement.

Question 26General Insurance Concepts

Which type of risk is considered insurable because it involves only the chance of loss or no loss?

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

Explanation

Pure risk involves only the possibility of loss or no loss, with no chance of gain, which is why insurers will accept it. Speculative risk involves the possibility of gain as well as loss and is generally not insurable.

Question 27General Insurance Concepts

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

  1. Continuously throughout the policy period
  2. When the application is submitted Correct answer.
  3. At the time of the insured's death
  4. Only when a claim is filed

Explanation

For life insurance, insurable interest must exist only at the time the policy is applied for. Once the policy is issued, the owner may keep it in force even if the relationship later ends.

Question 28General Insurance Concepts

The principle of indemnity is intended to do which of the following?

  1. Guarantee payment of the full face amount
  2. Restore the insured financially after a loss Correct answer.
  3. Punish the insurer for denying a claim
  4. Allow the insured to profit from a loss

Explanation

Indemnity means the insured is restored to approximately the same financial position held before the loss, no better and no worse. It prevents the insured from collecting more than the value of what was lost.

Question 29General Insurance Concepts

The law of large numbers helps an insurer predict future losses by doing which of the following?

  1. Setting rates from a single large claim
  2. Requiring identical premiums for all policyholders
  3. Guaranteeing that the insurer will never pay a loss
  4. Pooling many similar units to predict losses Correct answer.

Explanation

As the number of similar exposure units increases, actual loss experience tends to approach the expected or predicted level. This predictability is the mathematical foundation of insurance pricing.

Question 30General Insurance Concepts

An insurance policy is generally described as a contract of adhesion because of which reason?

  1. Both parties negotiate every clause as equals
  2. The insurer drafts the policy wording Correct answer.
  3. Only the insured is legally bound by the terms
  4. The state insurance department writes all policies

Explanation

In a contract of adhesion, one party drafts the terms and the other party takes them or leaves them. Because the insurer writes the policy, ambiguities are generally construed against the insurer.

Question 31General Insurance Concepts

A statement made by an applicant on an insurance application is generally treated as which of the following?

  1. A representation of facts believed true by the applicant Correct answer.
  2. A concealment of material fact
  3. A guarantee of future performance
  4. A warranty that must be literally true

Explanation

Statements on an application are representations, meaning the applicant believes them to be true to the best of their knowledge. A warranty, by contrast, is a promise that a fact is literally true.

Question 32General Insurance Concepts

The primary purpose of a deductible in an insurance policy is to do which of the following?

  1. Guarantee full recovery of every loss
  2. Increase the insurer's exposure to small losses
  3. Reduce small claims and lower the premium Correct answer.
  4. Eliminate the need for underwriting

Explanation

A deductible makes the insured responsible for the first portion of a loss, which removes many small claims from the insurer's costs. Those savings are passed along as a lower premium.

Question 33General Insurance Concepts

An insurer's representative accepts a late premium and tells the insured that coverage remains in force. The insurer later denies a claim because the premium was late. Which doctrine most likely prevents that denial?

  1. Indemnity
  2. Coinsurance
  3. Estoppel Correct answer.
  4. Subrogation

Explanation

When an insurer knowingly waives a policy requirement and the insured reasonably relies on that conduct, estoppel can prevent the insurer from later asserting the requirement as a defense. Waiver is the voluntary relinquishment of a known right; estoppel is the legal bar that follows reliance on it.

Question 34General Insurance Concepts

After paying a collision claim, an insurer pursues the at-fault driver to recover the amount paid. This right is known as which of the following?

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

Explanation

Subrogation is the insurer's right to step into the insured's shoes and recover from the party legally responsible for the loss. It helps keep the insured from collecting twice and holds the responsible party accountable.

Question 35General Insurance Concepts

Authority that is specifically spelled out in the producer's agency agreement is classified as which of the following?

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

Explanation

Express authority is granted in writing or through explicit instructions in the agency contract. Implied and apparent authority arise from other circumstances rather than from stated terms.

Question 36General Insurance Concepts

A producer with no actual power to bind coverage does so anyway, and the applicant reasonably believes the producer has that power. The insurer may be held responsible under which doctrine?

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

Explanation

Apparent authority is created when the insurer's conduct leads a reasonable person to believe the producer has authority, even if the insurer did not grant it. The insurer is often bound because it created the appearance of authority.

Question 37General Insurance Concepts

Which action by a producer violates the fiduciary duty owed to an insurer?

  1. Keeping accurate records of funds received
  2. Depositing premiums in a separate trust account
  3. Remitting premiums within the time required by the insurer
  4. Using collected premiums for personal expenses Correct answer.

Explanation

Premiums collected for an insurer are held in trust, and using them for personal purposes is a prohibited conversion of those funds. Producers must keep such funds separate and remit them promptly as the agreement requires.

Question 38General Insurance Concepts

An insurer transfers a portion of its risk to another insurer. The insurer that transfers the risk is called which of the following?

  1. Reinsurer
  2. Ceding insurer Correct answer.
  3. Primary beneficiary
  4. Assuming insurer

Explanation

The ceding insurer is the original insurer that transfers risk to a reinsurer, which is the assuming insurer. Reinsurance lets the ceding insurer protect against large or unusual losses.

Question 39General Insurance Concepts

A property policy contains an 80% coinsurance clause. To avoid a penalty on a partial loss, the insured must carry insurance of at least which amount?

  1. The outstanding mortgage balance
  2. The full replacement cost of the structure
  3. 80% of the property's value Correct answer.
  4. 80% of the policy deductible

Explanation

A coinsurance clause requires the insured to carry insurance equal to a stated percentage of the property's value at the time of loss, commonly 80%. If the limit carried falls short of that figure, the insurer reduces the claim payment by the ratio of the amount carried to the amount required.

Question 40General Insurance Concepts

Which statement correctly describes a mutual insurance company?

  1. It is owned by stockholders who share profits
  2. It is owned by its policyholders Correct answer.
  3. It must issue shares of stock to its policyholders
  4. It cannot issue participating policies

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 41General Insurance Concepts

Adverse selection in insurance refers to which of the following?

  1. Low-risk people buying more coverage than others
  2. A way of spreading risk among insurers
  3. Insurers enrolling only the healthiest applicants
  4. High-risk applicants are most likely to seek coverage Correct answer.

Explanation

Adverse selection occurs when people with a greater-than-average likelihood of loss are the ones most eager to buy or increase coverage. Underwriting and policy design exist largely to control this tendency.

Question 42General Insurance Concepts

A person who knows a claim will be covered becomes careless about preventing a loss. This behavior is an example of which of the following?

  1. Adverse selection
  2. Law of large numbers
  3. Moral hazard Correct answer.
  4. Reinsurance

Explanation

Moral hazard is the increase in careless or dishonest behavior that results from having insurance. Insurers counter it with deductibles, exclusions, and claim investigation.

Question 43General Insurance Concepts

Which policy section identifies the insured, the property or risk covered, the policy period, and the applicable limits?

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

Explanation

The declarations page provides the identifying facts of the contract, including names, dates, covered property, and limits. The other sections set out the promise to pay, the duties of the parties, and what is not covered.

Question 44General Insurance Concepts

The insuring clause of a policy primarily does which of the following?

  1. Lists the insured's duties after a loss
  2. Specifies the premium due dates
  3. Explains how the policy may be cancelled
  4. States the insurer's promise to pay covered losses Correct answer.

Explanation

The insuring clause is the heart of the contract because it states what the insurer promises to pay and under what broad circumstances. Details of duties, premium, and cancellation appear elsewhere in the policy.

Question 45General Insurance Concepts

The parol evidence rule generally provides which of the following?

  1. Oral statements always override written policy wording
  2. Ambiguities in a policy are always resolved in favor of the insurer
  3. Prior oral agreements cannot change the written terms Correct answer.
  4. Verbal promises by a producer become part of the policy

Explanation

The parol evidence rule holds that a complete written contract cannot be altered by evidence of earlier or simultaneous oral agreements. This is why policy terms, not a producer's verbal statements, control the coverage.

Question 46General Insurance Concepts

Two policies with identical limits cover the same loss on the same basis. Under a pro rata contribution provision, each insurer pays which of the following?

  1. Nothing until the other insurer has paid in full
  2. The full loss, then seeks reimbursement from the other
  3. An equal share of the loss Correct answer.
  4. Only the amount of the deductible

Explanation

When two policies cover the same loss on the same basis and carry equal limits, contribution divides the loss equally between them. The insured cannot collect twice for the same loss.

Question 47General Insurance Concepts

For an insurer to rescind a policy based on a misstatement on the application, the misstatement must be which of the following?

  1. Material and relied upon by the insurer Correct answer.
  2. Written in ink
  3. Discovered within 30 days
  4. Immaterial

Explanation

Only a material misrepresentation, meaning one that affected the insurer's decision to issue the policy or set the premium, can support rescission. An immaterial error generally does not affect the validity of the contract.

Question 48General Insurance Concepts

Insurance is considered a conditional contract because of which reason?

  1. The premium must be paid in cash
  2. The insured may cancel at any time without penalty
  3. The insurer's promise depends on the insured meeting stated conditions Correct answer.
  4. Only the insurer makes enforceable promises

Explanation

The insurer's duty to pay is conditioned on the insured's compliance with policy terms such as notice, proof of loss, and cooperation. Failure to meet those conditions can affect the claim.

Question 49General Insurance Concepts

An endorsement attached to an insurance policy is used to do which of the following?

  1. Cancel coverage retroactively
  2. Replace the entire policy with a new one
  3. Increase the premium without changing coverage
  4. Modify or add to the policy's terms Correct answer.

Explanation

An endorsement, also called a rider, changes, adds, or removes provisions in the base policy. It takes precedence over conflicting language in the original form.

Question 50General Insurance Concepts

An insurance policy is described as a unilateral contract because of which reason?

  1. The insured cannot negotiate the terms
  2. A court must approve the contract first
  3. Both parties exchange promises of equal value
  4. Only the insurer makes a legally binding promise Correct answer.

Explanation

Only the insurer promises to pay if a covered loss occurs; the insured makes no reciprocal promise and instead may choose whether to pay premiums. That one-sided promise makes the contract unilateral.