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TX Life & Health practice questions

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Question 1Insurance Regulation and General Insurance Concepts

A business owner purchases a commercial property policy to protect the company against fire losses. Which risk management technique does this represent?

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

Explanation

Buying insurance shifts the financial consequences of an uncertain loss to an insurer in exchange for a premium, which is the definition of risk transfer. Avoidance eliminates the exposure entirely, retention keeps it, and loss reduction lessens its severity. Insurance does not remove the physical hazard itself, only its financial impact.

Question 2Insurance Regulation and General Insurance Concepts

For a life insurance policy to be valid in Texas, when must insurable interest exist?

  1. Only at the time a claim is filed
  2. Only when the beneficiary is a family member
  3. Continuously from application until the insured's death
  4. At the time the policy is issued Correct answer.

Explanation

Insurable interest in a life insurance policy must exist when the contract is formed, because that is what distinguishes insurance from a wager on a human life. Unlike property insurance, life insurance does not require the interest to continue after issuance. A policy lacking interest at inception is not enforceable.

Question 3Insurance Regulation and General Insurance Concepts

Which of the following is an example of a pure risk?

  1. Investing in a new business venture
  2. Trading commodity futures
  3. Buying a lottery ticket
  4. A fire damaging an insured warehouse Correct answer.

Explanation

A pure risk involves only the chance of loss or no loss, with no possibility of gain, which is the type of exposure insurance is designed to handle. Speculative risks involve the possibility of profit as well as loss and are generally not insurable. Fire damage to property is a classic pure risk.

Question 4Insurance Regulation and General Insurance Concepts

An icy, unlit walkway in a shopping center parking lot is best described as:

  1. A peril
  2. A loss
  3. A risk
  4. A hazard Correct answer.

Explanation

A hazard is a condition that increases the chance or severity of a loss, such as an icy, unlit walkway. A peril is the actual cause of a loss, such as a slip and fall or a fire. The loss itself is the financial harm that results.

Question 5Insurance Regulation and General Insurance Concepts

The statistical principle that lets an insurer predict losses more accurately as the number of similar exposure units increases is called:

  1. The law of large numbers Correct answer.
  2. The rule of adverse selection
  3. The doctrine of adhesion
  4. The principle of indemnity

Explanation

The law of large numbers holds that observed loss experience approaches the expected rate as the number of independent, similar exposure units grows. This predictability is what allows insurers to set rates and hold adequate reserves. It is fundamental to the pooling of risk.

Question 6Insurance Regulation and General Insurance Concepts

An insurer incorporated under the laws of Texas and doing business in Texas is classified as:

  1. Foreign
  2. Domestic Correct answer.
  3. Surplus lines
  4. Alien

Explanation

An insurer is domestic in the state where it is chartered, so a Texas-chartered company is a domestic insurer in Texas. The same company would be a foreign insurer in another state and an alien insurer if formed in another country. Surplus lines describes a market segment, not a place of domicile.

Question 7Insurance Regulation and General Insurance Concepts

After paying an insured's collision claim, an insurer pursues the at-fault driver to recover the amount it paid. This right is known as:

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

Explanation

Subrogation gives the insurer the right to step into the insured's shoes and recover from the party responsible for the loss after paying the claim. It supports the indemnity principle by preventing the insured from collecting twice. Salvage is the insurer's right to the recovered property, and contribution allocates a loss among insurers.

Question 8Insurance Regulation and General Insurance Concepts

An insurer's agent accepts a premium several weeks after the grace period has expired without comment, and the insurer later denies coverage for that lapse. A court is most likely to apply:

  1. The principle of indemnity
  2. The doctrine of reasonable expectations
  3. The rule against perpetuities
  4. The doctrines of waiver and estoppel Correct answer.

Explanation

Waiver is the voluntary giving up of a known right, and estoppel prevents a party from asserting a right after its conduct led another to rely on the absence of that right. Accepting a late premium can waive the timeliness condition and estop the insurer from later denying coverage on that ground. The insurer's conduct, not the policy wording alone, controls the outcome.

Question 9Insurance Regulation and General Insurance Concepts

The tendency of applicants who face the greatest likelihood of loss to seek out and purchase insurance is known as:

  1. Adverse selection Correct answer.
  2. Moral hazard
  3. Risk pooling
  4. Retrospective rating

Explanation

Adverse selection occurs when those at highest risk are the most eager to buy coverage, which can skew an insurer's loss experience. Insurers counter it through underwriting, exclusions, and appropriate rating. Moral hazard involves conduct after coverage is in place rather than the decision to apply.

Question 10Insurance Regulation and General Insurance Concepts

Because an insurer drafts the policy and offers it to the applicant on a take-it-or-leave-it basis, any genuinely ambiguous policy language is generally interpreted:

  1. By the Texas Department of Insurance before any claim is paid
  2. In favor of the insurer
  3. According to industry custom and usage
  4. In favor of the insured Correct answer.

Explanation

Courts construe ambiguity in a contract of adhesion against the party who drafted it, which in insurance is the insurer. The insured had no meaningful ability to negotiate the wording, so the benefit of the doubt goes to the insured. Clear language, however, is enforced as written.

Question 11Insurance Regulation and General Insurance Concepts

Deliberately setting fire to one's own building in order to collect the insurance proceeds is an example of:

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

Explanation

Moral hazard is the risk that an insured will intentionally cause or exaggerate a loss because insurance is in place, reflecting dishonesty. Morale hazard, by contrast, is indifference or carelessness about loss. Physical hazards are tangible conditions such as faulty wiring.

Question 12Insurance Regulation and General Insurance Concepts

An insurance policy in which only the insurer makes a legally enforceable promise is best described as:

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

Explanation

A unilateral contract is one in which only one party, here the insurer, is legally bound to perform. The insured's payment of premium is a condition of coverage rather than a promise the insurer can sue to enforce. Conditional and aleatory describe other features of the same contract.

Question 13Insurance Regulation and General Insurance Concepts

A producer who deposits premiums collected from clients into a personal bank account is committing:

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

Explanation

Premiums and returned premiums held by a producer are fiduciary funds that must be kept separate from personal or business funds. Mixing them is commingling and is prohibited. Rebating, coercion, and twisting are separate unfair trade practices involving inducements, pressure, and misrepresentation.

Question 14Insurance Regulation and General Insurance Concepts

The insurer that transfers a portion of its risk to another insurer is called the:

  1. Reinsurer
  2. Retrocessionaire
  3. Third-party administrator
  4. Ceding company Correct answer.

Explanation

The primary insurer that transfers risk is the ceding company, and the insurer accepting it is the reinsurer. Reinsurance lets an insurer accept risks larger than its own capacity and stabilize results. A retrocessionaire assumes risk from a reinsurer, and a third-party administrator processes claims without assuming risk.

Question 15Insurance Regulation and General Insurance Concepts

An applicant's statement on an insurance application that the applicant believes to be true to the best of their knowledge is a:

  1. Condition precedent
  2. Warranty
  3. Concealment
  4. Representation Correct answer.

Explanation

Statements on an application are representations, which must be true to the best of the applicant's knowledge rather than literally guaranteed. A warranty, by contrast, is a statement strictly guaranteed as true. Concealment is the intentional withholding of a material fact.

Question 16Insurance Regulation and General Insurance Concepts

A producer offers to share a portion of the commission with a client in order to persuade the client to buy a policy. Under Texas insurance law this practice is:

  1. Prohibited as an illegal inducement Correct answer.
  2. Permitted if it is disclosed to the commissioner
  3. Permitted when the premium exceeds a stated dollar amount
  4. Permitted if the insurer approves it in writing

Explanation

Offering something of value not specified in the policy as an inducement to buy is rebating, a prohibited unfair trade practice in Texas. The prohibition exists so that buyers choose coverage on its merits rather than on side payments. An insurer's consent or disclosure to regulators does not make the practice lawful.

Question 17Insurance Regulation and General Insurance Concepts

The Texas Windstorm Insurance Association (TWIA) exists primarily to:

  1. Guarantee the obligations of every insolvent insurer in Texas, including life and health writers
  2. Administer federal flood insurance claims for properties in Harris County
  3. Serve as a residual market for coastal windstorm and hail coverage Correct answer.
  4. Set the maximum rates any Texas insurer may charge for homeowners coverage statewide

Explanation

TWIA is a residual market mechanism that provides windstorm and hail coverage for coastal property owners who cannot obtain it from the voluntary market. It was created after private insurers withdrew from coastal wind exposures. It does not set statewide rates, guarantee all insolvencies, or run the federal flood program.

Question 18Insurance Regulation and General Insurance Concepts

The Texas Life and Health Insurance Guaranty Association protects policyholders by:

  1. Paying the full face amount of every life policy ever issued in Texas, regardless of any limits
  2. Reinsuring all individual health plans sold in the state
  3. Paying covered claims of policyholders of insolvent member insurers, up to statutory limits Correct answer.
  4. Guaranteeing the payment of dividends to policyholders of solvent member companies

Explanation

Guaranty associations are funded by member insurers and step in when a member company becomes insolvent, paying covered claims subject to statutory caps. The protection is a limited safety net, not a guarantee of full policy values. Solvent insurers continue to pay their own claims without association involvement.

Question 19Insurance Regulation and General Insurance Concepts

If an applicant intentionally conceals a material fact on an insurance application, the resulting contract is:

  1. Voidable at the option of the insurer Correct answer.
  2. Automatically void after ten years
  3. Voidable at the option of the insured
  4. Valid but subject to a reduced benefit

Explanation

A material misrepresentation or concealment gives the wronged party, here the insurer, the right to rescind the contract, making it voidable at the insurer's election. The policy is not void automatically; the insurer must act to rescind, and it may instead choose to enforce the contract. The insured has no corresponding right to avoid the policy because of its own misstatement.

Question 20Insurance Regulation and General Insurance Concepts

In Texas, the commissioner of insurance is:

  1. Chosen by a vote of the legislature
  2. Appointed by the governor Correct answer.
  3. Elected by the voters to a four-year term
  4. Appointed by the attorney general

Explanation

The Texas commissioner of insurance heads the Texas Department of Insurance, is appointed by the governor with the advice and consent of the Senate, and serves a two-year term. The position is not elected and is not filled by the legislature or the attorney general. The commissioner enforces the Insurance Code and adopts rules for the department.

Question 21Life Insurance Basics

Which concept describes the primary mechanism by which life insurance protects an individual's financial plans?

  1. Shifting of mortality risk from the insurer to the policyholder.
  2. Elimination of every financial risk the insured might face.
  3. Transfer of the death risk from the insured to the insurer. Correct answer.
  4. Assumption of the death risk by the named beneficiary.

Explanation

Insurance is a risk-transfer device: in exchange for premiums, the insurer accepts the financial consequences of the insured's death. The policyholder keeps only the risk of paying premiums, while the insurer pools mortality risk across many insureds.

Question 22Life Insurance Basics

In a mutual life insurance company, who legally owns the company?

  1. Stockholders, who receive dividends paid from company profits.
  2. The company's field underwriters, who share in surplus.
  3. The state insurance department, which approves premium rates.
  4. Policyholders, who may receive dividends from surplus. Correct answer.

Explanation

A mutual insurer is owned by its policyholders, who elect management and may receive dividends from divisible surplus. A stock insurer, by contrast, is owned by shareholders.

Question 23Life Insurance Basics

A life insurance contract is aleatory because:

  1. The dollars paid out may greatly exceed the premiums paid. Correct answer.
  2. Both parties exchange promises of exactly equal value.
  3. Only the insurer makes a promise that the law will enforce.
  4. The contract must be in writing before it can be enforced.

Explanation

An aleatory contract involves an exchange of unequal values that depends on chance. A small premium may produce a large death benefit, or no benefit may ever be paid.

Question 24Life Insurance Basics

An employee covered under a group life insurance plan receives which document as evidence of coverage?

  1. A certificate of coverage given by the employer. Correct answer.
  2. A certificate of authority that the state issues to the insurer.
  3. A temporary binder issued before the insurer finishes underwriting.
  4. The master policy that the insurer issues to the employer.

Explanation

In group life insurance, the insurer issues one master policy to the employer or plan sponsor. Each covered employee receives a certificate of insurance summarizing the coverage.

Question 25Life Insurance Basics

Which characteristic distinguishes a fraternal benefit society from a commercial life insurer?

  1. It operates on a lodge system with a social purpose. Correct answer.
  2. It is exempt from all state insurance regulation.
  3. It is owned by stockholders who share in company profits.
  4. It may sell only term insurance to its members.

Explanation

Fraternal benefit societies are nonprofit organizations with a lodge system and a social, religious, or charitable purpose. They provide insurance to members but are still regulated by state insurance departments.

Question 26Life Insurance Basics

What is the agent's role in field underwriting?

  1. To gather accurate applicant information for the insurer. Correct answer.
  2. To approve or decline the application on behalf of the insurer.
  3. To complete the medical examination required by the insurer.
  4. To issue the policy and set the premium rate.

Explanation

Field underwriting means the agent collects complete and accurate information about the applicant and submits it to the insurer. The insurer, not the agent, makes the final underwriting decision.

Question 27Life Insurance Basics

A man applies for a life policy on his business partner and names himself beneficiary. For this policy to be valid, insurable interest must exist:

  1. At the time the beneficiary files the claim.
  2. At the time the insured person dies.
  3. When the application is submitted. Correct answer.
  4. At every stage of the policy's existence.

Explanation

For life insurance, insurable interest must exist at policy inception, meaning when the application is made and the policy is issued. It does not have to continue until the insured's death. Business partners generally have an insurable interest in one another.

Question 28Life Insurance Basics

Why do insurers use medical underwriting and ask health questions on applications?

  1. To limit adverse selection by finding higher-risk applicants. Correct answer.
  2. To calculate the commission the agent earns on the sale.
  3. To comply with the state's replacement regulations.
  4. To determine the income tax liability of the named beneficiary.

Explanation

Adverse selection is the tendency of people in poor health to seek insurance more readily than healthy people. Underwriting identifies higher risks so the insurer can classify, rate, or decline them, keeping premiums fair for the pool.

Question 29Life Insurance Basics

What is the primary purpose of reinsurance for a life insurer?

  1. To spread mortality and large-claim risk among insurers. Correct answer.
  2. To replace the insurer's own underwriting department.
  3. To allow the insurer to avoid state guaranty association fees.
  4. To guarantee the insurer a profit on every policy sold.

Explanation

Reinsurance is insurance for insurers. The ceding company transfers part of its risk to a reinsurer, which spreads mortality risk and protects the insurer against unusually large claims.

Question 30Life Insurance Basics

On a life application, statements the applicant believes to be true are best described as:

  1. Guarantees, which the insurer may enforce without any qualification.
  2. Representations, which must be true as the applicant believes. Correct answer.
  3. Warranties, which must be exactly true in every detail.
  4. Concealments, which void the policy automatically by law.

Explanation

Statements on an application are generally representations, and they must be true to the best of the applicant's knowledge and belief. A material misrepresentation can affect the policy, but an honest statement believed true is not a breach of warranty.

Question 31Life Insurance Basics

A life insurance policy is a unilateral contract because:

  1. The insurer may change the contract terms without consent.
  2. Only the insurer is bound to perform under the policy. Correct answer.
  3. Both parties make enforceable promises to each other.
  4. The policyowner may cancel the contract at any time without penalty.

Explanation

In a unilateral contract, only one party makes a legally enforceable promise. The insurer promises to pay the benefit if premiums are paid, while the policyowner's premium payments are conditions rather than promises.

Question 32Life Insurance Basics

Because a life insurance policy is a contract of adhesion:

  1. Ambiguities in the policy are interpreted in favor of the insured. Correct answer.
  2. The policy must be approved by the insured's attorney to be valid.
  3. The insured and the insurer negotiate all policy terms equally.
  4. The insurer may enforce ambiguous wording against the insured.

Explanation

A contract of adhesion is prepared by one party, the insurer, and offered on a take-it-or-leave-it basis. Because the insurer drafts the language, courts generally resolve ambiguities in favor of the insured.

Question 33Life Insurance Basics

What constitutes the applicant's consideration in a life insurance contract?

  1. The agent's promise to service the policy after issue.
  2. The first premium paid plus the application statements. Correct answer.
  3. The insurer's promise to pay the death benefit.
  4. The beneficiary's agreement to accept the proceeds.

Explanation

Consideration is what each party gives up. The applicant provides the first premium and the information in the application, while the insurer provides its promise to pay covered claims.

Question 34Life Insurance Basics

In credit life insurance, who is typically the beneficiary of the policy?

  1. The borrower's spouse, who receives the death benefit.
  2. The state guaranty association that protects policyholders.
  3. The creditor to whom the outstanding debt is owed. Correct answer.
  4. The borrower's employer, if the employer paid the premium.

Explanation

Credit life insurance is designed to pay off a borrower's debt if the borrower dies. The creditor is the beneficiary, and the benefit is limited to the outstanding loan balance.

Question 35Life Insurance Basics

What does the free-look provision in an individual life insurance policy permit?

  1. The policyowner to return it for a refund within a set period. Correct answer.
  2. The agent to rewrite the policy at a lower rate within one year.
  3. The beneficiary to review the policy before filing a claim.
  4. The insurer to cancel coverage if the first premium is late.

Explanation

The free-look provision gives the policyowner a specified period after delivery to examine the policy and return it for a refund of premiums paid. It protects buyers from purchasing coverage they do not want.

Question 36Life Insurance Basics

A nonparticipating life insurance policy is one in which the policyowner:

  1. Shares in the insurer's divisible surplus through dividends.
  2. Receives a guaranteed refund of all premiums at maturity.
  3. May convert the policy to participating status at any time.
  4. Does not receive dividends from the insurer's surplus. Correct answer.

Explanation

A nonparticipating policy does not give the policyowner the right to share in the insurer's divisible surplus. Premiums are typically fixed, and no dividends are paid.

Question 37Life Insurance Basics

An applicant tells the agent about a heart condition, but the agent omits it from the application. The insurer later denies a claim based on the omission. What does the parol evidence rule generally do in this situation?

  1. It requires the insurer to pay the claim without any review.
  2. It may allow evidence that the agent knew of the condition. Correct answer.
  3. It automatically voids the policy because of applicant concealment.
  4. It bars any evidence outside the written application in every case.

Explanation

The parol evidence rule generally prevents contradicting a written contract with prior oral statements, but it does not bar evidence of fraud, mistake, or the agent's knowledge. Courts may admit such evidence to prevent an insurer from benefiting from its agent's omission.

Question 38Life Insurance Basics

An insurer's agent accepts a late premium after the grace period and tells the policyowner the coverage remains in force. The insurer later denies a claim for that period. Which doctrine is most likely to prevent the denial?

  1. Subrogation, which transfers the insured's rights to the insurer.
  2. Contribution, which shares the loss among several insurers.
  3. Reformation, which rewrites the policy to match the agent's statement.
  4. Estoppel, since the owner relied on the insurer's conduct. Correct answer.

Explanation

Estoppel prevents a party from asserting a right after its conduct led another party to rely on a different position. If the agent accepted the late premium and assured coverage, the insurer may be estopped from denying the claim.

Question 39Life Insurance Basics

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

  1. A spouse buys coverage to replace the other spouse's income.
  2. An investor without insurable interest funds a policy on a stranger. Correct answer.
  3. A parent buys a policy on a child's life to fund future education costs.
  4. A business buys key-person coverage on an essential employee.

Explanation

STOLI occurs when an investor with no insurable interest procures or funds a life policy on another person purely to sell or profit from the policy. Such arrangements are generally prohibited because they violate insurable interest principles.

Question 40Life Insurance Basics

An applicant completes the application, pays the initial premium, and receives a conditional receipt. The applicant dies before the insurer issues the policy, and the insurer would have approved the application as submitted. What is the result?

  1. The claim is denied because coverage begins at policy delivery.
  2. The claim is paid only if the applicant passed a medical exam.
  3. The claim is paid because the conditions were satisfied. Correct answer.
  4. The insurer refunds the premium because no policy was issued.

Explanation

A conditional receipt provides coverage retroactive to the application or medical examination date if the applicant meets the insurer's underwriting conditions. If the insurer would have approved the application as submitted, the death benefit is payable even though no policy was delivered.

Question 41Life Insurance Policies

Which statement best describes level term life insurance?

  1. It pays a level death benefit for life and builds guaranteed cash value.
  2. It pays a level death benefit for a stated period and builds no cash value. Correct answer.
  3. It pays a death benefit only if death occurs after age 65.
  4. It pays a decreasing death benefit while the premium stays level.

Explanation

Term insurance is pure protection written for a limited number of years; it accumulates no cash value, which is why it costs the least per dollar of death benefit. A level term policy keeps the same face amount for the entire term.

Question 42Life Insurance Policies

In Texas, a life insurance policy must give the owner a grace period of at least how long to pay an overdue premium?

  1. 30 days Correct answer.
  2. 31 days
  3. 60 days
  4. 7 days

Explanation

Texas requires a grace period of at least 30 days on life insurance premiums, and coverage stays in force during that time. If the insured dies within the grace period, any unpaid premium is deducted from the proceeds.

Question 43Life Insurance Policies

Which feature distinguishes ordinary whole life insurance from term insurance?

  1. It pays a death benefit only if death occurs within the policy term.
  2. It can be renewed each year without evidence of insurability.
  3. It covers the insured for life and builds guaranteed cash value. Correct answer.
  4. It is issued only to applicants who pass a medical examination.

Explanation

Whole life charges a level premium for the insured's entire lifetime and builds a guaranteed cash value that the owner can borrow against or surrender. Term coverage lasts only for its stated period and has no cash value.

Question 44Life Insurance Policies

The free-look provision in a newly delivered life insurance policy allows the owner to:

  1. Exchange the policy for any other policy the insurer sells.
  2. Return the policy within a set number of days for a full refund. Correct answer.
  3. Cancel the policy at any time and still collect the full death benefit.
  4. Return the policy after a claim is filed and receive a refund.

Explanation

The free-look period (commonly 10 days after delivery in Texas) gives the owner an unconditional right to return a new policy for a full premium refund. It exists to protect buyers from high-pressure sales.

Question 45Life Insurance Policies

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

  1. Pay the cash surrender value plus all dividends accumulated.
  2. Pay the full face amount to the beneficiary as a normal death claim.
  3. Refund premiums paid, without interest, and deny the death benefit. Correct answer.
  4. Keep the premiums and pay nothing to any party.

Explanation

The suicide clause limits the insurer's liability during the first two years, during which the only obligation is to return the premiums paid. After that period, suicide is treated as any other cause of death.

Question 46Life Insurance Policies

Credit life insurance is normally written as:

  1. Level term coverage with the borrower as the only beneficiary.
  2. Whole life insurance permanently assigned to the lender.
  3. Increasing term coverage that grows along with the loan balance.
  4. Decreasing term coverage that tracks the shrinking loan balance. Correct answer.

Explanation

Credit life is decreasing term insurance whose face amount falls as the debt is repaid, so the benefit roughly matches the outstanding balance at any point. The creditor is typically the beneficiary up to the amount owed.

Question 47Life Insurance Policies

Under a universal life policy with an Option A (level) death benefit, the amount paid at the insured's death is:

  1. The face amount, with the cash value kept by the insurer. Correct answer.
  2. The specified face amount plus the accumulated cash value.
  3. The face amount reduced each year by the cost of insurance.
  4. The cash value only, with the face amount held as a reserve.

Explanation

With an Option A death benefit, the insurer pays a level face amount and retains the cash value, so the pure insurance amount shrinks as the account value grows. Option B, by contrast, pays the face amount plus the cash value.

Question 48Life Insurance Policies

Which statement about variable life insurance is correct?

  1. All premiums go into the insurer's general account.
  2. The owner may skip premiums without affecting the policy.
  3. Cash values are held in a separate account and are not guaranteed. Correct answer.
  4. The insurer guarantees both the death benefit and cash value.

Explanation

Variable life cash values are invested in a separate account whose performance is not guaranteed, so the policyowner bears the investment risk. Because of that risk, the product is a security as well as an insurance policy.

Question 49Life Insurance Policies

A survivorship, or second-to-die, life policy pays the death benefit when:

  1. Both insureds die within the same policy year.
  2. The first of the two insureds dies.
  3. The second of the two insureds dies. Correct answer.
  4. Either insured dies after the tenth policy year.

Explanation

A survivorship policy covers two lives and pays at the death of the survivor, which makes it well suited to estate planning and estate tax liquidity for a couple. A first-to-die joint policy, by contrast, pays at the earlier death.

Question 50Life Insurance Policies

Which characteristic applies to annually renewable term insurance?

  1. The premium stays level while the death benefit steadily decreases.
  2. The premium rises each year while the death benefit stays level. Correct answer.
  3. Both premium and death benefit remain fixed for life.
  4. One premium is paid and coverage runs to age 100.

Explanation

Annually renewable term lets the insured renew each year without new underwriting, but the premium increases with attained age because mortality cost rises. The face amount stays level throughout.