I85PREP
⌘ K
VA Life & Health study materials
VA Life & Health study resources

VA Life & Health practice questions

One question at a time. Build your VA Life & Health understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Life Insurance

A life insurance policy's grace period provision allows the policyowner to do which of the following?

  1. Reinstate a lapsed policy without evidence of insurability
  2. Pay a late premium while keeping coverage in force Correct answer.
  3. Skip a premium payment without any future obligation
  4. Borrow the premium amount from the insurer at no interest

Explanation

The grace period is a set number of days after the premium due date (commonly 30 or 31) during which the policy remains in force. If the insured dies in that window, the insurer pays the proceeds minus the unpaid premium. Coverage lapses only if the premium is still unpaid when the period ends.

Question 2Life Insurance

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

  1. Continuously throughout the entire policy period
  2. When the policy is applied for and issued Correct answer.
  3. At the time the insured dies
  4. When the beneficiary submits proof of death

Explanation

Insurable interest must exist at the time the contract is formed, meaning the applicant would suffer a financial loss from the insured's death. Once the policy is issued, the interest does not have to continue for the contract to remain valid.

Question 3Life Insurance

Which statement accurately describes level term life insurance?

  1. It builds a cash value the owner may borrow against at any time
  2. It provides lifetime coverage with a guaranteed premium
  3. It pays a benefit only if death occurs during the term Correct answer.
  4. It automatically converts to whole life when the term ends

Explanation

Level term insurance provides a fixed face amount for a specified number of years and pays only if the insured dies within that period. It has no cash value and no automatic conversion; any conversion privilege must be elected and is usually time limited.

Question 4Life Insurance

If the primary beneficiary dies before the insured, who normally receives the death proceeds?

  1. The contingent beneficiary, if one is named Correct answer.
  2. The insured's estate in every case
  3. The insurer keeps the proceeds
  4. The policyowner, if different from the insured

Explanation

A contingent (secondary) beneficiary is named specifically to receive proceeds if the primary beneficiary is not living at the insured's death. Only when no beneficiary survives does the estate typically receive the money.

Question 5Life Insurance

Which statement about a policy loan taken against a whole life policy's cash value is correct?

  1. Taking a loan cancels the automatic premium loan provision
  2. The loan must be repaid within twelve months of issue
  3. Unpaid loan balance and interest reduce the death benefit Correct answer.
  4. Loan interest is tax deductible as personal interest

Explanation

A policy loan is secured by the cash value, so any outstanding principal and accrued interest are subtracted from the death benefit or surrender value. There is no fixed repayment schedule, but unpaid interest is added to the loan balance.

Question 6Life Insurance

Which premium payment mode produces the highest total annual outlay for the same policy?

  1. Monthly Correct answer.
  2. Quarterly
  3. Annual
  4. Semiannual

Explanation

Insurers charge more in total when premiums are paid in smaller, more frequent installments because of added administrative cost and lost interest. Annual payment is the least expensive mode, and monthly is the most expensive.

Question 7Life Insurance

An accelerated death benefit rider permits the policyowner to do what?

  1. Increase the face amount without underwriting
  2. Collect part of the benefit before death Correct answer.
  3. Add coverage for a spouse or dependent children
  4. Extend coverage beyond the stated maturity date

Explanation

Accelerated death benefits let the insured draw down a portion of the face amount while living, usually after a diagnosis of a terminal illness or a qualifying chronic condition. The amount received reduces the benefit payable at death.

Question 8Life Insurance

A waiver of premium rider generally waives premium payments when the insured does what?

  1. Reaches age 65 and retires from work
  2. Becomes totally disabled for a specified period Correct answer.
  3. Becomes unemployed for more than 60 days
  4. Is hospitalized for any reason for at least three days

Explanation

The rider waives premiums after total disability continues for the elimination period stated in the contract, often six months. Coverage stays in force, and premiums resume if the disability ends.

Question 9Life Insurance

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

  1. Require proof of death before paying the proceeds
  2. Void the contract for an application misstatement Correct answer.
  3. Reduce the benefit for a misstatement of age or sex
  4. Deny a claim for a cause of death excluded by name

Explanation

The incontestability clause prevents the insurer from rescinding the policy for misstatements in the application after the contestable period, usually two years from issue. Exclusions and the age/sex misstatement provision remain enforceable beyond that period.

Question 10Life Insurance

If the insured dies by suicide during the contestable period, the insurer typically does what?

  1. Returns premiums paid, less any policy debt Correct answer.
  2. Pays the full face amount to the beneficiary
  3. Pays the cash value plus accumulated dividends
  4. Denies all benefits and keeps the premiums paid

Explanation

The suicide clause limits the insurer's liability during an initial period, usually two years, to a refund of premiums rather than payment of the face amount. After that period, suicide is covered like any other cause of death.

Question 11Life Insurance

If the insurer discovers the insured's age was understated on the application, how is the death benefit affected?

  1. All premiums paid are refunded and the contract is voided
  2. The full face amount is paid with no adjustment of any kind
  3. The beneficiary may pay the difference in premium to restore the full benefit
  4. The benefit is reduced to what the premium would buy at the true age Correct answer.

Explanation

A misstatement of age or sex is handled by adjusting the benefit to the amount the premium actually paid would have purchased at the correct age. The policy itself remains fully in force.

Question 12Life Insurance

A lapsed life insurance policy may be reinstated within the stated reinstatement period if the owner does what?

  1. Pays only the overdue premium and any outstanding loan interest
  2. Pays overdue premiums with interest and shows insurability Correct answer.
  3. Provides a statement of good health within thirty days of lapse
  4. Completes a new application and names a different beneficiary

Explanation

Reinstatement restores the original policy, including its original issue age and cash value, but the insurer requires evidence of insurability plus payment of all overdue premiums with interest. Any outstanding loan or interest must also be cleared.

Question 13Life Insurance

If a whole life policy lapses and the extended term nonforfeiture option applies, the owner receives what?

  1. A reduced paid-up policy for the rest of the insured's life
  2. A refund of all premiums paid, minus dividends received
  3. A lump-sum payment of the net cash surrender value
  4. Term coverage for the full face amount for a limited period Correct answer.

Explanation

Under the extended term option, the net cash value purchases a term policy for the original face amount lasting as long as that value will support. No further premiums are due.

Question 14Life Insurance

What does an automatic premium loan provision do when a premium is still unpaid at the end of the grace period?

  1. Cancels the policy and mails the cash value to the owner
  2. Changes the policy to reduced paid-up coverage automatically
  3. Draws on cash value to pay the premium and avoid a lapse Correct answer.
  4. Reduces the face amount by the amount of the unpaid premium

Explanation

This provision authorizes the insurer to advance the unpaid premium from available cash value, creating a loan against the policy. Coverage continues, and the loan plus interest is later deducted from proceeds or surrender value.

Question 15Life Insurance

In a universal life policy, the monthly cost of insurance charge is based primarily on what?

  1. The policyowner's chosen premium payment pattern
  2. The insurer's general account investment returns
  3. The cash value growth guaranteed in the contract
  4. The insured's age and the amount at risk Correct answer.

Explanation

The cost of insurance is charged against the policy's cash value and rises as the insured ages, since it reflects mortality cost on the net amount at risk. The amount at risk is the difference between the death benefit and the accumulated value.

Question 16Life Insurance

Why does a straight life annuity provide the largest periodic income for a given purchase price?

  1. Guarantees payments for life plus a 10-year period certain
  2. Ends all payments at the annuitant's death with no refund Correct answer.
  3. Returns the full purchase price to the annuitant's estate
  4. Refunds any unpaid balance to a named beneficiary

Explanation

A straight life annuity makes payments only during the annuitant's lifetime, so no funds are reserved for survivors or an estate. Because there is no refund feature to fund, each payment is larger than under other payout options.

Question 17Life Insurance

During the accumulation period of a deferred annuity, which statement is true?

  1. The annuitant receives monthly income payments
  2. Income payments are guaranteed for the annuitant's life
  3. The contract value is fixed at the initial premium paid
  4. Interest credited to the annuity grows tax deferred Correct answer.

Explanation

During accumulation, earnings are credited to the contract and are not taxed until withdrawn or until annuity payments begin. Lifetime income payments begin only at annuitization.

Question 18Life Insurance

Under a group term life plan, the conversion privilege allows a terminating employee to do what?

  1. Continue the group coverage at the group's lower premium rate
  2. Buy an individual policy without proving insurability Correct answer.
  3. Transfer the coverage to a spouse without any new underwriting
  4. Receive the group certificate's cash surrender value

Explanation

Conversion lets an employee leaving the group replace the group coverage with an individual policy without evidence of insurability. The employee must apply within the stated window and pays the individual premium rate.

Question 19Life Insurance

Under the fixed-period settlement option, the insurer pays the beneficiary how?

  1. Interest only, with principal paid at the beneficiary's death
  2. Equal installments for a chosen number of years Correct answer.
  3. A lump sum that the beneficiary may annuitize later
  4. A guaranteed income for the beneficiary's entire lifetime

Explanation

The fixed-period option divides the proceeds into equal payments over a selected number of years. Interest earned during the payout increases the size of each installment, and payments stop at the end of the period.

Question 20Life Insurance

If a policy names an irrevocable beneficiary, the policyowner may do which of the following without that beneficiary's consent?

  1. Pay premiums and keep the policy in force Correct answer.
  2. Assign the policy as collateral for a loan
  3. Change the beneficiary to a different person
  4. Surrender the policy for its cash value

Explanation

An irrevocable designation gives the beneficiary a vested interest that cannot be altered without consent. The owner retains only rights that do not diminish that interest, such as paying premiums to keep coverage in force.

Question 21Life Insurance

A life insurance policy becomes a modified endowment contract when which of the following occurs?

  1. The policy is surrendered within seven years of issue
  2. The death benefit falls below the guideline premium level
  3. Cumulative premiums exceed the 7-pay limit in seven years Correct answer.
  4. A policy loan is taken during the first seven policy years

Explanation

The 7-pay test compares premiums paid in the first seven years to the level premium that would fund the policy in seven years. If the limit is exceeded, the contract becomes a MEC and loses favorable tax treatment for loans and withdrawals.

Question 22Life Insurance

Which statement is correct about a variable life insurance policy?

  1. The insurer bears the investment risk on the separate account
  2. The policyowner may not choose among subaccounts
  3. Premiums are credited to the insurer's general account
  4. Cash value varies with separate account performance Correct answer.

Explanation

Variable life cash values are held in a separate account and depend on the investment results of the subaccounts the owner selects. The owner, not the insurer, bears the investment risk, and the policy must be sold with a prospectus.

Question 23Life Insurance

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

  1. A life policy surrendered for cash that is then used to buy an annuity
  2. A deferred annuity exchanged for another annuity with a new insurer Correct answer.
  3. An annuity exchanged for a life insurance policy
  4. A life policy exchanged for a modified endowment contract

Explanation

Section 1035 permits certain direct exchanges, including life for life, life for annuity, and annuity for annuity. Annuity-to-life exchanges and transactions where the owner takes cash first and then purchases a new contract do not qualify.

Question 24Life Insurance

If the insured dies holding any incident of ownership in a policy on his own life, what is the result?

  1. The proceeds are received income tax free by the beneficiary
  2. The death benefit is included in the insured's gross estate Correct answer.
  3. The beneficiary must pay income tax on the investment gain
  4. The policy is treated as a modified endowment contract

Explanation

Incidents of ownership, such as the right to change the beneficiary or borrow against the policy, pull the entire death benefit into the insured's gross estate under federal estate tax rules. Life insurance proceeds are still generally free of income tax to the beneficiary.

Question 25Life Insurance

An annuitant has a $100,000 cost basis in a nonqualified annuity and will receive $12,000 per year for life, with an expected return of $240,000. What amount of each payment is taxable?

  1. $5,000
  2. $0
  3. $12,000
  4. $7,000 Correct answer.

Explanation

The exclusion ratio is the investment in the contract divided by the expected return ($100,000 / $240,000, or about 41.7 percent), which is the tax-free portion of each payment. The remaining 58.3 percent of the $12,000 payment, or $7,000, is taxable as ordinary income.

Question 26Life Insurance

A 10-year level term life insurance policy has no renewable or convertible feature. If the insured is still living when the 10-year term ends, what happens to the coverage?

  1. It pays the face amount to the insured.
  2. It automatically becomes a whole life policy.
  3. It expires and pays no benefit. Correct answer.
  4. It continues in force at the original premium.

Explanation

Level term insurance provides protection for a specified period and has no cash value or living maturity benefit. Without a renewal or conversion feature, the coverage simply ends when the term expires.

Question 27Life Insurance

Within the free look period after delivery of a life insurance policy, the policyowner may return the policy and receive what?

  1. A full refund of premiums paid. Correct answer.
  2. The policy's cash surrender value.
  3. A policy loan equal to the premium.
  4. A paid-up term policy.

Explanation

The free look provision gives the policyowner a set number of days after delivery to cancel the contract for any reason. Returning the policy within that period entitles the owner to a full refund of premiums paid.

Question 28Life Insurance

A life insurance policy names one primary beneficiary, who dies before the insured. No contingent beneficiary is named. To whom is the death benefit paid?

  1. The insurer keeps the proceeds.
  2. The insured's estate. Correct answer.
  3. The policyowner's creditors.
  4. The primary beneficiary's estate.

Explanation

When no named beneficiary survives the insured and no contingent beneficiary exists, the proceeds are payable to the insured's estate. A predeceased beneficiary's estate has no default claim unless the policy specifically provides otherwise.

Question 29Life Insurance

How is an outstanding policy loan treated for federal income tax purposes while the policy remains in force?

  1. It is taxable as a capital gain.
  2. It is taxable only if used for personal expenses.
  3. It is generally not taxable because it is treated as a loan from the insurer. Correct answer.
  4. It is taxable as ordinary income in the year borrowed.

Explanation

A policy loan is an advance against the policy's cash value rather than a distribution to the owner. No income tax is due while the policy remains in force, although a lapse or surrender with unpaid loan interest can create taxable gain.

Question 30Life Insurance

Dividends paid by a mutual life insurer to its policyowners represent what?

  1. Guaranteed interest credited to cash value.
  2. A loan secured by the policy.
  3. A taxable capital gain distribution.
  4. A return of divisible surplus. Correct answer.

Explanation

A mutual insurer is owned by its policyowners, and dividends represent a distribution of divisible surplus. They are not guaranteed and are declared by the insurer's board based on operating results.

Question 31Life Insurance

An accidental death and dismemberment rider on a life policy pays the principal sum when what occurs?

  1. The insured dies from any cause.
  2. The insured becomes terminally ill.
  3. The insured becomes totally disabled.
  4. The insured dies as the result of an accident. Correct answer.

Explanation

An AD&D rider pays an additional benefit for accidental death, and a scheduled percentage of the principal sum for specified accidental dismemberments. Death from natural causes is handled only under the base policy.

Question 32Life Insurance

Which factor is a primary determinant of the premium for a life insurance policy?

  1. The insured's credit score.
  2. The insured's mortality experience. Correct answer.
  3. The number of dependents the insured has.
  4. The insured's zip code.

Explanation

Life insurance premiums are built primarily from mortality assumptions, interest earnings, and expense loads. Mortality experience is the central factor because it estimates the likelihood and timing of death benefits.

Question 33Life Insurance

An applicant completes an application, pays the initial premium, and receives a conditional receipt. When does coverage typically take effect?

  1. Only after the free look period ends.
  2. Retroactively to the application date, provided the applicant was insurable under the insurer's rules. Correct answer.
  3. Immediately upon signing, even if the applicant is uninsurable.
  4. Only when the producer personally delivers the policy.

Explanation

A conditional receipt provides interim coverage retroactive to the application or medical exam date if the applicant meets the insurer's underwriting requirements. If the applicant is not insurable, no coverage arises under the conditional receipt.

Question 34Life Insurance

What does the entire contract provision mean in a life insurance policy?

  1. The insurer may change policy terms by referring to its bylaws.
  2. Only the declarations page is binding on the insurer.
  3. The policy and the attached copy of the application constitute the whole agreement. Correct answer.
  4. Oral promises made by the producer are part of the contract.

Explanation

The entire contract provision states that the policy and any attached application are the complete agreement between the parties. This prevents the insurer from incorporating outside documents or relying on oral statements to alter coverage.

Question 35Life Insurance

A policy names the insured's three children as equal primary beneficiaries. One child dies before the insured, leaving two children of her own. The policy uses a per stirpes designation. How are the proceeds distributed?

  1. The surviving children each receive one-third, and the deceased child's share is split equally between her two children. Correct answer.
  2. The deceased child's two children each receive one-third, and the surviving children each receive one-sixth.
  3. All proceeds are paid to the insured's estate.
  4. The two surviving children each receive one-half.

Explanation

Per stirpes means by branch: the deceased child's one-third share passes to her descendants, split equally between the two grandchildren. Each surviving child keeps a one-third share.

Question 36Life Insurance

Which right belongs to the policyowner rather than to the beneficiary?

  1. Receiving the policy proceeds.
  2. Choosing how to spend the proceeds.
  3. Filing a death claim.
  4. Changing the beneficiary designation. Correct answer.

Explanation

The policyowner controls the contract and may exercise rights such as naming or changing beneficiaries, borrowing cash value, and surrendering the policy. The beneficiary's rights arise only when the insured dies.

Question 37Life Insurance

An applicant is approved for life insurance at a substandard rate. What does this classification indicate?

  1. The applicant presents a greater-than-average mortality risk. Correct answer.
  2. The applicant has preferred health and receives a discount.
  3. The applicant is covered only by group insurance.
  4. The applicant's policy will be issued without a contestability period.

Explanation

A substandard or rated classification is used when an applicant has a health or lifestyle impairment that increases expected mortality. The policy is issued with an extra premium or a modified benefit to reflect that risk.

Question 38Life Insurance

A child term rider attached to a parent's whole life policy typically provides what?

  1. Permanent coverage on the children with a cash value.
  2. Coverage that replaces the parent's policy.
  3. A refund of all policy premiums if a child dies.
  4. Term coverage on eligible children, convertible without new underwriting. Correct answer.

Explanation

A child rider usually provides level term insurance on the insured's eligible children for a limited period. Many riders allow conversion to permanent coverage later without evidence of insurability.

Question 39Life Insurance

Which statement describes a qualified distribution from a Roth IRA?

  1. It is tax-free after age 59½ and a five-year holding period. Correct answer.
  2. It must be repaid within 60 days to avoid taxation.
  3. It is subject to the 10% early withdrawal penalty.
  4. It is taxed as ordinary income.

Explanation

Roth IRA distributions are tax-free when they are qualified, generally after the owner reaches age 59½ and at least five years have passed since the first contribution. Qualified distributions are not subject to income tax or the early withdrawal penalty.

Question 40Life Insurance

A policyowner uses a life insurance policy as security for a bank loan through a collateral assignment. What does the lender receive?

  1. The right to receive the full death benefit regardless of the debt.
  2. A limited interest in the policy to the extent of the outstanding debt. Correct answer.
  3. Permanent ownership of the policy.
  4. The right to change the beneficiary.

Explanation

A collateral assignment gives the lender a security interest in the policy only up to the amount of the debt. The policyowner retains ownership, and any excess death benefit goes to the named beneficiary.

Question 41Life Insurance

Under the interest-only settlement option, how does the insurer pay the beneficiary?

  1. It pays an income for the beneficiary's lifetime.
  2. It pays a fixed amount for a specified number of years.
  3. It holds the principal and pays interest, with principal paid at a later date. Correct answer.
  4. It pays equal installments that exhaust principal and interest.

Explanation

With the interest-only option, the insurer retains the death benefit and pays the beneficiary periodic interest. The principal is paid later, often at a date chosen by the beneficiary or at the beneficiary's death.

Question 42Life Insurance

A joint and survivor annuity pays benefits in what manner?

  1. Only after both annuitants have died.
  2. As long as at least one of the two annuitants is alive. Correct answer.
  3. Only until the first annuitant dies.
  4. For a fixed period regardless of survival.

Explanation

A joint and survivor annuity continues payments while either annuitant is living. After the first death, payments typically continue to the survivor, often at the same or a reduced amount.

Question 43Life Insurance

What is a surrender charge on a deferred annuity?

  1. A federal tax on withdrawals.
  2. A percentage fee for early withdrawals during the surrender period. Correct answer.
  3. A commission paid by the insurer at annuitization.
  4. A fee paid to the beneficiary at death.

Explanation

A surrender charge is a contractual fee imposed when the annuity owner withdraws funds during the early surrender period. It compensates the insurer for expenses and helps recover acquisition costs.

Question 44Life Insurance

A business purchases key person life insurance on a valuable employee. Who is typically the policyowner and beneficiary?

  1. The employee owns it and names the business as beneficiary.
  2. The business owns it and is the beneficiary. Correct answer.
  3. The business owns it and names the employee's family as beneficiary.
  4. The employee owns it and names family as beneficiary.

Explanation

Key person coverage is owned by the business and names the business as beneficiary. The death benefit helps offset the financial loss caused by the death of an essential employee.

Question 45Life Insurance

Why is an irrevocable life insurance trust commonly used in estate planning?

  1. To keep the death benefit out of the insured's taxable estate while providing liquidity. Correct answer.
  2. To let the insured change beneficiaries at any time.
  3. To make the death benefit subject to income tax.
  4. To eliminate the need to pay premiums.

Explanation

An ILIT owns the policy and removes the proceeds from the insured's taxable estate, assuming the arrangement is properly structured. The trust can provide cash for estate taxes, debts, and expenses.

Question 46Life Insurance

What is the purpose of Crummey withdrawal powers in an irrevocable life insurance trust?

  1. To eliminate the need for a trust.
  2. To give beneficiaries a temporary withdrawal right so gifts qualify for the annual exclusion. Correct answer.
  3. To let the trustee borrow against the policy.
  4. To allow the insured to reclaim the policy.

Explanation

Crummey powers give trust beneficiaries a limited right to withdraw contributions for a short period. Because of that right, contributions can qualify as present-interest gifts eligible for the annual gift tax exclusion.

Question 47Life Insurance

In an executive bonus plan under IRC Section 162, how is the life insurance arrangement structured?

  1. The employer pays premiums on an employee-owned policy, and the premium is taxable compensation. Correct answer.
  2. The employer owns the policy and names itself beneficiary.
  3. The policy is owned by a trust that the employer controls.
  4. The employee pays the premium and the employer receives the death benefit.

Explanation

In a Section 162 executive bonus plan, the employer pays premiums on a policy owned by the employee. The premium is treated as deductible compensation to the employee, who reports it as taxable income.

Question 48Life Insurance

A life insurance policy is sold for valuable consideration to a buyer who is not the insured, a partner, or a corporation in which the insured is a shareholder. What is the tax result?

  1. The sale is tax-free under Section 1035.
  2. The death benefit above the buyer's basis is taxable as ordinary income. Correct answer.
  3. The policy immediately becomes a modified endowment contract.
  4. The death benefit remains entirely income tax-free.

Explanation

Under the transfer-for-value rule, a policy sold for valuable consideration loses the usual income tax exclusion on the excess of the death benefit over the buyer's basis. The buyer's basis includes the consideration paid and any subsequent premiums.

Question 49Life Insurance

An employer provides $100,000 of noncontributory group term life insurance to an employee. What is the employee's federal income tax treatment of the coverage?

  1. The entire employer-paid premium is taxable compensation.
  2. The cost of coverage above $50,000 is imputed income to the employee. Correct answer.
  3. The employee may deduct the premium as an adjustment to income.
  4. The coverage is tax-free because group term life is always excluded.

Explanation

Employer-paid group term life coverage is excluded from employee income up to a $50,000 face amount. The value of coverage above $50,000, determined from IRS tables, is reported as imputed income.

Question 50Life Insurance

After a life insurance policy has been in force for two years, the insurer generally cannot deny a claim because the insured misrepresented a material fact on the application. Which provision creates this result?

  1. Incontestability clause Correct answer.
  2. Misstatement of age provision
  3. Reinstatement provision
  4. Grace period provision

Explanation

The incontestability clause bars the insurer from contesting the policy's validity after a stated period, usually two years, based on misstatements in the application. It gives policyowners confidence that a claim will be paid after that period.