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

VT Life & Health practice questions

One question at a time. Build your VT 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 1Insurance Regulation

Insurance regulation in the United States is primarily carried out by which entity?

  1. The Federal Trade Commission
  2. The U.S. Department of the Treasury
  3. The National Association of Insurance Commissioners
  4. The states Correct answer.

Explanation

The McCarran-Ferguson Act leaves regulation of the business of insurance to the individual states. The NAIC is a voluntary association of state regulators that drafts model laws and supports coordination, but it does not enforce insurance law. Federal agencies play only a limited, mostly supplemental role.

Question 2Insurance Regulation

Which official is charged with enforcing Vermont's insurance laws and supervising insurers and producers?

  1. The secretary of state
  2. The federal insurance office
  3. The state treasurer
  4. The insurance commissioner Correct answer.

Explanation

Insurance regulation is administered by the state insurance commissioner, who heads the insurance division of the state's financial regulation department. The commissioner issues licenses and certificates of authority, examines conduct, and imposes penalties for violations. Other state officers and federal offices do not have general insurance oversight.

Question 3Insurance Regulation

An insurer must obtain which of the following from the state before it may legally transact insurance in Vermont?

  1. A producer appointment
  2. A surety bond
  3. A certificate of authority Correct answer.
  4. A rate hearing

Explanation

A certificate of authority is the license that authorizes an insurer to transact insurance business in the state. Without it, the insurer is considered nonadmitted and may not lawfully issue policies there except through limited channels such as surplus lines. Appointments and rate proceedings apply to producers and filings, not to the insurer's authority to exist as an admitted carrier.

Question 4Insurance Regulation

A person meets with a prospective buyer, explains policy features, quotes a premium, and submits an application to the insurer. This person is:

  1. Acting as a broker only if paid by the buyer
  2. Exempt from licensing if the insurer approves the sale
  3. Engaged in clerical work that needs no license
  4. Required to hold a life insurance producer license Correct answer.

Explanation

Selling, soliciting, and negotiating insurance all require a producer license in the line being sold. Discussing policy features and taking an application are classic solicitation activities. The source of compensation or the insurer's approval does not remove the licensing requirement.

Question 5Insurance Regulation

Premiums collected by a producer from an applicant are:

  1. The producer's property once deposited
  2. Earned by the producer at collection
  3. Held in a fiduciary capacity Correct answer.
  4. Commingled with agency operating funds

Explanation

Money received as premium belongs to the insurer or the insured, and the producer holds it in trust. The funds may not be used as working capital or mixed with the agency's own money. Misuse of these funds supports license suspension or revocation.

Question 6Insurance Regulation

An insurer that wants a licensed producer to represent it must:

  1. File a rate change
  2. Appoint the producer Correct answer.
  3. Obtain a federal charter
  4. Issue a master policy

Explanation

An appointment is the insurer's formal notice to the state that a licensed producer is authorized to act for it. Acting for an insurer without an appointment is a licensing violation. Rate filings and policy forms have nothing to do with the insurer-producer relationship.

Question 7Insurance Regulation

The free-look provision in an individual life insurance policy allows the owner to:

  1. Skip premiums for the first policy year
  2. Return it for a refund during a set period Correct answer.
  3. Assign ownership without the insurer's consent
  4. Borrow the full cash value at no interest

Explanation

The free-look right lets the policyowner cancel a newly delivered policy within a stated period and receive a refund of premium. It protects buyers who change their minds after reviewing the contract. It does not create premium holidays or waive ordinary policy rules.

Question 8Insurance Regulation

Continuing education requirements for licensed producers exist mainly to:

  1. Standardize commission rates across carriers
  2. Replace the initial licensing examination
  3. Increase state revenue from license fees
  4. Keep producers current on products and laws Correct answer.

Explanation

Continuing education is intended to maintain and update a producer's knowledge of products, ethics, and changing statutes after the initial license is issued. It supplements, rather than replaces, prelicensing education and examination. It has no role in setting compensation.

Question 9Insurance Regulation

Which of the following is an illegal rebate?

  1. Sharing a commission with a buyer to close a sale Correct answer.
  2. Charging more for a substandard risk
  3. Paying dividends to participating owners
  4. Applying group rates to a qualifying group

Explanation

A rebate is any inducement not stated in the policy, such as giving back part of the commission or offering a special price to one buyer. Rebating is prohibited because it results in unequal treatment of similar buyers. Rate classifications and policy dividends are lawful parts of the contract.

Question 10Insurance Regulation

Twisting is best described as:

  1. Misleading a buyer into dropping a policy Correct answer.
  2. Spreading false statements about an insurer
  3. Collecting premiums and failing to remit them
  4. Replacing a policy to earn a higher commission

Explanation

Twisting is the use of misleading or incomplete comparisons to persuade a policyholder to lapse or replace coverage. It is an unfair trade practice because the replacement is based on deception rather than the buyer's informed choice. Accurate disclosure of the costs and benefits of replacement is permitted.

Question 11Insurance Regulation

Which act by an insurer is an unfair claim settlement practice?

  1. Requesting a proof-of-loss statement
  2. Failing to respond to claim inquiries for months Correct answer.
  3. Using an independent adjuster
  4. Denying a claim after a good-faith investigation

Explanation

Unfair claim practices include unreasonable delay, failure to acknowledge or respond to claim communications, and failure to conduct a prompt investigation. Insurers are expected to act promptly and in good faith once a claim is presented. Requesting documentation and using adjusters are ordinary claim handling steps.

Question 12Insurance Regulation

An advertisement that describes policy dividends as 'guaranteed' when they are not is an example of:

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

Explanation

Misrepresentation is the use of false or misleading statements about policy terms, benefits, or dividends to induce a sale. Dividends on participating policies are not guaranteed unless the contract says so. Rebating, twisting, and coercion involve inducements, replacement comparisons, and pressure tactics respectively.

Question 13Insurance Regulation

Before a producer replaces an existing life insurance policy, the producer must generally:

  1. Obtain the old insurer's written consent
  2. Refund all commissions on the new policy
  3. Surrender the old policy on the spot
  4. Give the applicant a replacement notice Correct answer.

Explanation

Replacement rules require that the applicant receive written notice of the proposed replacement so the decision is informed. The notice also alerts the existing insurer, which may then contact the policyowner. Surrender is the owner's decision, and the old insurer's consent is not required.

Question 14Insurance Regulation

A producer may share commissions from a life insurance sale with:

  1. Another licensed producer Correct answer.
  2. The applicant as an inducement
  3. An unlicensed referral source
  4. Any employee of the agency

Explanation

Commission splitting is limited to persons who lawfully may receive it, typically licensed producers and the insurer. Paying an unlicensed person for a sale or giving part of the commission to the buyer are both prohibited. This rule prevents unlicensed selling and rebating.

Question 15Insurance Regulation

Which action is grounds for suspending or revoking a producer's license?

  1. Working part-time
  2. Declining a sales appointment
  3. Changing insurers after a review
  4. Misappropriating premium funds Correct answer.

Explanation

Misappropriation of premium or other funds held in a fiduciary capacity is a serious violation that supports license suspension or revocation and possible criminal penalties. Producers are free to choose their clients, change carriers, and work part-time. Those decisions are not licensing violations.

Question 16Insurance Regulation

When an insurer terminates a producer's appointment, it must:

  1. Publish a notice in a local newspaper
  2. Wait for the producer to request removal
  3. Notify the insurance department Correct answer.
  4. Obtain the producer's written consent

Explanation

Insurers must report appointment terminations to the insurance department, and in many states must give the reason if the termination is for cause. The producer is also notified so a response can be filed. The producer's consent is not required to end an appointment.

Question 17Insurance Regulation

Under federal financial privacy rules, a newly insured customer must receive:

  1. A privacy notice Correct answer.
  2. A policy illustration
  3. A credit report
  4. An annual audit

Explanation

Federal privacy law requires insurers to give customers a clear notice of their information-sharing practices and the customer's right to opt out of certain sharing. The notice is provided at the start of the relationship and periodically thereafter. Credit reports, illustrations, and audits are unrelated to the privacy requirement.

Question 18Insurance Regulation

A producer changes the date on an application so an ailing applicant appears healthier, knowing the insurer will rely on the date. This conduct is best characterized as:

  1. Insurance fraud Correct answer.
  2. A replacement violation
  3. A minor clerical error
  4. An acceptable field underwriting practice

Explanation

Intentionally altering application information to induce an insurer to issue a policy it would otherwise decline or rate differently is insurance fraud. Fraud requires intent to deceive and reliance by the insurer. Clerical mistakes are corrected openly and are not intended to mislead.

Question 19Insurance Regulation

Which situation indicates a stranger-originated life insurance arrangement?

  1. A business insures a key employee
  2. A grandparent insures a grandchild with the parent's written consent
  3. A parent insures a young child's life
  4. An investor pays the premiums in return for the death benefit Correct answer.

Explanation

Stranger-originated life insurance involves a third party with no insurable interest financing a policy at inception in exchange for the death benefit. Such arrangements are generally void or unenforceable because they lack insurable interest. Family and business coverage rests on a genuine relationship and consent.

Question 20Insurance Regulation

An applicant needs coverage that no admitted insurer will write. A Vermont producer may:

  1. Bind coverage by phone with any foreign insurer
  2. Use an eligible surplus lines insurer Correct answer.
  3. Write it on a nonadmitted insurer without any authority
  4. Assume the risk personally

Explanation

Coverage that admitted insurers decline may be placed with a surplus lines insurer that meets the state's eligibility standards, after a diligent search of the admitted market. The producer must hold the proper authority and follow placement and disclosure rules. Placing business with an unauthorized insurer outside those rules is unlawful.

Question 21Insurance Regulation

Which claim would the state life and health insurance guaranty association cover?

  1. A claim against a nonadmitted insurer
  2. A claim the insurer already paid
  3. A claim under a self-funded employer plan
  4. A claim against an insolvent member insurer Correct answer.

Explanation

Guaranty associations protect policyowners of licensed member insurers that become insolvent, up to statutory limits. They do not stand behind unauthorized insurers, self-funded plans, or amounts already paid. Coverage is limited and is not a substitute for the insurer's own solvency.

Question 22Insurance Regulation

The main purpose of a market conduct examination is to:

  1. Review sales, claims, and compliance practices Correct answer.
  2. Audit the insurer's federal income tax
  3. Set the insurer's rates for the coming year
  4. Determine the insurer's stock price

Explanation

Market conduct examinations assess how an insurer and its producers actually treat policyholders, including sales practices, underwriting, claims handling, and compliance with statutes. The focus is conduct rather than financial solvency alone. Rate approval and tax matters are handled through separate processes.

Question 23Insurance Regulation

A producer's insurance records may be examined by the insurance department:

  1. Never, because producers are licensed rather than examined
  2. Under the department's examination authority Correct answer.
  3. Only after a written complaint from a consumer
  4. Only with a court order

Explanation

The commissioner may examine the records of licensees to verify compliance with insurance law, and licensees are expected to keep records available for review. A consumer complaint is one trigger but is not required. Producers are subject to the same regulatory oversight as other licensees.

Question 24Insurance Regulation

A person who reports suspected insurance fraud to authorities in good faith is:

  1. Protected from civil liability for the report Correct answer.
  2. Obligated to pay for the investigation
  3. Required to prove the fraud personally
  4. Guilty of defamation

Explanation

Fraud reporting statutes grant immunity from civil liability to those who report suspected fraud in good faith, which encourages reporting. The reporter is not required to prove the fraud or fund the investigation. Immunity generally does not extend to knowingly false reports.

Question 25Insurance Regulation

A producer notices a customer making several large annuity deposits structured to avoid reporting thresholds. Under anti-money-laundering rules, the producer should:

  1. Notify the customer's bank directly
  2. Refuse to sell any annuity to the customer permanently
  3. Report the suspicious activity Correct answer.
  4. Ignore it because producers are exempt

Explanation

Insurance producers are covered persons under federal anti-money-laundering requirements and must report suspicious transactions through their insurer's compliance program. Structuring to evade reporting thresholds is a classic red flag. Producers do not investigate on their own or warn other institutions directly.

Question 26General Insurance Concepts

Insurance operates primarily by doing which of the following?

  1. Spreading the losses of a few among many exposed units Correct answer.
  2. Transferring the risk of loss from the group to one member
  3. Eliminating the possibility of loss for each member
  4. Guaranteeing each member a profit on the arrangement

Explanation

Insurance pools together a large number of exposure units so that the losses of the unfortunate few are shared by the entire group. It does not remove the physical possibility of loss, but it makes the financial cost more predictable.

Question 27General Insurance Concepts

To have insurable interest in a person or property, the policyholder must be in a position to do what?

  1. Be related by blood or marriage to the insured person
  2. Hold a license issued by the state insurance department
  3. Have purchased insurance from the same company before
  4. Suffer a financial loss if the insured event occurs Correct answer.

Explanation

Insurable interest exists when the policyholder would experience a genuine economic loss from the destruction, death, or damage of the insured subject. It is the legal basis that keeps insurance from being a wagering contract.

Question 28General Insurance Concepts

The principle of indemnity holds that a covered loss should do which of the following?

  1. Restore the insured to approximately the pre-loss position Correct answer.
  2. Pay the insured a fixed sum regardless of the actual loss
  3. Punish the party that caused the loss
  4. Provide a gain to the insured as compensation

Explanation

Indemnity means the insured is made whole, never better off, after a loss. Payment is therefore tied to the actual amount of the loss up to the policy limit.

Question 29General Insurance Concepts

An insured deliberately sets fire to a warehouse that is insured for more than its value. This conduct is an example of which of the following?

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

Explanation

A moral hazard is a loss exposure created by dishonesty or intentional wrongdoing, such as arson or faked claims. It differs from a morale hazard, which involves carelessness rather than intent.

Question 30General Insurance Concepts

A situation that offers only the chance of loss or no loss, with no possibility of gain, is described as which of the following?

  1. A pure risk Correct answer.
  2. A physical hazard
  3. A speculative risk
  4. A retained risk

Explanation

Pure risks involve only loss or no loss and are the type of risk insurance is designed to handle. Speculative risks, which include the chance of profit, are generally not insurable.

Question 31General Insurance Concepts

The consideration furnished by an applicant in an insurance transaction typically consists of which of the following?

  1. The premium paid and the statements on the application Correct answer.
  2. The agent's commission and any policy fee
  3. The insurer's promise to pay covered claims
  4. Only a promise to pay premiums in the future

Explanation

Consideration is what each party gives up to make the contract binding. On the applicant's side it is the premium plus the representations in the application; on the insurer's side it is the promise to pay covered claims.

Question 32General Insurance Concepts

An insurance contract is described as aleatory because of which characteristic?

  1. Both parties are bound by promises of equal value
  2. The values exchanged may be unequal and depend on chance Correct answer.
  3. Only the insured is legally bound to perform
  4. Its terms are drafted by the insurer on a take-it-or-leave-it basis

Explanation

An aleatory contract depends on an uncertain event, and the amounts exchanged may be quite unequal, as when a small premium produces a large claim payment. The other characteristics named belong to different contract features.

Question 33General Insurance Concepts

A mutual insurance company is one that is owned by which of the following?

  1. Its policyholders, who may receive dividends Correct answer.
  2. Shareholders who receive dividends from profits
  3. Other insurers that cede reinsurance to it
  4. The state government where it is chartered

Explanation

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

Question 34General Insurance Concepts

An insurer drafts a policy, and a court finds a phrase in it capable of two reasonable meanings. Because the policy is a contract of adhesion, the court will most likely do which of the following?

  1. Interpret the ambiguity in favor of the insurer
  2. Refer the question to the state legislature
  3. Interpret the ambiguity in favor of the insured Correct answer.
  4. Void the policy for lack of mutual assent

Explanation

Because the insurer wrote the policy and the insured had no opportunity to negotiate its terms, ambiguities are construed against the drafter and in favor of the insured. This rule offsets the unequal bargaining position of the parties.

Question 35General Insurance Concepts

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

  1. Both parties exchange promises of equal legal force
  2. It must be signed by both the insured and the insurer
  3. Only the insurer makes a legally enforceable promise Correct answer.
  4. The insured may cancel at any time without a penalty

Explanation

Only the insurer is legally bound to perform; the insured makes no enforceable promise to pay future premiums and may simply let coverage lapse. This one-sided obligation is what makes the contract unilateral.

Question 36General Insurance Concepts

An insured fails to file proof of loss within the period the policy requires. The insurer may refuse the claim because an insurance contract is which of the following?

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

Explanation

An insurance contract is conditional because the insurer's duty to pay arises only if the insured satisfies stated conditions, such as prompt notice and proof of loss. Failure to meet a condition can relieve the insurer of its obligation.

Question 37General Insurance Concepts

An applicant intentionally omits a known serious illness from a life insurance application. The insurer may rescind the policy because the applicant violated which of the following?

  1. The duty of utmost good faith Correct answer.
  2. The principle of indemnity
  3. A warranty contained in the policy
  4. The parol evidence rule

Explanation

Insurance is a contract of utmost good faith, which requires each party to disclose all material facts. Intentional concealment of a material fact gives the insurer grounds to rescind the contract.

Question 38General Insurance Concepts

A statement in an insurance application that must be literally true, so that a material falsehood can void coverage from the outset, is known as which of the following?

  1. A warranty Correct answer.
  2. A condition subsequent
  3. A representation
  4. A waiver

Explanation

A warranty is a statement guaranteed to be exactly true, and a material breach can allow the insurer to avoid the contract from its inception. A representation, by contrast, need only be substantially true and not fraudulent.

Question 39General Insurance Concepts

An insurer's authorized claims representative assures an insured that late notice will not be a problem, and the insurer later denies the claim for late notice. The insurer is most likely barred because of which of the following?

  1. Waiver Correct answer.
  2. Subrogation
  3. Coinsurance
  4. Concealment

Explanation

Waiver is the voluntary relinquishment of a known right. Once an insurer, through an authorized representative, gives up its right to insist on a policy condition, it generally cannot later enforce that condition.

Question 40General Insurance Concepts

An agent who lacks actual authority to bind a particular risk does so anyway, and the insurer has allowed the agent to appear to hold that power. The insurer is bound under which of the following?

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

Explanation

Apparent authority arises when the insurer's own conduct leads a reasonable third party to believe the agent has authority, even if that authority was never actually granted. The insurer is then bound to protect the relying party.

Question 41General Insurance Concepts

As the number of similar independent exposure units in an insured pool increases, which result is expected?

  1. The maximum possible loss for each unit increases
  2. Individual losses become entirely predictable
  3. The insurer's expense ratio must rise proportionally
  4. Actual losses tend to approach expected losses Correct answer.

Explanation

The law of large numbers holds that as the number of similar exposure units grows, observed results converge on the expected results. This increased predictability is what allows insurers to set rates with confidence.

Question 42General Insurance Concepts

An insurer sells health coverage with no medical questions and year-round open enrollment. The most likely consequence is which of the following?

  1. Better mortality results from a broader base
  2. A drop in premium rates caused by a larger pool
  3. Elimination of the insurer's underwriting risk
  4. Adverse selection, because high-risk applicants enroll disproportionately Correct answer.

Explanation

Adverse selection occurs when applicants who expect to need coverage are the most likely to buy it, while healthier people defer. Without underwriting, the pool becomes weighted toward high-risk members and claims rise.

Question 43General Insurance Concepts

An insurer transfers part of the risk on a large commercial building to another insurer. The original insurer is referred to as which of the following?

  1. The reinsurer
  2. The retrocessionaire
  3. The ceding insurer Correct answer.
  4. The assuming insurer

Explanation

The company that transfers risk is the ceding insurer, and the company accepting it is the reinsurer. Reinsurance lets a primary insurer write larger amounts without exposing its surplus to a single catastrophic loss.

Question 44General Insurance Concepts

After paying its insured's auto claim, an insurer pursues the negligent driver who caused the accident to recover the amount paid. This right is known as which of the following?

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

Explanation

Subrogation lets the insurer stand in the insured's shoes and recover from the party legally responsible for the loss. It supports the principle of indemnity by preventing the insured from collecting twice.

Question 45General Insurance Concepts

When a written insurance policy is clear and complete, prior oral statements from negotiations generally cannot be used to change its terms. This rule is called which of the following?

  1. The principle of indemnity
  2. The parol evidence rule Correct answer.
  3. The doctrine of adhesion
  4. The rule of waiver

Explanation

The parol evidence rule treats the finished written contract as the complete agreement, so earlier conversations cannot ordinarily be introduced to vary its terms. It gives certainty to the final signed document.

Question 46General Insurance Concepts

A building valued at $400,000 is covered by a policy with an 80% coinsurance clause. The owner carries $240,000 of insurance and suffers a $100,000 covered loss. Ignoring any deductible, how much will the insurer pay?

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

Explanation

The required amount is 80% of $400,000, or $320,000. The payment equals the loss multiplied by the ratio of carried to required insurance: $100,000 times ($240,000 divided by $320,000), which is $75,000.

Question 47General Insurance Concepts

Two insurers cover the same property, the same interest, and the same risk, and each policy contains an other-insurance clause. When a loss occurs, the insurers divide it under which principle?

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

Explanation

Contribution requires each insurer covering the same interest to pay its fair share of the loss so the insured does not recover twice. The clause prevents one insurer from bearing a burden that belongs to several.

Question 48General Insurance Concepts

Which of the following is most likely to create an estoppel against an insurer?

  1. The insured misstates a fact that is not material to the risk
  2. The insurer mails a cancellation notice strictly as required by the policy's terms
  3. The insurer collects a premium after the policy's effective date
  4. The insured relies to her detriment on the insurer's assurance that coverage is in force Correct answer.

Explanation

Estoppel bars a party from asserting a right when its own conduct led another party to act to that party's detriment. Detrimental reliance on the insurer's assurance of coverage is the classic pattern.

Question 49General Insurance Concepts

A large manufacturer forms a wholly owned subsidiary insurance company to fund its own retained losses. This entity is best described as which of the following?

  1. A fraternal benefit society
  2. A risk retention group
  3. A captive insurer Correct answer.
  4. A residual market plan

Explanation

A captive insurer is a licensed subsidiary created by a parent organization to insure the parent's own risks. A risk retention group is instead owned by multiple insureds and writes liability coverage for its members.

Question 50General Insurance Concepts

An applicant cannot buy property insurance in the voluntary market because the property sits in a high-crime neighborhood. A state FAIR plan would typically do which of the following?

  1. Require voluntary market insurers to write the risk
  2. Pay the applicant a subsidy to purchase coverage
  3. Provide basic coverage as an insurer of last resort Correct answer.
  4. Deny coverage because the risk is substandard

Explanation

FAIR plans are residual market mechanisms that offer basic property coverage to applicants who cannot obtain it in the voluntary market. They function as a market of last resort rather than as a subsidy program.