2021 Version

Life and Health Insurance Agent Licensing Practice Exam

Take this free practice test to get an idea of what is on your state's life and health insurance agent licensing exam.

As an insurance agent, one is allowed to offer many different lines of coverage – provided that the required training and testing qualifications have been met. Those who wish to sell life and health insurance are required to posses the proper licensing for each state in which they conduct business. In order to obtain a life and health insurance license, individuals must take and successfully pass an exam that is offered by the state licensing boards.

To prepare for your licensing exam, use the full-length Life & Health Insurance Agent Practice Exam with answers fully explained for ideal study.

The practice exam is written by Susan Wright, CLU, ChFC, RHU, REBC, CSA, CLTC, CCFC, CSS, who has over 20 years of experience in the insurance industry.

The following practice exam is a sample from the full-length test.

Grade Answers as You Go

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General Life Insurance Basics, Insurable Interest, Parties and Regulations

1.	All of the following are parties to a life insurance contract EXCEPT: Insurer Underwriter Beneficiary Owner Insured
		a. II only
		b. III only
		c. II, III, and V
		d. All are parties to a life insurance contract
A beneficiary and the underwriter are not parties to a life insurance contract. An insured may be, but is not necessarily a party. A wife (owner) can take a policy out on her husband (insured), yet the husband is not a party to the insurance contract. Incorrect answer. Please choose another answer.

2.	Which of the following will have to meet an insurable interest requirement in order for a policy to issue?
		a. Beneficiary
		b. Insured
		c. Insured's dependents
		d. All of the above
		e. Both a and b only
In addition to the information about the applicant for insurance, underwriters will also look at the named beneficiary in the policy in order to determine whether or not there is an insurable interest. If there is not, the application for life insurance could be rejected. Incorrect answer. Please choose another answer.

Types of Life Insurance Policies and Individual versus Group Life Insurance

3.	Jack and his wife Lyn just purchased a home with a 15-year mortgage. Wanting to make sure that Lyn would be able to pay off the mortgage balance in the event of Jack's death, Jack had a "temporary" need for life insurance. What type of policy should Jack purchase?
		a. Whole Life Insurance
		b. Term Life Insurance
		c. Variable Life Insurance
		d. A Viatical Settlement
Given Jack's temporary need for 15 years of coverage to pay off the mortgage balance, the best choice for Jack would be a 15-year term life insurance policy as the premiums would likely be far less than a permanent policy, and once the mortgage is paid off in 15 years, this particular need for Jack will no longer exist. Incorrect answer. Please choose another answer.

4.	Which type of life insurance is considered to be more risky based on its investment component?
		a. Level Term Life Insurance
		b. Whole Life Insurance
		c. Decreasing Term Life Insurance
		d. Variable Life Insurance
Because the underlying investments are equities such as mutual funds, variable life insurance policies are considered to be securities. As these investments move up and down with the movements of the equities market, variable life insurance is considered to be more risky than other types of policies as there is the probability that the value of the policy's investment component could decrease. Incorrect answer. Please choose another answer.

Life Insurance Application and Underwriting

5.	Life insurance underwriters look at a variety of factors when determining the acceptance of an applicant. These factors can include:
		a. Health history
		b. Occupation
		c. Hobbies
		d. All of the above
		e. Both a and b only
Underwriters look at many factors that can deem an applicant for life insurance as being more or less risky. These criteria can include hobbies, occupation, lifestyle, gender, age, income, and many more. Incorrect answer. Please choose another answer.

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6.	Which of the following needs to have an insurable interest for an underwriter to issue an insurance policy?
		a. Owner
		b. Insurer
		c. Beneficiary
		d. Insured
The person or entity that is the policy beneficiary will have an effect on the acceptance of the policy. This is because the beneficiary must be at risk of suffering some type of loss should the insured pass away. Incorrect answer. Please choose another answer.

Selling Life Insurance, Determining Coverage Needs and Issuance and Delivery

7.	Which of the following deals with a set of relationships where one person is authorized to act on behalf of another in order to create a legal relationship with a third party.
		a. Law of principals
		b. Law of agency
		c. Law of third parties
		d. None of the above
The law of agency regulates the relationship between agents and principals as well as agents and third parties with whom they deal on the principal's behalf. Incorrect answer. Please choose another answer.

8.	All of the following can be considered life-changing events that could result in a change in the amount of life insurance coverage needed EXCEPT: I. Birth of a child II. Divorce III. Marriage IV. Change in job title
		a. I, II, and III
		b. II and III only
		c. I only
		d. IV only
While a new job with a drastic change in income and / or hazardous duties could result in a change of life insurance coverage needs, simply changing job titles will not. Incorrect answer. Please choose another answer.

Life Insurance for Business Owners and in Estate Planning

9.	Term life insurance should always be used in buy / sell agreements.
		True
		False
Permanent life insurance should be used with buy / sell agreements in order to ensure that the insured will not need to re-qualify for life insurance after a certain amount of time elapses. Incorrect answer. Please choose another answer.

10.	Corporate owned life insurance proceeds may be used for the following purposes: I. To find, replace, and train a new employee or executive II. To fund other corporate debt obligations III. To redeem the deceased employee's stock
		a. III only
		b. I and III only
		c. All of the above
		d. None of the above
There are many purposes in which the proceeds of corporate owned life insurance may be used. Incorrect answer. Please choose another answer.

Policy Components, Riders and Non-forfeiture Options

11.	What is the most common component in all life insurance policies?
		a. Living benefits
		b. Waiver of premium
		c. Death benefit
		d. Cost of living rider
While there are many different options and riders on life insurance, all policies possess a death benefit. Incorrect answer. Please choose another answer.

12.	Permanent life insurance policies always have two components. What are they? I. Death benefit II. Cash value III. Living Benefits IV. Conversion Benefit
		a. I, II, III and IV
		b. I, II and III
		c. II and IV
		d. I and II
Permanent life insurance policies consist of both a death benefit component and a cash value component. Incorrect answer. Please choose another answer.

Claims, Settlement Options and Tax Concepts

13.	A beneficiary on a life insurance policy will receive what value upon the death of the insured?
		a. Cash value
		b. Surrender value
		c. Investment value
		d. Death benefit
The death benefit is the amount that is paid to the policy beneficiary upon the death of the insured. Should a permanent life insurance policy holder decide to cancel the policy prior to the insured's death, they will receive the amount of the cash surrender value. Incorrect answer. Please choose another answer.

14.	John, who had a life insurance policy with a death benefit, died on August 31st, after a long bout with cancer. He had been hospitalized for a month before his death. His wife contacted the insurance company to file her claim for the death benefit on September 5th, after John's burial, and after she had time to collect her emotions to deal with her personal loss. The insurance agent filed the papers to process the claim with his supervisor, and the death benefit was settled on October 30th. Were any laws violated in this scenario?
		a. No, the agent filed the paperwork within 30 days of the claim.
		b. Yes, the claim was not settled within 30 days of the claim.
		c. No, there are suspicions around the death of John.
		d. Yes, the claim was not settled within 15 days of the claim.
Although it typically takes approximately two weeks to settle death benefit claims, insurance companies are required to settle such claims within 30 days. Some claims may require additional time if they require additional investigation. Here, there is nothing suspicious about John's death. Incorrect answer. Please choose another answer.

Living Benefits and Viatical and Life Settlements

15.	Which of the following is a rider that allows a terminally ill person to access at least a portion of the death benefit proceeds prior to death?
		a. Waiver
		b. Living benefit
		c. Supplement
		d. Addendum
A living benefit on a life insurance policy is typically a policy rider that allows an insured who has a qualifying terminal illness to access some or all of the death benefit proceeds in order to pay medical bills or other financial obligations. The death benefit proceeds on the policy will be reduced by the amount that is accessed by the insured. Incorrect answer. Please choose another answer.

16.	Living benefits on a life insurance policy can be typically be accessed via:
		a. Lump sum
		b. Regular installments
		c. Loan
		d. All of the above
		e. Both a and b
The living benefits that are accessed from a life insurance policy can typically be taken out either in one lump sum amount or they could be received via regular installments. With the installment method, the insured may wish to use these funds to pay his or her ongoing monthly bills. Incorrect answer. Please choose another answer.

General Health Insurance Basics, Regulation and Social Health Insurance

17.	The insured party has no part in determining the wording of an insurance contract. In this respect, insurance contracts are considered to be __________.
		a. Contracts of Adhesion
		b. Contracts of Forbearance
		c. Contracts by Regulation
		d. Contracts by Law
If a contract contains unclear wording, then a court will interpret the language used against the writer of the contract - unless the wording that is used is required by law to be stated in a specific way. Incorrect answer. Please choose another answer.

18.	A(n) __________ in an insurance contract is a statement by the issuing insurance company that sets out the essential element of insurance - to pay for losses covered in the policy.
		a. Beneficiary designation
		b. Premium amount
		c. Insuring clause
		d. Rider
This promise of covering losses is in exchange for the premium that is paid by the insured and the compliance with the policy terms. Incorrect answer. Please choose another answer.

Types of Health Insurance Policies and HMO and PPO

19.	Which of the following is not a form of health insurance? I. Dental insurance II. Vision insurance III. Disability insurance IV. Long-term care insurance
		a. I only
		b. II only
		c. All of the above
		d. None of the above
All of the above are types of health insurance policies. Incorrect answer. Please choose another answer.

20.	A business client is looking for ways to decrease its monthly premiums. To get down to the premium level sought after by the company, the agent realizes they have to go to a high deductible health plan. As part of your advice to the business, what should you include in your discussion?
		a. HMO
		b. PPO
		c. POS
		d. HSA
Health savings accounts (HAS) are used with high deductible health insurance policies. With an HSA, money that is saved on the premium may be put into the account and then funds are used for certain medical fees. Because the funds in the HSA account can be used for medical services, participants often use them for un-covered procedures such as chiropractic visits or other health-related services that are not covered by their insurance policy. Incorrect answer. Please choose another answer.

Health Insurance Policy Components and Exclusions

21.	The components of a long-term care insurance policy include all of the following EXCEPT:
		a. Elimination period
		b. Benefit amount
		c. Own occupation
		d. Benefit duration
Own occupation is a type of benefit trigger that is found in a disability insurance policy, not in long-term care insurance policies. An elimination period in a long-term care insurance policy is the number of days that an insured must pay for their care after a qualifying claim, but before benefits begin to pay (such as with a deductible). The benefit duration in a long-term care policy states how long benefits will be paid to an insured, and the benefit amount may be stated either as a daily or monthly amount. (Some recent long-term care insurance plans also offer a lump-sum benefit payout option). Incorrect answer. Please choose another answer.

22.	When constructing a major medical insurance policy, several criteria must be established, including:
		a. Policy deductible
		b. Maximum out-of-pocket amount
		c. Elimination period
		d. All of the above
		e. Both a and b only
While major medical insurance policies typically have high deductibles, these must be established in the policy as well as the maximum amount of out-of-pocket costs that will be paid by the policy holder. The elimination period is not part of a major medical insurance policy. Incorrect answer. Please choose another answer.

Selling Health Insurance, Issuance and Delivery and Tax Considerations

23.	As a marketing tool, Ted, a health insurance agent, offered to send an applicant and his wife on a weekend vacation to a local resort to induce the applicant to purchase a policy. Is this practice permitted and, if not, what is it called?
		a. No; Misrepresentation
		b. No; Twisting
		c. Yes; it is perfectly acceptable
		d. No; Rebating
Rebating is the act of offering an applicant an inducement to purchase insurance. It is prohibited as an unfair trade practice. Another example would be returning a portion of the applicant's policy premium from the agent's commission. Incorrect answer. Please choose another answer.

24.	An agent is in need of generating business. He gets an idea of asking his client to let his policy lapse so that the agent can sell him a new similar policy. Is this permissible and, if not, what is this action called?
		a. No; Rebating
		b. No; Bait and switch
		c. No; Twisting
		d. Yes; it is perfectly acceptable
Twisting involves an agent suggesting that an individual let their current insurance coverage lapse in order to purchase a new policy, typically with similar benefits. It is a prohibited activity. In this case, the new policy does not necessarily benefit the client, however, the agent will likely receive a commission on the sale of the new policy. Incorrect answer. Please choose another answer.

Deductibles and Copayments

25.	A __________ is the amount that an insured person is expected to pay for a medical expense at the time of the visit.
		a. Deductible
		b. Reimbursement
		c. Corridor
		d. Copayment
A copayment is the amount or portion of the total cost that is the patient's responsibility upon receiving a medical service such as an annual check-up. Incorrect answer. Please choose another answer.

26.	The "deductible" in a long-term care insurance policy is referred to as the __________.
		a. Deductible
		b. Coinsurance
		c. Elimination period
		d. Copayment
A long-term care insurance policy's elimination period is the number of days that the insured must pay for services out-of-pocket until the insurance coverage begins to pay. Incorrect answer. Please choose another answer.

Health Insurance Claims and Indemnity vs. Reimbursement

27.	On a health insurance claim form, the exact procedures that were performed for the insured are represented by standard codes that are referred to as __________.
		a. RVU codes
		b. AMA codes
		c. HCPCS codes
		d. CPT codes
Each CPT also corresponds to one or more International Classification of Diseases (ICD-9) codes. For example, 99214 may be used for a physical and 90658 indicates a flu shot. Incorrect answer. Please choose another answer.

28.	What type of notice is used to show all of the services or supplies that were billed to Medicare during a 3-month period, what Medicare paid, and what the patient may owe the provider?
		a. MSN
		b. CPT
		c. OPPS
		d. HCPCS
A MSN, or Medicare Summary Notice, can also be checked for any changes to a patient's claims. Incorrect answer. Please choose another answer.

Disability and Related Insurance and Seniors and Special Needs Individuals

29.	As a professional surgeon, which type of disability coverage would offer the most liberal definition of benefit triggers for the policy holder in terms of benefit receipt if the insured were to break his or her hand?
		a. Own occupation
		b. Employer provided
		c. Social Security
		d. Business overhead
Own occupation offers the most liberal definition of disability as the insured is considered to be totally disabled if he or she is unable to engage in the principal duties of his or her own occupation. Incorrect answer. Please choose another answer.

30.	Social Security should be considered one's primary source of disability income coverage.
		True
		False
Although Social Security may provide disability benefits, in the majority of cases, these benefits are inadequate. Therefore, Social Security disability benefits should only be used to supplement an individual disability income policy. Incorrect answer. Please choose another answer.

Quality starts with who wrote the material.

Our practice exam writer

Susan Wright,CLU, ChFC, RHU, REBC, CSA, CLTC, CCFC, CSS

, has worked in the insurance and financial services industry for over 20 years, where she has focused, in part, on producing training and educational materials. She has held roles at several large insurance and investment companies. Ms. Wright has been licensed as an insurance agent and an NASD/FINRA securities broker. She has earned nine industry professional designations, including: Chartered Life Underwriter, Registered Health Underwriter, Registered Employee Benefits Consultant, Certified Senior Advisor and Certified in Long-Term Care.

Our practice exam covers life and health insurance exam subject areas that are common across the country and is not specific to any one state but rather applicable to all states. It covers all of the following areas which are typically covered in your actual state Life & Health Insurance examination:

General insurance
Insurance regulation
Life insurance basics
Life insurance policies
Life insurance policy provisions, options, and riders
Annuities
Federal tax considerations for life insurance and annuities
Qualified plans
Health Insurance basics
Individual health insurance policy general provisions
Disability income and related insurance
Medical plans
Health maintenance organizations
Group health insurance
Dental insurance
Insurance for special needs individuals and senior citizens
Federal tax considerations for health insurance

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