2021 Version

Life & Health Insurance Agent Certification Test

A free Life & Health Insurance Practice Test to help you prepare..... To get certified or licensed to sell life and health insurance as an agent, a candidate has to pass a state licensing exam offered by a state licensing board. Certification as a life and health insurance agent requires passing an exam and meeting other educational requirements.

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.

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General Life Insurance Basics, Insurable Interest, Parties and Regulations

1.	Which of the following is typically the lowest cost type of life insurance?
		a. Term
		b. Permanent
		c. Universal
		d. Variable
Term life insurance typically requires the lowest amount of premium due. This is because these policies only provide death benefit protection without any type of cash value or investment build-up. Incorrect answer. Please choose another answer.

2.	What is, in part, the primary purpose of insurance regulation?
		a. To ensure the financial success of the insurance companies
		b. To ensure fair competition in the marketplace
		c. To ensure that beneficiaries get the highest benefit they can
		d. To maintain the solvency of insurance companies
Insurance regulations are designed to help insurance companies as well as their policy holders and beneficiaries. Regulations can pertain to financial as well as ethical aspects of the life insurance business. Incorrect answer. Please choose another answer.

Types of Life Insurance Policies and Individual versus Group Life Insurance

3.	What are the two primary classes of life insurance?
		a. Variable and Universal
		b. Term and Permanent
		c. Whole and Universal
		d. Term and Universal
There are two primary classes of life insurance. These are term and permanent coverage. Term life insurance is considered to be "pure" life insurance coverage in that it provides only death benefit coverage with no cash value build-up. Term insurance is also purchased for just a fixed number of years, or "term." Permanent life insurance policies provide either a cash savings or an investment component whereby the policy holder can build up a substantial amount of funds over time. In addition, permanent life insurance can stay in force for the remainder of an insured's life, provided that premium payments continue to be made. Incorrect answer. Please choose another answer.

4.	Bob wanted to purchase life insurance coverage. He recently suffered an adverse health condition. Which type of life insurance will Bob have the easiest time qualifying for?
		a. Individual term
		b. Group term
		c. Individual whole life
		d. Individual Variable
Group insurance policies are not based on individual health conditions. Irrespective of factors such as health conditions, gender, and age, everyone in a group plan is grouped together into one category. This can work in favor of those who are older and / or have ill health. Incorrect answer. Please choose another answer.

Life Insurance Application and Underwriting

5.	Which of the following is considered to determine how a life insurance applicant will be rated by the insurance company as well as the premium that will be charged?
		a. Estate value
		b. Debts and liabilities
		c. Income
		d. Insurability
An applicant's insurability will affect whether or not he or she is even accepted for life insurance coverage. Based on health and other factors, if the applicant is accepted, their insurability will also affect whether they are considered to be a standard, sub-standard, or preferred risk. Incorrect answer. Please choose another answer.

6.	Most life insurance applicants fall into which of the following underwriting risk categories?
		a. Preferred
		b. Standard
		c. Sub-standard
		d. Actuarial
The standard risk category fits most people, as it is reserved for those who do not have any serious medical or health issues, yet they are likely to be average in their health, diet, and lifestyle routines. Incorrect answer. Please choose another answer.

Selling Life Insurance, Determining Coverage Needs and Issuance and Delivery

7.	Insurance agents have a responsibility to all of the following EXCEPT: I. The insurance company II. The applicant III. The policy holder IV. The beneficiary
		a. I and II
		b. II and III
		c. I, II, and III
		d. IV only
While the beneficiary is a party to the insurance contract, the agent has the primary responsibility to the applicant/insured/policy holder and also to the insurance company. Incorrect answer. Please choose another answer.

8.	Acceptable methods for delivering a life insurance policy to the newly insured include: I. In person II. Mail III. Email
		a. I only
		b. I and II
		c. I, II, and III
		d. None of the above
While in the past most policies were delivered in person, today life insurance policies may be delivered via the mail or in person. In addition, actual policies must be delivered to the newly insured, therefore, email is not an acceptable form of new policy delivery. Incorrect answer. Please choose another answer.

Life Insurance for Business Owners and in Estate Planning

9.	Who names the beneficiary in a split dollar plan?
		a. Employee
		b. Company
		c. Both A and B
		d. Neither A or B
Split dollar plans are not actual life insurance contracts, but rather a way of purchasing a life insurance policy as a benefit to a key employee, without the employee being required to pay the entire amount of premium. As the employee and employer both split the premium payments, both the employer and the employee's beneficiary will share the amount of death benefit upon the employee's death. Incorrect answer. Please choose another answer.

10.	A new start-up internet company, Ecompany, applied for a business loan. The bank was concerned with the company's lack of assets and asked that its executives take out life insurance policies with the bank as a beneficiary. The bank's request violated the Federal Insurance Office Act of 2010 under Dodd-Frank.
		True
		False
Lenders often require business borrowers to purchase life insurance as a way of ensuring that the loaned funds will be paid off. Incorrect answer. Please choose another answer.

Policy Components, Riders and Non-forfeiture Options

11.	Which of the following will prevent a life insurance policy from lapsing for failure to pay the premium?
		a. Level term rider
		b. Accelerated term rider
		c. Non-forfeiture option
		d. Guaranteed insurability rider
There is an option available on permanent life insurance policies called the non-forfeiture option. Having this feature can prevent a policy from being terminated - whether intentionally or unintentionally - and allowing the insurance company to use the funds in the policy's cash value component for premium payment. Incorrect answer. Please choose another answer.

12.	On a whole life insurance policy, as time goes on, more of the premium goes towards the cost of providing the ____________.
		a. Cash value component
		b. Investment component
		c. Death benefit
		d. Policy administration
Over time, as the insured's age increased, a larger percentage of the premium paid will go towards the cost of providing the death benefit, and a smaller portion will go towards the cash value component. Incorrect answer. Please choose another answer.

Claims, Settlement Options and Tax Concepts

13.	What kind of expenses are funeral and cemetery costs?
		a. Final expenses
		b. Hospice expenses
		c. Administrative expenses
		d. Estate expenses
Final expenses" include costs related to the death of the insured. These can include the cost of the funeral, cemetery plot, and headstone. Incorrect answer. Please choose another answer.

14.	When a policy holder uses the cash surrender non-forfeiture option, the insurance company will pay the cash surrender value to the insured. When the insured receives the cash surrender value, it will be taxed as ordinary income.
		True
		False
Although funds within a life insurance cash value grow tax-deferred, when withdrawn, the gains on such funds will be taxed as ordinary income to the recipient. Incorrect answer. Please choose another answer.

Living Benefits and Viatical and Life Settlements

15.	If a life insurance policy holder accesses a portion of his or her life insurance proceeds, he will be able to use them for which of the following?
		a. Medical bills only
		b. Long-term care expenses only
		c. Grandchild's college tuition
		d. Anything needed
Once accessed, the insured may use the living benefits for anything that he or she needs. This can include medical bills or prescriptions, but it can also include taking a vacation or using the funds for a child or grandchild's future college education expenses. Incorrect answer. Please choose another answer.

16.	In many cases, the insured on a life insurance policy must be ____________ before the policy can be sold in a viatical settlement transaction.
		a. A preferred risk class
		b. Married
		c. In good health
		d. Terminally ill
Oftentimes, an insured must be terminally ill and have a life expectancy of approximately two years prior to settling their policy in a viatical settlement. This helps to prevent potential fraud and even intentional murder for profit in such cases. Incorrect answer. Please choose another answer.

General Health Insurance Basics, Regulation and Social Health Insurance

17.	Which of the following health insurance policies allow insureds to choose which doctor and hospital they want when they need medical services?
		a. PPO
		b. HMO
		c. Managed care
		d. Fee-for-service
Fee-for-service, or individual health insurance policies, allow the insured much more freedom to choose their providers than do managed care options such as HMOs and PPOs. Incorrect answer. Please choose another answer.

18.	When those who experience greater health risks apply for and continue their coverage in a health insurance plan it is referred to as __________.
		a. Unbalanced coverage
		b. High risk coverage
		c. Adverse selection
		d. Allowable charges
Adverse selection is the idea that those who most need to purchase insurance are typically those who also present the highest risks to the insurance company. When adverse selection increases, health insurance companies experience greater expenses and they may raise premium rates in order to compensate for this. Incorrect answer. Please choose another answer.

Types of Health Insurance Policies and HMO and PPO

19.	Which of the following tend to promote healthier life choices and preventive care?
		a. PPOs
		b. HMOs
		c. PCPs
		d. PFFSs
Although HMOs provide fewer choices for medical care outside of the network, there is an influence of prevention, whereby programs are provided to its members that promote healthier life choices and better health. Incorrect answer. Please choose another answer.

20.	Frank is ineligible for a traditional fee-for-service health insurance policy due to his heart disease. Which of the following must accept Frank?
		a. A grandfathered individual health insurance plan
		b. HMO
		c. Individual plan through the exchange
		d. None of the above.
		e. Both a and c.
The Affordable Care Act has created state exchanges through which individuals may purchase health insurance coverage. This act prohibits pre-existing condition exclusions on individual health insurance policies. Individual health insurance plans that are "grandfathered" do not have to accept pre-existing conditions. Incorrect answer. Please choose another answer.

Health Insurance Policy Components and Exclusions

21.	Which of the following is a cost to an insured to transfer risk to an insurance company?
		a. Deductibles
		b. Premiums
		c. Copayments
		d. Coinsurance amounts
Insurance premiums are set based on the type of insurance being purchased as well by the statistical likelihood that the insurer will have to pay a claim. Incorrect answer. Please choose another answer.

22.	The parties to an individual health insurance contract include
		a. The applicant / insured
		b. The applicant / insured / underwriters
		c. The applicant / insured / employer
		d. The applicant / insured / underwriters / employer
The parties to an insurance contract include the insurance company and the applicant of a policy. The underwriter is not a party to the individual insurance contract. Incorrect answer. Please choose another answer.

Selling Health Insurance, Issuance and Delivery and Tax Considerations

23.	According to the IRS, if an individual is paying out-of-pocket for employer group health coverage under the COBRA health coverage continuation law, the premium is not considered as a medical expense for tax purposes.
		True
		False
COBRA premiums count towards the cost of medical expenses for tax purposes. Incorrect answer. Please choose another answer.

24.	Who determines the cost of insurance premiums in an insurance policy?
		a. Underwriters
		b. Agents
		c. Actuaries
		d. Insurance regulators
Actuaries work for an insurance company and they determine insurance premiums based on a number of different factors, including exposure to risk by accepting the applicant. Incorrect answer. Please choose another answer.

Deductibles and Copayments

25.	In most cases, health insurance policies with higher deductibles will have __________ premiums.
		a. Higher
		b. Lower
		c. There is no difference
Policies with higher deductibles will typically have lower premiums. This is because the insurance company is less likely to have to pay out as much money under the policy as the insured is responsible for shouldering a larger amount of his or her health care costs. Incorrect answer. Please choose another answer.

26.	If an insurance company requires 20% coinsurance and the total bill comes to $1,500, the policy holder will be required to pay __________ and the insurance company would pay __________.
		a. $250, $1,250
		b. $300, $1,200
		c. $350, $1,150
		d. $400, $1,100
A policy with a 20% coinsurance amount would require the policy holder to pay, in this particular case, $300 ($1,500 x 20% = $300). Incorrect answer. Please choose another answer.

Health Insurance Claims and Indemnity vs. Reimbursement

27.	Which of the following is a stop-loss provision that prevents medical bills from financially devastating consumers?
		a. Deductible
		b. Coinsurance
		c. Maximum Out-of-Pocket
		d. Corridor
Once an insured has spent an amount that is equal to or greater than the maximum out-of-pocket figure, any and all future claims are paid in full by the insurance company, without the need for further contributions from the policy holder. Incorrect answer. Please choose another answer.

28.	Which type of long-term care insurance policy will pay the policy holder a fixed amount of dollars per day, up to a fixed amount of benefits, regardless of the expense incurred?
		a. Reimbursement
		b. Indemnity
		c. Annuity
		d. Guaranteed renewable
Indemnity plans will pay the insured a fixed amount rather than a reimbursement of the actual expenses that were incurred. Therefore, if the insured has a policy that is designed to pay $100 per day, but the care received costs $80 per day, the policy holder will still receive $100 per day from the insurer. Incorrect answer. Please choose another answer.

Disability and Related Insurance and Seniors and Special Needs Individuals

29.	Ed and Erma, a married couple, have recently enrolled in Medicare Parts A and B. Both are age 65, yet both still work full-time. The couple files their income taxes as joint filers. How will their Medicare Part B premium be calculated?
		a. It will be charged based on the way they file their tax returns as well as based upon the amount of income that they earn.
		b. It will be a flat rate, as the same premium is charged to everyone who is enrolled in Medicare Part B.
		c. It will be charged as separate amounts for Ed and Erma.
		d. None of the above.
Joint income tax filers who earned a certain amount of income will be charged for Medicare Part B based on their joint filing status as well as based on the amount of income that they earn. Those who are married but file separate tax returns would be charged a different amount of monthly premium. Incorrect answer. Please choose another answer.

30.	Originally, there were __________ Medicare Supplement policies that enrollees could choose from.
		a. 4
		b. 5
		c. 10
		d. 12
For many years, there were 10 standardized Medicare Supplement plans. These were named Medicare Supplement policies A through J, with Plan A being the most basic. There are still 10 plans. However, due to changes, some plans have been replaced, leaving the current Medicare Supplement plans as: A, B, C, D, F, G, K, L, M and N. Incorrect answer. Please choose another answer.

Risk Management and Legal Concepts

31.	Which of the following is a statement by the issuing insurance company in an insurance contract that sets out the essential elements of insurance?
		a. Conditions
		b. Insuring clause
		c. Offer
		d. Acceptance
The essential element of insurance is the promise by the insurance company to pay for the losses that are covered in the policy. This promise is in exchange for the premium paid by the insured. Incorrect answer. Please choose another answer.

32.	Which of the following could be a predicate for a condition precedent in an insurance contract?
		a. Payment by the Insurer
		b. Acceptance of payment by the Insured
		c. Policy renewal by the Insurer
		d. Notice by the Insured
A condition precedent is a provision in a contract that specifies that some event or state of affairs must occur before performance under a contract is due, unless its non-occurrence is excused. The notice provisions in insurance contracts are typically stated as conditions precedents to the insurer's obligation to act. Incorrect answer. Please choose another answer.

Types of Insurance Entities and HIPPA

33.	Under the Affordable Care Act, how long is a health insurance plan allowed to look back for a condition that was present before the start of coverage in a group health insurance plan?
		a. 3 months
		b. 6 months
		c. 12 months
		d. No look back permitted.
While previously the Health Insurance Portability and Accountability Act (HIPAA) was able to impose a pre-existing condition exclusion on conditions that were diagnosed or treated during the 6 months prior to an individual's enrollment date in the plan, the Affordable Care Act makes coverage available to people, regardless of whether they have a pre-existing condition. This applies to both individual and group coverage. Incorrect answer. Please choose another answer.

34.	HIPAA requires that all employers offer health insurance coverage.
		True
		False
HIPAA does not require that employers offer any type of health insurance coverage. Incorrect answer. Please choose another answer.

Fraud and Unauthorized Entities

35.	Ted deliberately "staged" a soft tissue injury for the purpose of gaining a claim check from his health insurance company. What type of insurance fraud was he involved with?
		a. Hard insurance fraud
		b. Soft insurance fraud
		c. Internal insurance fraud
		d. External insurance fraud
Hard insurance fraud exists when someone either deliberately causes or stages a loss for the specific purpose of making a claim for payment from an insurance company. Incorrect answer. Please choose another answer.

36.	Some examples of insurance fraud include all of the following EXCEPT:
		a. Making claims for losses that did not actually take place
		b. Losses that are intentionally caused for the purpose of submitting a claim
		c. Accidentally injuring oneself and making a claim
		d. Losses that have actually taken place but at an exaggerated amount
Unintentional accidents are not considered to be insurance fraud. 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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