Spring Semester February 2026 Texas Life & Health
Insurance License Exam Preparation Guide |
Comprehensive State-Specific Practice Questions, PSI
Exam-Style Tests, Updated Texas Insurance Laws &
Regulations, Policy Provisions, Ethics Requirements, Risk
Management Concepts & First-Time Pass Certification
Readiness
Question 1:
What is the primary purpose of life insurance?
A) To provide investment returns
B) To cover healthcare expenses
C) C) To provide financial protection to beneficiaries upon the insured's death
D) To fund retirement plans
Correct Answer: C) To provide financial protection to beneficiaries upon the insured's
death
Rationale:
Life insurance is designed primarily to provide a financial benefit to the beneficiaries of
the insured when they pass away. This benefit ensures that family members or
dependents are not left in financial hardship, effectively replacing lost income and
covering expenses associated with the insured's death, such as funeral costs and
outstanding debts. Unlike health insurance, which primarily covers medical expenses,
life insurance focuses solely on the financial impact of death.
Question 2:
Which of the following is considered a living benefit?
A) Death benefit payout
B) B) Cash value accumulation
C) Accidental death rider
D) Premium refund rider
Correct Answer: B) Cash value accumulation
Rationale:
Living benefits refer to financial features of insurance policies that can be accessed
while the insured is still alive. In whole life insurance policies, for example, the cash
value accumulates over time, allowing policyholders to borrow against it or use it for
loans. This contrasts with death benefits, which are only accessible after the insured's
death.
Question 3:
,In Texas, which of the following must be included in a health insurance policy?
A) Coverage for experimental treatments
B) B) Mandatory offer of coverage for mental health treatment
C) Automatic renewal feature
D) Coverage for cosmetic surgery
Correct Answer: B) Mandatory offer of coverage for mental health treatment
Rationale:
Texas law requires health insurance policies to offer coverage for mental health
treatment, ensuring patients receive necessary psychological care without
discrimination. This was established to promote mental health equality with physical
health services, safeguarding consumer rights and health outcomes.
Question 4:
What does the term 'beneficiary' mean in a life insurance policy?
A) The agent who sells the policy
B) B) The person designated to receive the death benefit
C) The insurer who provides the policy
D) The policyholder who pays premiums
Correct Answer: B) The person designated to receive the death benefit
Rationale:
A beneficiary is specifically named in a life insurance policy to receive the death benefit
upon the insured's passing. This designation is crucial, as it ensures that the
policyholder’s intentions are honored concerning who will receive financial support in
their absence. The beneficiary can be an individual, a group, or an estate and plays a
central role in the distribution of life insurance proceeds.
Question 5:
Which policy typically accumulates cash value?
A) Term life insurance
B) B) Whole life insurance
C) Universal life insurance
D) Group life insurance
Correct Answer: B) Whole life insurance
Rationale:
Whole life insurance policies are designed to accumulate cash value over time, which
grows at a guaranteed rate. This cash value can be borrowed against, withdrawn, or
,used to pay premiums. In contrast, term life insurance provides a death benefit only
during the term of coverage and does not accumulate any cash value, making whole life
a more complex but often more sought-after product for its dual benefit of protection
and savings.
Question 6:
Which of the following types of life insurance provides coverage for a specified
period?
A) Whole life insurance
B) B) Term life insurance
C) Universal life insurance
D) Variable life insurance
Correct Answer: B) Term life insurance
Rationale:
Term life insurance provides coverage for a predetermined period, such as 10, 20, or 30
years. If the insured dies within this term, the death benefit is paid to the beneficiaries; if
they outlive the term, the coverage ends. This type of insurance is typically less
expensive than permanent insurance options because it does not accumulate cash
value.
Question 7:
What is the primary reason for requiring an insurable interest to exist?
A) To guarantee premium payments
B) B) To prevent wagering on life
C) To ensure proper underwriting
D) To simplify the claims process
Correct Answer: B) To prevent wagering on life
Rationale:
Insurable interest is a fundamental principle in insurance that requires the policyholder
to have a legitimate interest in the continued life or health of the insured. This prevents
immoral gambling on the lives or health of individuals, ensuring that insurance remains
a tool for protection rather than speculation.
Question 8:
Which of the following is not a type of health insurance policy?
A) Health Maintenance Organization (HMO)
B) B) Life and Health Insurance Policy
, C) Preferred Provider Organization (PPO)
D) Exclusive Provider Organization (EPO)
Correct Answer: B) Life and Health Insurance Policy
Rationale:
While health insurance policies include various managed care options like HMOs,
PPOs, and EPOs, a "Life and Health Insurance Policy" is not a standard type of health
coverage. Instead, it combines life insurance components with health coverage, making
it more of a hybrid product than a standalone health policy.
Question 9:
What is the purpose of a rider in an insurance policy?
A) To deny coverage for certain events
B) B) To modify or add benefits to the policy
C) To increase the premium amount
D) To cancel the policy
Correct Answer: B) To modify or add benefits to the policy
Rationale:
A rider is an additional provision added to an insurance policy that modifies its terms or
coverage. Riders can provide extra benefits, such as accidental death coverage or
critical illness coverage, allowing policyholders to tailor their insurance to better fit their
needs. This flexibility is a crucial feature for many insured individuals.
Question 10:
What does the 'probationary period' in health insurance refer to?
A) The time before coverage begins
B) B) The time before a pre-existing condition is covered
C) The duration of the policy
D) The time between premium payments
Correct Answer: B) The time before a pre-existing condition is covered
Rationale:
A probationary period is the elapsed time from the policy's start until certain benefits,
especially concerning pre-existing conditions, become effective. It helps insurers
manage risk by excluding benefit payouts related to existing health issues, encouraging
new enrollees to maintain their health before receiving full coverage.
Question 11:
Insurance License Exam Preparation Guide |
Comprehensive State-Specific Practice Questions, PSI
Exam-Style Tests, Updated Texas Insurance Laws &
Regulations, Policy Provisions, Ethics Requirements, Risk
Management Concepts & First-Time Pass Certification
Readiness
Question 1:
What is the primary purpose of life insurance?
A) To provide investment returns
B) To cover healthcare expenses
C) C) To provide financial protection to beneficiaries upon the insured's death
D) To fund retirement plans
Correct Answer: C) To provide financial protection to beneficiaries upon the insured's
death
Rationale:
Life insurance is designed primarily to provide a financial benefit to the beneficiaries of
the insured when they pass away. This benefit ensures that family members or
dependents are not left in financial hardship, effectively replacing lost income and
covering expenses associated with the insured's death, such as funeral costs and
outstanding debts. Unlike health insurance, which primarily covers medical expenses,
life insurance focuses solely on the financial impact of death.
Question 2:
Which of the following is considered a living benefit?
A) Death benefit payout
B) B) Cash value accumulation
C) Accidental death rider
D) Premium refund rider
Correct Answer: B) Cash value accumulation
Rationale:
Living benefits refer to financial features of insurance policies that can be accessed
while the insured is still alive. In whole life insurance policies, for example, the cash
value accumulates over time, allowing policyholders to borrow against it or use it for
loans. This contrasts with death benefits, which are only accessible after the insured's
death.
Question 3:
,In Texas, which of the following must be included in a health insurance policy?
A) Coverage for experimental treatments
B) B) Mandatory offer of coverage for mental health treatment
C) Automatic renewal feature
D) Coverage for cosmetic surgery
Correct Answer: B) Mandatory offer of coverage for mental health treatment
Rationale:
Texas law requires health insurance policies to offer coverage for mental health
treatment, ensuring patients receive necessary psychological care without
discrimination. This was established to promote mental health equality with physical
health services, safeguarding consumer rights and health outcomes.
Question 4:
What does the term 'beneficiary' mean in a life insurance policy?
A) The agent who sells the policy
B) B) The person designated to receive the death benefit
C) The insurer who provides the policy
D) The policyholder who pays premiums
Correct Answer: B) The person designated to receive the death benefit
Rationale:
A beneficiary is specifically named in a life insurance policy to receive the death benefit
upon the insured's passing. This designation is crucial, as it ensures that the
policyholder’s intentions are honored concerning who will receive financial support in
their absence. The beneficiary can be an individual, a group, or an estate and plays a
central role in the distribution of life insurance proceeds.
Question 5:
Which policy typically accumulates cash value?
A) Term life insurance
B) B) Whole life insurance
C) Universal life insurance
D) Group life insurance
Correct Answer: B) Whole life insurance
Rationale:
Whole life insurance policies are designed to accumulate cash value over time, which
grows at a guaranteed rate. This cash value can be borrowed against, withdrawn, or
,used to pay premiums. In contrast, term life insurance provides a death benefit only
during the term of coverage and does not accumulate any cash value, making whole life
a more complex but often more sought-after product for its dual benefit of protection
and savings.
Question 6:
Which of the following types of life insurance provides coverage for a specified
period?
A) Whole life insurance
B) B) Term life insurance
C) Universal life insurance
D) Variable life insurance
Correct Answer: B) Term life insurance
Rationale:
Term life insurance provides coverage for a predetermined period, such as 10, 20, or 30
years. If the insured dies within this term, the death benefit is paid to the beneficiaries; if
they outlive the term, the coverage ends. This type of insurance is typically less
expensive than permanent insurance options because it does not accumulate cash
value.
Question 7:
What is the primary reason for requiring an insurable interest to exist?
A) To guarantee premium payments
B) B) To prevent wagering on life
C) To ensure proper underwriting
D) To simplify the claims process
Correct Answer: B) To prevent wagering on life
Rationale:
Insurable interest is a fundamental principle in insurance that requires the policyholder
to have a legitimate interest in the continued life or health of the insured. This prevents
immoral gambling on the lives or health of individuals, ensuring that insurance remains
a tool for protection rather than speculation.
Question 8:
Which of the following is not a type of health insurance policy?
A) Health Maintenance Organization (HMO)
B) B) Life and Health Insurance Policy
, C) Preferred Provider Organization (PPO)
D) Exclusive Provider Organization (EPO)
Correct Answer: B) Life and Health Insurance Policy
Rationale:
While health insurance policies include various managed care options like HMOs,
PPOs, and EPOs, a "Life and Health Insurance Policy" is not a standard type of health
coverage. Instead, it combines life insurance components with health coverage, making
it more of a hybrid product than a standalone health policy.
Question 9:
What is the purpose of a rider in an insurance policy?
A) To deny coverage for certain events
B) B) To modify or add benefits to the policy
C) To increase the premium amount
D) To cancel the policy
Correct Answer: B) To modify or add benefits to the policy
Rationale:
A rider is an additional provision added to an insurance policy that modifies its terms or
coverage. Riders can provide extra benefits, such as accidental death coverage or
critical illness coverage, allowing policyholders to tailor their insurance to better fit their
needs. This flexibility is a crucial feature for many insured individuals.
Question 10:
What does the 'probationary period' in health insurance refer to?
A) The time before coverage begins
B) B) The time before a pre-existing condition is covered
C) The duration of the policy
D) The time between premium payments
Correct Answer: B) The time before a pre-existing condition is covered
Rationale:
A probationary period is the elapsed time from the policy's start until certain benefits,
especially concerning pre-existing conditions, become effective. It helps insurers
manage risk by excluding benefit payouts related to existing health issues, encouraging
new enrollees to maintain their health before receiving full coverage.
Question 11:
