Chartered Life Underwriter (CLU)
Examination Questions And Correct
Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant
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1. Which of the following best describes the primary purpose of life
insurance?
A. To accumulate wealth for retirement
B. To provide a source of emergency cash
C. To provide financial protection against the risk of premature death
D. To guarantee investment returns
Answer: C. Life insurance primarily protects dependents and other
beneficiaries from financial loss caused by the policyholder's premature
death, rather than serving primarily as an investment or savings vehicle.
While some policies accumulate cash value, the core purpose remains risk
transfer and income replacement.
2. In a whole life insurance policy, the cash value is best described as:
A. Paid only at the insured's death
B. Equal to the face amount of the policy
C. An accumulation of the policy's savings component over time
D. Not accessible by the policyholder
Answer: C. Whole life policies combine insurance protection with a savings
element, allowing cash value to build over time on a tax-deferred basis.
This cash value is accessible to the policyholder through withdrawals,
policy loans, or surrender.
,3. Which type of life insurance provides coverage for a specified term without
a cash value component?
A. Whole life
B. Universal life
C. Variable life
D. Term life
Answer: D. Term life insurance is pure protection for a defined period and
does not accumulate cash value. It provides a death benefit only if the
insured dies during the specified term.
4. The principle of indemnity in life insurance means:
A. The insurer will pay double the face value
B. The insured should not profit from a loss
C. The policyholder receives the cash value upon cancellation
D. Premiums are refunded if no claims are made
Answer: B. Indemnity ensures that insurance compensates for the actual
loss, preventing financial gain from insurance. However, life insurance is
unique as a valued contract because the death benefit is predetermined
rather than based on actual financial loss.
5. Which of the following is a nonforfeiture option in a whole life policy?
A. Reduced paid-up insurance
B. Term conversion
C. Policy loan
D. Dividend accumulation
Answer: A. Reduced paid-up insurance is one of the standard
nonforfeiture options that allows a policyowner to use the accumulated
cash value to purchase a paid-up policy with a reduced face amount.
Other nonforfeiture options include cash surrender and extended term
insurance.
6. The incontestability clause in a life insurance contract becomes effective
after:
A. The policy is issued
, B. The insured reaches age 65
C. The policy has been in force for a specified period, typically two years
D. The first premium is paid
Answer: C. The incontestability clause generally provides that after the
policy has been in force for two years (during the insured's lifetime), the
insurer cannot contest the policy based on misstatements in the
application, except for fraud.
7. What is meant by referring to an insurance policy as a unilateral contract?
A. Both parties make legally enforceable promises
B. Only one party makes a legally enforceable promise
C. The contract is written by only one party
D. The contract can be cancelled by either party
Answer: B. A unilateral contract is one in which only one party (the
insurer) makes a legally enforceable promise. The insured makes no
promise to pay premiums but rather performs an act (paying premiums)
to keep the policy in force.
8. A contract in which one party promises to indemnify another against loss
that arises from an unknown event is:
A. A warranty
B. A surety bond
C. An insurance policy
D. A fidelity bond
Answer: C. An insurance policy is a contract whereby one party (the
insurer) promises to indemnify another (the insured) against loss arising
from an unknown or contingent event in exchange for consideration (the
premium).
9. Which of the following best describes the legal concept of insurable interest
in a life insurance contract?
A. The insured must own the policy at all times
B. The policyowner must suffer a financial or emotional loss upon the
insured's death
, C. Insurable interest must exist only at the time of a claim
D. The policyowner must be related by blood to the insured
Answer: B. Insurable interest requires that the policyowner would suffer a
genuine loss, whether financial or emotional, if the insured dies. In life
insurance, insurable interest must exist at the time the policy is issued, not
necessarily at the time of death.
10.Under the principle of indemnity, life insurance is unique among insurance
contracts because it is generally classified as which type of contract?
A. A contract of indemnity
B. A valued contract
C. A contract of adhesion only
D. A reinsurance contract
Answer: B. Life insurance is classified as a valued contract because the
policy pays a specified sum (the face amount) upon the insured's death,
rather than indemnifying the actual financial loss suffered. This
distinguishes it from property and casualty insurance, which are contracts
of indemnity.
11.Which element is NOT required for a life insurance contract to be legally
valid?
A. Offer and acceptance
B. Consideration
C. Insurable interest at the time of death for third-party beneficiaries
D. Legal competence of the parties
Answer: C. Insurable interest is required at the time the policy is issued,
not at the time of death. The other elements—offer and acceptance,
consideration, and legal competence—are all essential for a valid
contract.
12.The mortality charge in a cash value life insurance policy represents:
A. The cost of administering the policy
B. The pure cost of insurance protection based on the net amount at risk
C. The agent's commission
Examination Questions And Correct
Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant
Download Pdf
1. Which of the following best describes the primary purpose of life
insurance?
A. To accumulate wealth for retirement
B. To provide a source of emergency cash
C. To provide financial protection against the risk of premature death
D. To guarantee investment returns
Answer: C. Life insurance primarily protects dependents and other
beneficiaries from financial loss caused by the policyholder's premature
death, rather than serving primarily as an investment or savings vehicle.
While some policies accumulate cash value, the core purpose remains risk
transfer and income replacement.
2. In a whole life insurance policy, the cash value is best described as:
A. Paid only at the insured's death
B. Equal to the face amount of the policy
C. An accumulation of the policy's savings component over time
D. Not accessible by the policyholder
Answer: C. Whole life policies combine insurance protection with a savings
element, allowing cash value to build over time on a tax-deferred basis.
This cash value is accessible to the policyholder through withdrawals,
policy loans, or surrender.
,3. Which type of life insurance provides coverage for a specified term without
a cash value component?
A. Whole life
B. Universal life
C. Variable life
D. Term life
Answer: D. Term life insurance is pure protection for a defined period and
does not accumulate cash value. It provides a death benefit only if the
insured dies during the specified term.
4. The principle of indemnity in life insurance means:
A. The insurer will pay double the face value
B. The insured should not profit from a loss
C. The policyholder receives the cash value upon cancellation
D. Premiums are refunded if no claims are made
Answer: B. Indemnity ensures that insurance compensates for the actual
loss, preventing financial gain from insurance. However, life insurance is
unique as a valued contract because the death benefit is predetermined
rather than based on actual financial loss.
5. Which of the following is a nonforfeiture option in a whole life policy?
A. Reduced paid-up insurance
B. Term conversion
C. Policy loan
D. Dividend accumulation
Answer: A. Reduced paid-up insurance is one of the standard
nonforfeiture options that allows a policyowner to use the accumulated
cash value to purchase a paid-up policy with a reduced face amount.
Other nonforfeiture options include cash surrender and extended term
insurance.
6. The incontestability clause in a life insurance contract becomes effective
after:
A. The policy is issued
, B. The insured reaches age 65
C. The policy has been in force for a specified period, typically two years
D. The first premium is paid
Answer: C. The incontestability clause generally provides that after the
policy has been in force for two years (during the insured's lifetime), the
insurer cannot contest the policy based on misstatements in the
application, except for fraud.
7. What is meant by referring to an insurance policy as a unilateral contract?
A. Both parties make legally enforceable promises
B. Only one party makes a legally enforceable promise
C. The contract is written by only one party
D. The contract can be cancelled by either party
Answer: B. A unilateral contract is one in which only one party (the
insurer) makes a legally enforceable promise. The insured makes no
promise to pay premiums but rather performs an act (paying premiums)
to keep the policy in force.
8. A contract in which one party promises to indemnify another against loss
that arises from an unknown event is:
A. A warranty
B. A surety bond
C. An insurance policy
D. A fidelity bond
Answer: C. An insurance policy is a contract whereby one party (the
insurer) promises to indemnify another (the insured) against loss arising
from an unknown or contingent event in exchange for consideration (the
premium).
9. Which of the following best describes the legal concept of insurable interest
in a life insurance contract?
A. The insured must own the policy at all times
B. The policyowner must suffer a financial or emotional loss upon the
insured's death
, C. Insurable interest must exist only at the time of a claim
D. The policyowner must be related by blood to the insured
Answer: B. Insurable interest requires that the policyowner would suffer a
genuine loss, whether financial or emotional, if the insured dies. In life
insurance, insurable interest must exist at the time the policy is issued, not
necessarily at the time of death.
10.Under the principle of indemnity, life insurance is unique among insurance
contracts because it is generally classified as which type of contract?
A. A contract of indemnity
B. A valued contract
C. A contract of adhesion only
D. A reinsurance contract
Answer: B. Life insurance is classified as a valued contract because the
policy pays a specified sum (the face amount) upon the insured's death,
rather than indemnifying the actual financial loss suffered. This
distinguishes it from property and casualty insurance, which are contracts
of indemnity.
11.Which element is NOT required for a life insurance contract to be legally
valid?
A. Offer and acceptance
B. Consideration
C. Insurable interest at the time of death for third-party beneficiaries
D. Legal competence of the parties
Answer: C. Insurable interest is required at the time the policy is issued,
not at the time of death. The other elements—offer and acceptance,
consideration, and legal competence—are all essential for a valid
contract.
12.The mortality charge in a cash value life insurance policy represents:
A. The cost of administering the policy
B. The pure cost of insurance protection based on the net amount at risk
C. The agent's commission
