,Life & Health Insurance Exam – Licensing & State
Regulations – Q&A (2026/2027) | Pearson VUE
1. The type of risk that involves only the chance of loss and no possibility of gain
is called:
A) Speculative risk
B) Pure risk
C) Financial risk
D) Market risk
Correct Answer: B) Pure risk
Rationale: Pure risk is the only risk that is insurable. Speculative risk involves
the chance of loss or gain (e.g., gambling) and is uninsurable. Pure risk is the
foundation of insurance.
2. The principle that a policyowner must have a legitimate financial interest in
the continued life of the insured is known as:
A) Indemnity
B) Subrogation
C) Insurable interest
D) Consideration
Correct Answer: C) Insurable interest
,Rationale: Insurable interest must exist at the time of application for life
insurance. It prevents wagering contracts and ensures the policyowner would
suffer financially from the loss of the insured.
3. Which of the following best describes a contract of adhesion?
A) Both parties negotiate the terms equally.
B) One party drafts the contract, and the other must accept or reject it as
written.
C) Only one party makes a legally enforceable promise.
D) The exchange of value is unequal.
Correct Answer: B) One party drafts the contract, and the other must accept or
reject it as written.
Rationale: Insurance contracts are contracts of adhesion because the insurer
writes the policy, and the applicant must adhere to its terms without
negotiation. Ambiguities are interpreted in favor of the insured.
4. An agent's authority that is explicitly stated in the agent's contract with the
insurer is known as:
A) Implied authority
B) Apparent authority
C) Assumed authority
D) Expressed authority
Correct Answer: D) Expressed authority
, Rationale: Expressed authority is directly granted in writing. Implied authority is
what is reasonably necessary to carry out expressed authority. Apparent
authority is what the public believes the agent has.
5. Which type of life insurance provides coverage for a specific period (e.g., 10,
20, or 30 years) and has no cash value?
A) Whole life
B) Term life
C) Universal life
D) Variable life
Correct Answer: B) Term life
Rationale: Term insurance provides pure death benefit protection for a set
term. It does not accumulate cash value and is generally the least expensive
form of life insurance.
6. A whole life insurance policy is characterized by:
A) Flexible premiums and adjustable death benefits
B) A guaranteed death benefit, fixed premiums, and guaranteed cash value
growth
C) Investment returns linked to a stock index
D) Coverage for a specified term only
Regulations – Q&A (2026/2027) | Pearson VUE
1. The type of risk that involves only the chance of loss and no possibility of gain
is called:
A) Speculative risk
B) Pure risk
C) Financial risk
D) Market risk
Correct Answer: B) Pure risk
Rationale: Pure risk is the only risk that is insurable. Speculative risk involves
the chance of loss or gain (e.g., gambling) and is uninsurable. Pure risk is the
foundation of insurance.
2. The principle that a policyowner must have a legitimate financial interest in
the continued life of the insured is known as:
A) Indemnity
B) Subrogation
C) Insurable interest
D) Consideration
Correct Answer: C) Insurable interest
,Rationale: Insurable interest must exist at the time of application for life
insurance. It prevents wagering contracts and ensures the policyowner would
suffer financially from the loss of the insured.
3. Which of the following best describes a contract of adhesion?
A) Both parties negotiate the terms equally.
B) One party drafts the contract, and the other must accept or reject it as
written.
C) Only one party makes a legally enforceable promise.
D) The exchange of value is unequal.
Correct Answer: B) One party drafts the contract, and the other must accept or
reject it as written.
Rationale: Insurance contracts are contracts of adhesion because the insurer
writes the policy, and the applicant must adhere to its terms without
negotiation. Ambiguities are interpreted in favor of the insured.
4. An agent's authority that is explicitly stated in the agent's contract with the
insurer is known as:
A) Implied authority
B) Apparent authority
C) Assumed authority
D) Expressed authority
Correct Answer: D) Expressed authority
, Rationale: Expressed authority is directly granted in writing. Implied authority is
what is reasonably necessary to carry out expressed authority. Apparent
authority is what the public believes the agent has.
5. Which type of life insurance provides coverage for a specific period (e.g., 10,
20, or 30 years) and has no cash value?
A) Whole life
B) Term life
C) Universal life
D) Variable life
Correct Answer: B) Term life
Rationale: Term insurance provides pure death benefit protection for a set
term. It does not accumulate cash value and is generally the least expensive
form of life insurance.
6. A whole life insurance policy is characterized by:
A) Flexible premiums and adjustable death benefits
B) A guaranteed death benefit, fixed premiums, and guaranteed cash value
growth
C) Investment returns linked to a stock index
D) Coverage for a specified term only
