Texas Life & Health Insurance License Exam Prep 2026–2027
,TABLE OF CONTENTS
Texas Life & Health Insurance License Exam — Complete Premium Exam Bank
Comprehensive National Concepts • Texas State Law • Integrated Scenarios • Full-Length Mock Exams
Section Content Area High-Yield Coverage
Term life, whole life, universal life, variable life, indexed life, joint life,
1 Life Insurance Policy Types
survivorship life, credit life and specialized policy designs
Immediate and deferred annuities, fixed and variable contracts,
2 Annuities indexed annuities, accumulation, annuitization, settlement options and
taxation
Waiver of premium, accidental death, guaranteed insurability,
Life Policy Riders,
3 beneficiaries, grace periods, reinstatement, policy loans, dividends and
Provisions & Options
nonforfeiture options
Applications, insurable interest, risk classification, medical information,
Life Underwriting & Policy
4 premium receipts, conditional coverage, policy issue and delivery
Delivery
responsibilities
Elements of a valid contract, adhesion, aleatory and unilateral
5 Insurance Contract Law contracts, representations, warranties, concealment, consideration and
legal purpose
Qualified and nonqualified plans, Social Security, life settlements, key-
Retirement & Life
6 person insurance, buy-sell agreements, taxation and Modified
Insurance Concepts
Endowment Contracts
Total, partial, residual and recurrent disability, own-occupation and
Disability Income
7 any-occupation definitions, elimination periods, benefit periods and
Insurance
business disability coverage
Medical Expense & Major medical insurance, HMOs, PPOs, POS plans, deductibles,
8
Managed-Care Plans coinsurance, copayments, out-of-pocket limits and preauthorization
Health savings accounts, flexible spending arrangements, health
9 HSAs, FSAs, HRAs & HDHPs reimbursement arrangements, HDHP eligibility, contributions, taxation
and portability
Master contracts, certificates, contributory and noncontributory plans,
10 Group Health Insurance eligibility, adverse selection, COBRA continuation and coordination of
benefits
,Section Content Area High-Yield Coverage
Long-Term Care & LTC benefit triggers, ADLs, elimination periods, inflation protection,
11 Supplemental Health nonforfeiture, Medicare supplements, dental, vision, cancer, accident
Products and critical-illness coverage
Health Policy Provisions, Entire contract, grace period, reinstatement, notice and proof of claim,
12
Clauses & Riders time limit on defenses, exclusions, renewability and impairment riders
Medicare, Medicaid & Medicare Parts A, B, C and D, Medigap, Medicaid, dual eligibility, SSDI,
13
Social Insurance SSI and federal disability concepts
Total/partial/residual disability, occupational coverage, health-policy
Health Insurance Concepts
14 taxation, HIPAA, FCRA, replacement, application handling and policy
& Field Underwriting
delivery
Commissioner powers, certificates of authority, producer licensing,
Texas Insurance Laws &
15 insurer appointments, continuing education, records, discipline and
Agent Licensing
agent responsibilities
Texas Marketing & Unfair Misrepresentation, false advertising, rebating, coercion, fraud, unfair
16
Trade Practices discrimination, premium handling and commingling
Free-look requirements, grace periods, incontestability, beneficiaries,
17 Texas Life Insurance Laws
assignments, policy loans, replacement and nonforfeiture
Required policy provisions, newborn and dependent coverage,
Texas Health Insurance
18 chemical dependency, Medicare supplement, LTC and small-group
Laws
insurance
Marketplace concepts, essential health benefits, enrollment,
Texas ACA & HMO
19 cancellation, nonrenewal, evidence of coverage, network adequacy and
Regulations
out-of-network claims
Difficult application of Texas statutes, licensing, appointments,
Advanced Texas Licensing
20 replacement, advertising, rebating, premium handling and regulatory
Scenarios
compliance
Integrated Health Multi-concept cases combining medical coverage, disability income,
21
Insurance Case Studies Medicare, LTC, managed care and coordination of benefits
Advanced state-specific licensing and compliance cases involving agent
Texas Law Scenario
22 conduct, fraud reporting, CE, records, appointments and disciplinary
Challenges
exposure
,Section Content Area High-Yield Coverage
Comprehensive Final Mixed national and Texas high-yield questions integrating life, health,
23
Review disability, Medicare, LTC, taxation, underwriting and state law
Full-Length Texas LAH Complete timed simulations integrating national general knowledge
24
Mock Examinations with Texas-specific statutes, regulations and compliance scenarios
Full-Length Simulation Suite
Mock Exam Format
Texas LAH Mock Full comprehensive simulation covering life, annuities, health, disability, Medicare, LTC,
Exam 1 taxation, underwriting and Texas regulations
Texas LAH Mock Fresh full-length simulation with new scenarios, broader regulatory integration and
Exam 2 advanced Texas compliance questions
Premium Learning Features Throughout
Difficult exam-style questions • Four-option A–D format • Detailed answer rationales • Explanations of
incorrect options • Exam Pearls • Exam Strategies • Texas-specific regulatory scenarios • Integrated case
studies • Full-length timed mock exams
Suggested Main Document Heading
TEXAS LIFE & HEALTH INSURANCE LICENSE EXAM
Premium Exam Bank • 2026–2027
Section 1 — Life Insurance Policy Types
1. During a retirement-planning meeting, an applicant says, “I do not want to monitor interest rates or
investment accounts. I want permanent coverage, predictable premiums, and guaranteed cash value.”
Which policy BEST meets these requirements?
A. Universal life
B. Ordinary whole life
C. Variable life
D. Level term life
Correct Answer: B. Ordinary whole life
Rationale: Ordinary whole life is designed as permanent insurance with scheduled level premiums and cash-
value guarantees established by the contract. Its basic values are not dependent on the owner's selection of
market-sensitive investment accounts. This makes it the strongest match for an applicant emphasizing
certainty, permanence, and predictability. Texas consumer guidance distinguishes whole life from the greater
flexibility found in universal life. (Texas Department of Insurance)
,Why the other options are incorrect:
• A. Universal life: Offers considerably more premium and death-benefit flexibility than the applicant
wants.
• C. Variable life: Exposes policy values to investment performance rather than providing the requested
level of predictability.
• D. Level term life: Provides temporary death protection and ordinarily does not accumulate permanent
cash value.
Exam Pearl: Whole Life = permanence + level premium + guaranteed cash value.
Exam Strategy: When the stem emphasizes guaranteed, fixed, predictable, and lifetime, test whole life
first.
2. Which policy would continue providing lifetime death protection after an insured completes all required
premium payments during the first 20 years of the contract?
A. 20-year level term
B. Annually renewable term
C. Universal term
D. 20-pay whole life
Correct Answer: D. 20-pay whole life
Rationale: A 20-pay whole-life contract is a form of limited-payment permanent insurance. Premiums are
required for only 20 years, but completing that premium schedule does not end the insurance protection. The
basic policy becomes paid up while permanent coverage continues according to the contract. Limited-pay life is
expressly identified in the Texas examination outline. (Pearson VUE)
Why the other options are incorrect:
• A. 20-year level term: Generally provides insurance for the specified 20-year period rather than
lifetime protection afterward.
• B. Annually renewable term: Renews temporary coverage one year at a time.
• C. Universal term: Does not describe the limited-pay whole-life structure in the question.
Exam Pearl: Limited-pay means premiums stop early—not coverage.
Exam Strategy: Never confuse “20-pay life” with “20-year term.”
3. At policy issue, a wealthy client pays one lump sum and obtains permanent life insurance for which no
additional scheduled premiums are required. What type of policy was purchased?
,A. Annually renewable term
B. Flexible-premium universal life
C. Single-premium whole life
D. Level-premium term
Correct Answer: C. Single-premium whole life
Rationale: Single-premium whole life is a permanent contract funded through one required premium at issue.
Because all scheduled premium funding is made immediately, the basic coverage is considered paid up from
the outset. Pearson groups single-premium life with limited-pay whole-life products on the Texas outline.
(Pearson VUE)
Why the other options are incorrect:
• A. Annually renewable term: Provides renewable temporary coverage rather than paid-up lifetime
insurance.
• B. Flexible-premium universal life: Allows flexible funding but is not defined by one required premium.
• D. Level-premium term: Is temporary insurance and lacks the described paid-up permanent structure.
Exam Pearl: One premium + permanent protection = single-premium life.
Exam Strategy: “Single premium” tells you how the policy is funded, not how long it lasts.
4. A self-employed applicant has unpredictable annual income and wants permanent insurance that permits
premium flexibility and changes to the death benefit within contractual limits. Which policy BEST fits?
A. Universal life
B. Ordinary whole life
C. Decreasing term
D. Limited-pay whole life
Correct Answer: A. Universal life
Rationale: Universal life is designed around flexible premium funding and adjustable death-benefit features,
subject to policy requirements. Interest is credited to policy value while mortality and expense charges are
deducted. Flexibility does not eliminate the need for adequate funding; insufficient value can jeopardize
continuation of the policy. TDI specifically notes the flexibility of universal life compared with whole life. (Texas
Department of Insurance)
Why the other options are incorrect:
• B. Ordinary whole life: Normally uses a predetermined level-premium structure.
• C. Decreasing term: Is temporary coverage with a declining death benefit.
• D. Limited-pay whole life: Compresses fixed premium payments into a shorter period rather than
allowing flexible funding.
, Exam Pearl: Universal Life = flexible premium + adjustable death benefit.
Exam Strategy: The word flexible is one of the strongest universal-life clues.
5. Suppose the cash value of a variable life policy is allocated primarily to equity-oriented separate accounts.
A severe stock-market decline follows. Who bears the primary investment risk?
A. The beneficiary
B. The insurer exclusively
C. The Texas Department of Insurance
D. The policyowner
Correct Answer: D. The policyowner
Rationale: Variable life ties policy values to investment performance, so the policyowner bears the risk
associated with the selected investment options. Poor performance can reduce cash value rather than being
absorbed entirely by the insurer. The Texas outline specifically separates variable whole life and variable
universal life from traditional fixed-value products. (Pearson VUE)
Why the other options are incorrect:
• A. The beneficiary: Does not control or bear the policyowner's ongoing investment risk.
• B. The insurer exclusively: Does not guarantee the performance of variable investment accounts.
• C. The Texas Department of Insurance: Regulates insurance but does not absorb ordinary market
losses.
Exam Pearl: Variable = policyowner bears investment risk.
Exam Strategy: Whenever you see separate accounts, immediately think variable product.
6. While discussing indexed life, a prospect asks whether the policy actually purchases shares of every
company in the S&P 500 on the owner's behalf. Which response is MOST accurate?
A. Yes; indexed life requires direct ownership of index securities.
B. No; interest crediting may be linked to an index without directly investing the policyowner in the index itself.
C. Yes, but only when the index produces a positive return.
D. No; indexed life policies cannot develop cash value.
Correct Answer: B. No; interest crediting may be linked to an index without directly investing the
policyowner in the index itself.
Rationale: Indexed life uses the performance of an external index as part of an interest-crediting formula. The
policyowner does not directly purchase the individual securities contained in that index. Pearson lists indexed
life separately from variable life, reinforcing the distinction between index-linked crediting and owner-directed
variable investments. (Pearson VUE)
,Why the other options are incorrect:
• A. Index linkage does not create direct ownership of the securities making up the index.
• C. A positive index year still does not transform the policy into direct stock ownership.
• D. Indexed life is a cash-value form of permanent insurance.
Exam Pearl: Indexed = linked to an index; Variable = market-sensitive investment accounts.
Exam Strategy: Carefully distinguish “linked to” from “invested directly in.”
7. A 33-year-old parent needs $1 million of coverage only until the youngest child becomes financially
independent in 20 years. Cash value is not important. Which product is MOST suitable?
A. Whole life
B. Universal life
C. Term life
D. Variable life
Correct Answer: C. Term life
Rationale: Term insurance is designed primarily to provide death protection for a specified period. Because the
premium is not funding lifetime protection and permanent cash value, a relatively large amount of temporary
coverage can generally be obtained for a lower initial premium than permanent insurance. TDI describes term
as coverage for a selected period, while permanent policies can provide cash value. (Texas Department of
Insurance)
Why the other options are incorrect:
• A. Whole life: Provides permanent coverage and cash value that exceed the stated temporary need.
• B. Universal life: Is permanent insurance with additional cash-value and flexibility features.
• D. Variable life: Adds permanent coverage and investment risk that the applicant does not need.
Exam Pearl: Temporary need + large death benefit = term.
Exam Strategy: Identify whether the financial obligation is temporary or permanent before comparing
policy features.
8. Each policy anniversary, an insured may continue coverage for another year without a medical
examination, but the premium increases because the insured is now older. What type of term policy is this?
A. Level term
B. Return-of-premium term
C. Decreasing term
D. Annually renewable term
,Correct Answer: D. Annually renewable term
Rationale: Annually renewable term provides protection in successive one-year periods and ordinarily allows
renewal within contract limits without new evidence of insurability. Premiums typically increase as the
insured's attained age rises. Pearson specifically includes annually renewable term and renewable features in
the Texas outline. (Pearson VUE)
Why the other options are incorrect:
• A. Level term: Maintains level coverage for a stated term and is not defined by annual age-based
renewal.
• B. Return-of-premium term: Is distinguished by a premium-refund feature if contractual conditions are
met.
• C. Decreasing term: Is characterized by a declining death benefit.
Exam Pearl: ART = one-year coverage + renewable + rising age-based premium.
Exam Strategy: “Renews every year” and “premium rises with age” is a classic ART combination.
9. After being diagnosed with a serious illness, an insured wants to exchange existing term coverage for
permanent insurance before the contractual deadline. Which feature makes this possible without having to
medically qualify again?
A. Conversion privilege
B. Renewability
C. Decreasing benefit provision
D. Return-of-premium feature
Correct Answer: A. Conversion privilege
Rationale: Convertible term permits eligible term coverage to be changed into permanent insurance according
to the policy's rules without requiring new evidence of insurability. This feature becomes especially valuable if
health deteriorates after the original term policy was issued. Pearson specifically identifies convertible as a
tested special feature of term life. (Pearson VUE)
Why the other options are incorrect:
• B. Renewability: Allows the insured to continue term coverage rather than change it to permanent
insurance.
• C. Decreasing benefit provision: Relates to the amount of insurance, not medical requalification.
• D. Return-of-premium feature: Concerns a potential refund of premiums rather than conversion.
Exam Pearl: Renew = continue term. Convert = change term to permanent.
Exam Strategy: If deteriorating health is paired with permanent coverage, think conversion.
, 10. Under a $600,000 level term policy, the insured dies in year 18 of a 20-year term while the contract
remains active. Assuming no other adjustment applies, what death benefit is payable?
A. The accumulated cash value
B. $600,000
C. Total premiums paid plus interest
D. A reduced amount based on attained age
Correct Answer: B. $600,000
Rationale: Level term is characterized by a face amount that remains level throughout the stated coverage
period. If the insured dies while the contract is in force, the stated death benefit is payable subject to policy
provisions. Pearson specifically identifies level term as one of the tested forms of term life. (Pearson VUE)
Why the other options are incorrect:
• A. The accumulated cash value: Traditional term insurance ordinarily does not build permanent cash
value.
• C. Total premiums paid plus interest: The benefit is based on the contractual face amount, not a refund
calculation.
• D. A reduced amount based on attained age: That would contradict the defining level-benefit
structure.
Exam Pearl: Level term = face amount stays level.
Exam Strategy: Do not confuse level death benefit with level premium—the exam may test them
separately.
11. A bank wants the amount of life insurance covering a borrower to decrease approximately as the
outstanding mortgage balance declines. Which policy is MOST appropriate?
A. Whole life
B. Indexed life
C. Level term
D. Decreasing term
Correct Answer: D. Decreasing term
Rationale: Decreasing term provides temporary protection with a face amount that declines over the policy
period. It is therefore well suited conceptually to obligations that shrink over time, such as certain loan or
mortgage balances. Decreasing term is specifically listed as a tested term form in the Texas outline. (Pearson
VUE)
Why the other options are incorrect:
,TABLE OF CONTENTS
Texas Life & Health Insurance License Exam — Complete Premium Exam Bank
Comprehensive National Concepts • Texas State Law • Integrated Scenarios • Full-Length Mock Exams
Section Content Area High-Yield Coverage
Term life, whole life, universal life, variable life, indexed life, joint life,
1 Life Insurance Policy Types
survivorship life, credit life and specialized policy designs
Immediate and deferred annuities, fixed and variable contracts,
2 Annuities indexed annuities, accumulation, annuitization, settlement options and
taxation
Waiver of premium, accidental death, guaranteed insurability,
Life Policy Riders,
3 beneficiaries, grace periods, reinstatement, policy loans, dividends and
Provisions & Options
nonforfeiture options
Applications, insurable interest, risk classification, medical information,
Life Underwriting & Policy
4 premium receipts, conditional coverage, policy issue and delivery
Delivery
responsibilities
Elements of a valid contract, adhesion, aleatory and unilateral
5 Insurance Contract Law contracts, representations, warranties, concealment, consideration and
legal purpose
Qualified and nonqualified plans, Social Security, life settlements, key-
Retirement & Life
6 person insurance, buy-sell agreements, taxation and Modified
Insurance Concepts
Endowment Contracts
Total, partial, residual and recurrent disability, own-occupation and
Disability Income
7 any-occupation definitions, elimination periods, benefit periods and
Insurance
business disability coverage
Medical Expense & Major medical insurance, HMOs, PPOs, POS plans, deductibles,
8
Managed-Care Plans coinsurance, copayments, out-of-pocket limits and preauthorization
Health savings accounts, flexible spending arrangements, health
9 HSAs, FSAs, HRAs & HDHPs reimbursement arrangements, HDHP eligibility, contributions, taxation
and portability
Master contracts, certificates, contributory and noncontributory plans,
10 Group Health Insurance eligibility, adverse selection, COBRA continuation and coordination of
benefits
,Section Content Area High-Yield Coverage
Long-Term Care & LTC benefit triggers, ADLs, elimination periods, inflation protection,
11 Supplemental Health nonforfeiture, Medicare supplements, dental, vision, cancer, accident
Products and critical-illness coverage
Health Policy Provisions, Entire contract, grace period, reinstatement, notice and proof of claim,
12
Clauses & Riders time limit on defenses, exclusions, renewability and impairment riders
Medicare, Medicaid & Medicare Parts A, B, C and D, Medigap, Medicaid, dual eligibility, SSDI,
13
Social Insurance SSI and federal disability concepts
Total/partial/residual disability, occupational coverage, health-policy
Health Insurance Concepts
14 taxation, HIPAA, FCRA, replacement, application handling and policy
& Field Underwriting
delivery
Commissioner powers, certificates of authority, producer licensing,
Texas Insurance Laws &
15 insurer appointments, continuing education, records, discipline and
Agent Licensing
agent responsibilities
Texas Marketing & Unfair Misrepresentation, false advertising, rebating, coercion, fraud, unfair
16
Trade Practices discrimination, premium handling and commingling
Free-look requirements, grace periods, incontestability, beneficiaries,
17 Texas Life Insurance Laws
assignments, policy loans, replacement and nonforfeiture
Required policy provisions, newborn and dependent coverage,
Texas Health Insurance
18 chemical dependency, Medicare supplement, LTC and small-group
Laws
insurance
Marketplace concepts, essential health benefits, enrollment,
Texas ACA & HMO
19 cancellation, nonrenewal, evidence of coverage, network adequacy and
Regulations
out-of-network claims
Difficult application of Texas statutes, licensing, appointments,
Advanced Texas Licensing
20 replacement, advertising, rebating, premium handling and regulatory
Scenarios
compliance
Integrated Health Multi-concept cases combining medical coverage, disability income,
21
Insurance Case Studies Medicare, LTC, managed care and coordination of benefits
Advanced state-specific licensing and compliance cases involving agent
Texas Law Scenario
22 conduct, fraud reporting, CE, records, appointments and disciplinary
Challenges
exposure
,Section Content Area High-Yield Coverage
Comprehensive Final Mixed national and Texas high-yield questions integrating life, health,
23
Review disability, Medicare, LTC, taxation, underwriting and state law
Full-Length Texas LAH Complete timed simulations integrating national general knowledge
24
Mock Examinations with Texas-specific statutes, regulations and compliance scenarios
Full-Length Simulation Suite
Mock Exam Format
Texas LAH Mock Full comprehensive simulation covering life, annuities, health, disability, Medicare, LTC,
Exam 1 taxation, underwriting and Texas regulations
Texas LAH Mock Fresh full-length simulation with new scenarios, broader regulatory integration and
Exam 2 advanced Texas compliance questions
Premium Learning Features Throughout
Difficult exam-style questions • Four-option A–D format • Detailed answer rationales • Explanations of
incorrect options • Exam Pearls • Exam Strategies • Texas-specific regulatory scenarios • Integrated case
studies • Full-length timed mock exams
Suggested Main Document Heading
TEXAS LIFE & HEALTH INSURANCE LICENSE EXAM
Premium Exam Bank • 2026–2027
Section 1 — Life Insurance Policy Types
1. During a retirement-planning meeting, an applicant says, “I do not want to monitor interest rates or
investment accounts. I want permanent coverage, predictable premiums, and guaranteed cash value.”
Which policy BEST meets these requirements?
A. Universal life
B. Ordinary whole life
C. Variable life
D. Level term life
Correct Answer: B. Ordinary whole life
Rationale: Ordinary whole life is designed as permanent insurance with scheduled level premiums and cash-
value guarantees established by the contract. Its basic values are not dependent on the owner's selection of
market-sensitive investment accounts. This makes it the strongest match for an applicant emphasizing
certainty, permanence, and predictability. Texas consumer guidance distinguishes whole life from the greater
flexibility found in universal life. (Texas Department of Insurance)
,Why the other options are incorrect:
• A. Universal life: Offers considerably more premium and death-benefit flexibility than the applicant
wants.
• C. Variable life: Exposes policy values to investment performance rather than providing the requested
level of predictability.
• D. Level term life: Provides temporary death protection and ordinarily does not accumulate permanent
cash value.
Exam Pearl: Whole Life = permanence + level premium + guaranteed cash value.
Exam Strategy: When the stem emphasizes guaranteed, fixed, predictable, and lifetime, test whole life
first.
2. Which policy would continue providing lifetime death protection after an insured completes all required
premium payments during the first 20 years of the contract?
A. 20-year level term
B. Annually renewable term
C. Universal term
D. 20-pay whole life
Correct Answer: D. 20-pay whole life
Rationale: A 20-pay whole-life contract is a form of limited-payment permanent insurance. Premiums are
required for only 20 years, but completing that premium schedule does not end the insurance protection. The
basic policy becomes paid up while permanent coverage continues according to the contract. Limited-pay life is
expressly identified in the Texas examination outline. (Pearson VUE)
Why the other options are incorrect:
• A. 20-year level term: Generally provides insurance for the specified 20-year period rather than
lifetime protection afterward.
• B. Annually renewable term: Renews temporary coverage one year at a time.
• C. Universal term: Does not describe the limited-pay whole-life structure in the question.
Exam Pearl: Limited-pay means premiums stop early—not coverage.
Exam Strategy: Never confuse “20-pay life” with “20-year term.”
3. At policy issue, a wealthy client pays one lump sum and obtains permanent life insurance for which no
additional scheduled premiums are required. What type of policy was purchased?
,A. Annually renewable term
B. Flexible-premium universal life
C. Single-premium whole life
D. Level-premium term
Correct Answer: C. Single-premium whole life
Rationale: Single-premium whole life is a permanent contract funded through one required premium at issue.
Because all scheduled premium funding is made immediately, the basic coverage is considered paid up from
the outset. Pearson groups single-premium life with limited-pay whole-life products on the Texas outline.
(Pearson VUE)
Why the other options are incorrect:
• A. Annually renewable term: Provides renewable temporary coverage rather than paid-up lifetime
insurance.
• B. Flexible-premium universal life: Allows flexible funding but is not defined by one required premium.
• D. Level-premium term: Is temporary insurance and lacks the described paid-up permanent structure.
Exam Pearl: One premium + permanent protection = single-premium life.
Exam Strategy: “Single premium” tells you how the policy is funded, not how long it lasts.
4. A self-employed applicant has unpredictable annual income and wants permanent insurance that permits
premium flexibility and changes to the death benefit within contractual limits. Which policy BEST fits?
A. Universal life
B. Ordinary whole life
C. Decreasing term
D. Limited-pay whole life
Correct Answer: A. Universal life
Rationale: Universal life is designed around flexible premium funding and adjustable death-benefit features,
subject to policy requirements. Interest is credited to policy value while mortality and expense charges are
deducted. Flexibility does not eliminate the need for adequate funding; insufficient value can jeopardize
continuation of the policy. TDI specifically notes the flexibility of universal life compared with whole life. (Texas
Department of Insurance)
Why the other options are incorrect:
• B. Ordinary whole life: Normally uses a predetermined level-premium structure.
• C. Decreasing term: Is temporary coverage with a declining death benefit.
• D. Limited-pay whole life: Compresses fixed premium payments into a shorter period rather than
allowing flexible funding.
, Exam Pearl: Universal Life = flexible premium + adjustable death benefit.
Exam Strategy: The word flexible is one of the strongest universal-life clues.
5. Suppose the cash value of a variable life policy is allocated primarily to equity-oriented separate accounts.
A severe stock-market decline follows. Who bears the primary investment risk?
A. The beneficiary
B. The insurer exclusively
C. The Texas Department of Insurance
D. The policyowner
Correct Answer: D. The policyowner
Rationale: Variable life ties policy values to investment performance, so the policyowner bears the risk
associated with the selected investment options. Poor performance can reduce cash value rather than being
absorbed entirely by the insurer. The Texas outline specifically separates variable whole life and variable
universal life from traditional fixed-value products. (Pearson VUE)
Why the other options are incorrect:
• A. The beneficiary: Does not control or bear the policyowner's ongoing investment risk.
• B. The insurer exclusively: Does not guarantee the performance of variable investment accounts.
• C. The Texas Department of Insurance: Regulates insurance but does not absorb ordinary market
losses.
Exam Pearl: Variable = policyowner bears investment risk.
Exam Strategy: Whenever you see separate accounts, immediately think variable product.
6. While discussing indexed life, a prospect asks whether the policy actually purchases shares of every
company in the S&P 500 on the owner's behalf. Which response is MOST accurate?
A. Yes; indexed life requires direct ownership of index securities.
B. No; interest crediting may be linked to an index without directly investing the policyowner in the index itself.
C. Yes, but only when the index produces a positive return.
D. No; indexed life policies cannot develop cash value.
Correct Answer: B. No; interest crediting may be linked to an index without directly investing the
policyowner in the index itself.
Rationale: Indexed life uses the performance of an external index as part of an interest-crediting formula. The
policyowner does not directly purchase the individual securities contained in that index. Pearson lists indexed
life separately from variable life, reinforcing the distinction between index-linked crediting and owner-directed
variable investments. (Pearson VUE)
,Why the other options are incorrect:
• A. Index linkage does not create direct ownership of the securities making up the index.
• C. A positive index year still does not transform the policy into direct stock ownership.
• D. Indexed life is a cash-value form of permanent insurance.
Exam Pearl: Indexed = linked to an index; Variable = market-sensitive investment accounts.
Exam Strategy: Carefully distinguish “linked to” from “invested directly in.”
7. A 33-year-old parent needs $1 million of coverage only until the youngest child becomes financially
independent in 20 years. Cash value is not important. Which product is MOST suitable?
A. Whole life
B. Universal life
C. Term life
D. Variable life
Correct Answer: C. Term life
Rationale: Term insurance is designed primarily to provide death protection for a specified period. Because the
premium is not funding lifetime protection and permanent cash value, a relatively large amount of temporary
coverage can generally be obtained for a lower initial premium than permanent insurance. TDI describes term
as coverage for a selected period, while permanent policies can provide cash value. (Texas Department of
Insurance)
Why the other options are incorrect:
• A. Whole life: Provides permanent coverage and cash value that exceed the stated temporary need.
• B. Universal life: Is permanent insurance with additional cash-value and flexibility features.
• D. Variable life: Adds permanent coverage and investment risk that the applicant does not need.
Exam Pearl: Temporary need + large death benefit = term.
Exam Strategy: Identify whether the financial obligation is temporary or permanent before comparing
policy features.
8. Each policy anniversary, an insured may continue coverage for another year without a medical
examination, but the premium increases because the insured is now older. What type of term policy is this?
A. Level term
B. Return-of-premium term
C. Decreasing term
D. Annually renewable term
,Correct Answer: D. Annually renewable term
Rationale: Annually renewable term provides protection in successive one-year periods and ordinarily allows
renewal within contract limits without new evidence of insurability. Premiums typically increase as the
insured's attained age rises. Pearson specifically includes annually renewable term and renewable features in
the Texas outline. (Pearson VUE)
Why the other options are incorrect:
• A. Level term: Maintains level coverage for a stated term and is not defined by annual age-based
renewal.
• B. Return-of-premium term: Is distinguished by a premium-refund feature if contractual conditions are
met.
• C. Decreasing term: Is characterized by a declining death benefit.
Exam Pearl: ART = one-year coverage + renewable + rising age-based premium.
Exam Strategy: “Renews every year” and “premium rises with age” is a classic ART combination.
9. After being diagnosed with a serious illness, an insured wants to exchange existing term coverage for
permanent insurance before the contractual deadline. Which feature makes this possible without having to
medically qualify again?
A. Conversion privilege
B. Renewability
C. Decreasing benefit provision
D. Return-of-premium feature
Correct Answer: A. Conversion privilege
Rationale: Convertible term permits eligible term coverage to be changed into permanent insurance according
to the policy's rules without requiring new evidence of insurability. This feature becomes especially valuable if
health deteriorates after the original term policy was issued. Pearson specifically identifies convertible as a
tested special feature of term life. (Pearson VUE)
Why the other options are incorrect:
• B. Renewability: Allows the insured to continue term coverage rather than change it to permanent
insurance.
• C. Decreasing benefit provision: Relates to the amount of insurance, not medical requalification.
• D. Return-of-premium feature: Concerns a potential refund of premiums rather than conversion.
Exam Pearl: Renew = continue term. Convert = change term to permanent.
Exam Strategy: If deteriorating health is paired with permanent coverage, think conversion.
, 10. Under a $600,000 level term policy, the insured dies in year 18 of a 20-year term while the contract
remains active. Assuming no other adjustment applies, what death benefit is payable?
A. The accumulated cash value
B. $600,000
C. Total premiums paid plus interest
D. A reduced amount based on attained age
Correct Answer: B. $600,000
Rationale: Level term is characterized by a face amount that remains level throughout the stated coverage
period. If the insured dies while the contract is in force, the stated death benefit is payable subject to policy
provisions. Pearson specifically identifies level term as one of the tested forms of term life. (Pearson VUE)
Why the other options are incorrect:
• A. The accumulated cash value: Traditional term insurance ordinarily does not build permanent cash
value.
• C. Total premiums paid plus interest: The benefit is based on the contractual face amount, not a refund
calculation.
• D. A reduced amount based on attained age: That would contradict the defining level-benefit
structure.
Exam Pearl: Level term = face amount stays level.
Exam Strategy: Do not confuse level death benefit with level premium—the exam may test them
separately.
11. A bank wants the amount of life insurance covering a borrower to decrease approximately as the
outstanding mortgage balance declines. Which policy is MOST appropriate?
A. Whole life
B. Indexed life
C. Level term
D. Decreasing term
Correct Answer: D. Decreasing term
Rationale: Decreasing term provides temporary protection with a face amount that declines over the policy
period. It is therefore well suited conceptually to obligations that shrink over time, such as certain loan or
mortgage balances. Decreasing term is specifically listed as a tested term form in the Texas outline. (Pearson
VUE)
Why the other options are incorrect:
