PSI Life Accident & Health Insurance Exam – Practice
Bank
(Original Practice Questions – Not Actual PSI/State
Items)
Instructions:
One best answer per question.
Correct answer: bold.
Rationale: italics.
Insurance Foundations & Contract Law (1–25)
1. Which of the following best describes the legal concept of “offer and acceptance” in an
insurance contract?
A. The agent offers a policy and the insurer accepts the premium
B. The applicant submits an application (offer) and the insurer accepts by issuing the policy
C. The beneficiary offers to pay premiums
D. The state offers a license and the agent accepts
Answer: B
Rationale: The applicant’s application is typically the offer; the insurer accepts by issuing the
policy.
2. Consideration in an insurance contract consists of:
A. Only the insurer’s promise to pay
B. The applicant’s premium and statements, and the insurer’s promise to provide coverage
C. Only the agent’s commission
D. Only the beneficiary’s signature
Answer: B
Rationale: Consideration is the exchange of value: premium/representations for the insurer’s
promise.
3. Which of the following is a required element of a valid insurance contract?
A. Oral agreement only
B. Offer, acceptance, consideration, competent parties, and legal purpose
C. Only a signed application
D. Only payment of the first premium
,Answer: B
Rationale: Valid contracts require offer, acceptance, consideration, capacity, and legality.
4. The principle of utmost good faith (uberrimae fidei) requires:
A. Only the insurer to disclose all facts
B. Both parties to act honestly and disclose material facts
C. Only the agent to disclose commissions
D. No disclosure at all
Answer: B
Rationale: Both insurer and applicant must act in good faith and disclose material information.
5. A material misrepresentation on an insurance application can result in:
A. No consequences
B. The insurer rescinding the policy or denying claims
C. Automatic increase in benefits
D. Mandatory policy renewal
Answer: B
Rationale: Material misstatements can void coverage or lead to claim denial.
6. Which of the following best describes “adhesion” in insurance contracts?
A. Both parties negotiate all terms equally
B. The contract is prepared by one party (insurer) and accepted or rejected by the other
C. The agent writes the policy terms
D. The state writes all policy forms
Answer: B
Rationale: Insurance contracts are contracts of adhesion; terms are set by the insurer.
7. Ambiguities in an insurance contract are typically construed against the:
A. Insured
B. Insurer
C. Agent
D. State
Answer: B
Rationale: Contra proferentem rule interprets ambiguities against the drafter (insurer).
8. Which of the following is true regarding conditional contracts in insurance?
A. No conditions apply
B. The insurer’s obligation to pay depends on conditions (e.g., proof of loss, premium payment)
being met
C. Only the insured has conditions
D. Conditions are illegal
Answer: B
Rationale: Insurance contracts are conditional; benefits depend on meeting policy conditions.
, 9. The insuring clause in a life/health policy primarily:
A. Lists exclusions
B. Describes the scope of coverage and the insurer’s promise to pay benefits
C. Sets the agent’s commission
D. Defines premium payment methods
Answer: B
Rationale: The insuring clause outlines the core promise of coverage.
10. Which of the following best describes “aleatory” in insurance?
A. Equal exchange of value between parties
B. Unequal exchange; benefits may exceed premiums paid
C. No exchange of value
D. Only premiums are paid
Answer: B
Rationale: Insurance is aleatory; payouts may be much larger than premiums.
11. A unilateral contract in insurance means:
A. Both parties make enforceable promises from the start
B. Only the insurer makes an enforceable promise after the premium is paid
C. Only the insured makes a promise
D. No promises are made
Answer: B
Rationale: Insurance is unilateral; only the insurer is legally bound to perform after premium
payment.
12. Which of the following is a key difference between a life insurance contract and a health
insurance contract?
A. Life insurance indemnifies for medical expenses
B. Life insurance pays a stated sum at death; health insurance indemnifies for medical costs
C. Health insurance never has deductibles
D. Life insurance has no beneficiaries
Answer: B
Rationale: Life insurance pays a fixed benefit; health insurance reimburses/indemnifies for costs.
13. The entire contract provision ensures that:
A. Only the policy is the contract
B. The policy and application together form the entire agreement
C. Oral statements by the agent are binding
D. The insurer can change terms at any time
Answer: B
Rationale: The entire contract includes the policy and attached application.
Bank
(Original Practice Questions – Not Actual PSI/State
Items)
Instructions:
One best answer per question.
Correct answer: bold.
Rationale: italics.
Insurance Foundations & Contract Law (1–25)
1. Which of the following best describes the legal concept of “offer and acceptance” in an
insurance contract?
A. The agent offers a policy and the insurer accepts the premium
B. The applicant submits an application (offer) and the insurer accepts by issuing the policy
C. The beneficiary offers to pay premiums
D. The state offers a license and the agent accepts
Answer: B
Rationale: The applicant’s application is typically the offer; the insurer accepts by issuing the
policy.
2. Consideration in an insurance contract consists of:
A. Only the insurer’s promise to pay
B. The applicant’s premium and statements, and the insurer’s promise to provide coverage
C. Only the agent’s commission
D. Only the beneficiary’s signature
Answer: B
Rationale: Consideration is the exchange of value: premium/representations for the insurer’s
promise.
3. Which of the following is a required element of a valid insurance contract?
A. Oral agreement only
B. Offer, acceptance, consideration, competent parties, and legal purpose
C. Only a signed application
D. Only payment of the first premium
,Answer: B
Rationale: Valid contracts require offer, acceptance, consideration, capacity, and legality.
4. The principle of utmost good faith (uberrimae fidei) requires:
A. Only the insurer to disclose all facts
B. Both parties to act honestly and disclose material facts
C. Only the agent to disclose commissions
D. No disclosure at all
Answer: B
Rationale: Both insurer and applicant must act in good faith and disclose material information.
5. A material misrepresentation on an insurance application can result in:
A. No consequences
B. The insurer rescinding the policy or denying claims
C. Automatic increase in benefits
D. Mandatory policy renewal
Answer: B
Rationale: Material misstatements can void coverage or lead to claim denial.
6. Which of the following best describes “adhesion” in insurance contracts?
A. Both parties negotiate all terms equally
B. The contract is prepared by one party (insurer) and accepted or rejected by the other
C. The agent writes the policy terms
D. The state writes all policy forms
Answer: B
Rationale: Insurance contracts are contracts of adhesion; terms are set by the insurer.
7. Ambiguities in an insurance contract are typically construed against the:
A. Insured
B. Insurer
C. Agent
D. State
Answer: B
Rationale: Contra proferentem rule interprets ambiguities against the drafter (insurer).
8. Which of the following is true regarding conditional contracts in insurance?
A. No conditions apply
B. The insurer’s obligation to pay depends on conditions (e.g., proof of loss, premium payment)
being met
C. Only the insured has conditions
D. Conditions are illegal
Answer: B
Rationale: Insurance contracts are conditional; benefits depend on meeting policy conditions.
, 9. The insuring clause in a life/health policy primarily:
A. Lists exclusions
B. Describes the scope of coverage and the insurer’s promise to pay benefits
C. Sets the agent’s commission
D. Defines premium payment methods
Answer: B
Rationale: The insuring clause outlines the core promise of coverage.
10. Which of the following best describes “aleatory” in insurance?
A. Equal exchange of value between parties
B. Unequal exchange; benefits may exceed premiums paid
C. No exchange of value
D. Only premiums are paid
Answer: B
Rationale: Insurance is aleatory; payouts may be much larger than premiums.
11. A unilateral contract in insurance means:
A. Both parties make enforceable promises from the start
B. Only the insurer makes an enforceable promise after the premium is paid
C. Only the insured makes a promise
D. No promises are made
Answer: B
Rationale: Insurance is unilateral; only the insurer is legally bound to perform after premium
payment.
12. Which of the following is a key difference between a life insurance contract and a health
insurance contract?
A. Life insurance indemnifies for medical expenses
B. Life insurance pays a stated sum at death; health insurance indemnifies for medical costs
C. Health insurance never has deductibles
D. Life insurance has no beneficiaries
Answer: B
Rationale: Life insurance pays a fixed benefit; health insurance reimburses/indemnifies for costs.
13. The entire contract provision ensures that:
A. Only the policy is the contract
B. The policy and application together form the entire agreement
C. Oral statements by the agent are binding
D. The insurer can change terms at any time
Answer: B
Rationale: The entire contract includes the policy and attached application.
