NORTH CAROLINA LIFE INSURANCE EXAM
ACTUAL PREP QUESTIONS AND WELL
REVISED ANSWERS - LATEST AND COMPLETE
UPDATE WITH VERIFIED SOLUTIONS –
ASSURES PASS
1. Which of the following best defines the primary purpose of life insurance?
A. To serve as an investment vehicle for accumulating wealth
B. To provide a source of retirement income
C. To protect beneficiaries against financial loss resulting from the
insured’s death
D. To generate cash value that can be borrowed against for any purpose
Rationale: The core purpose of life insurance is risk management,
specifically to provide financial protection to dependents or beneficiaries
upon the death of the insured.
2. A 35-year-old client purchases a 20-year term life policy with a $500,000
death benefit. If the client dies in year 15, what will the insurer pay?
A. $0 because the policy has expired
B. $250,000, prorated for time covered
C. $500,000, the full death benefit
D. Only the cash value accumulated to date
Rationale: Term life insurance provides a fixed death benefit if death occurs
, during the term; there is no prorating or cash value in traditional term
policies.
3. Which of the following is an example of moral hazard in life insurance
underwriting?
A. Applying for insurance without disclosing a pre-existing condition
B. The insured intentionally engaging in risky behavior after obtaining
insurance
C. The insurer misrepresenting policy terms in a sales illustration
D. An agent selling a policy to a minor without parental consent
Rationale: Moral hazard occurs when the insured’s behavior increases the
likelihood of a loss because of the security provided by insurance.
4. In a standard whole life policy, what is the significance of the policy’s cash
value?
A. It represents the amount of death benefit remaining
B. It accumulates as a savings component and can be borrowed against
C. It determines the annual premium owed
D. It expires at the end of the policy term
Rationale: Whole life policies combine a death benefit with a cash value
component, which grows over time and is accessible through policy loans.
,5. Which regulatory body oversees insurance operations in North Carolina?
A. Federal Trade Commission (FTC)
B. Securities and Exchange Commission (SEC)
C. North Carolina Department of Insurance (NCDOI)
D. National Association of Insurance Commissioners (NAIC)
Rationale: The NCDOI regulates insurance companies, agents, and policies
within North Carolina to ensure compliance with state law.
6. A life insurance policy illustration should include which of the following?
A. Only guaranteed values
B. Only non-guaranteed projections
C. Both guaranteed and non-guaranteed values, with clear distinction
D. Premium amounts without indicating potential cash values
Rationale: State and federal regulations require that illustrations clearly
distinguish guaranteed and non-guaranteed elements to prevent
misrepresentation.
7. Which type of life insurance provides coverage for a specified period with
no cash value accumulation?
A. Universal Life
B. Whole Life
C. Term Life
, D. Variable Life
Rationale: Term life is designed purely to provide a death benefit for a set
period and does not include a savings or investment component.
8. When an agent recommends a policy that does not meet the client’s needs
solely to earn a higher commission, this constitutes:
A. Ethical selling
B. Churning or misrepresentation
C. Risk pooling
D. Buy-sell planning
Rationale: Misleading a client for personal gain violates ethical and
regulatory standards and may be considered churning or misrepresentation.
9. In life insurance, the principle of indemnity is most accurately applied to:
A. Universal Life policies
B. Variable Life policies
C. Term Life policies
D. Property and casualty insurance, not life insurance
Rationale: Life insurance pays a predetermined death benefit and does not
adhere to indemnity, which aims to restore the insured to their prior
financial position.
ACTUAL PREP QUESTIONS AND WELL
REVISED ANSWERS - LATEST AND COMPLETE
UPDATE WITH VERIFIED SOLUTIONS –
ASSURES PASS
1. Which of the following best defines the primary purpose of life insurance?
A. To serve as an investment vehicle for accumulating wealth
B. To provide a source of retirement income
C. To protect beneficiaries against financial loss resulting from the
insured’s death
D. To generate cash value that can be borrowed against for any purpose
Rationale: The core purpose of life insurance is risk management,
specifically to provide financial protection to dependents or beneficiaries
upon the death of the insured.
2. A 35-year-old client purchases a 20-year term life policy with a $500,000
death benefit. If the client dies in year 15, what will the insurer pay?
A. $0 because the policy has expired
B. $250,000, prorated for time covered
C. $500,000, the full death benefit
D. Only the cash value accumulated to date
Rationale: Term life insurance provides a fixed death benefit if death occurs
, during the term; there is no prorating or cash value in traditional term
policies.
3. Which of the following is an example of moral hazard in life insurance
underwriting?
A. Applying for insurance without disclosing a pre-existing condition
B. The insured intentionally engaging in risky behavior after obtaining
insurance
C. The insurer misrepresenting policy terms in a sales illustration
D. An agent selling a policy to a minor without parental consent
Rationale: Moral hazard occurs when the insured’s behavior increases the
likelihood of a loss because of the security provided by insurance.
4. In a standard whole life policy, what is the significance of the policy’s cash
value?
A. It represents the amount of death benefit remaining
B. It accumulates as a savings component and can be borrowed against
C. It determines the annual premium owed
D. It expires at the end of the policy term
Rationale: Whole life policies combine a death benefit with a cash value
component, which grows over time and is accessible through policy loans.
,5. Which regulatory body oversees insurance operations in North Carolina?
A. Federal Trade Commission (FTC)
B. Securities and Exchange Commission (SEC)
C. North Carolina Department of Insurance (NCDOI)
D. National Association of Insurance Commissioners (NAIC)
Rationale: The NCDOI regulates insurance companies, agents, and policies
within North Carolina to ensure compliance with state law.
6. A life insurance policy illustration should include which of the following?
A. Only guaranteed values
B. Only non-guaranteed projections
C. Both guaranteed and non-guaranteed values, with clear distinction
D. Premium amounts without indicating potential cash values
Rationale: State and federal regulations require that illustrations clearly
distinguish guaranteed and non-guaranteed elements to prevent
misrepresentation.
7. Which type of life insurance provides coverage for a specified period with
no cash value accumulation?
A. Universal Life
B. Whole Life
C. Term Life
, D. Variable Life
Rationale: Term life is designed purely to provide a death benefit for a set
period and does not include a savings or investment component.
8. When an agent recommends a policy that does not meet the client’s needs
solely to earn a higher commission, this constitutes:
A. Ethical selling
B. Churning or misrepresentation
C. Risk pooling
D. Buy-sell planning
Rationale: Misleading a client for personal gain violates ethical and
regulatory standards and may be considered churning or misrepresentation.
9. In life insurance, the principle of indemnity is most accurately applied to:
A. Universal Life policies
B. Variable Life policies
C. Term Life policies
D. Property and casualty insurance, not life insurance
Rationale: Life insurance pays a predetermined death benefit and does not
adhere to indemnity, which aims to restore the insured to their prior
financial position.
