Alabama Department of
MAXE H&L
Insurance
★ ★
AL
State of Alabama
EST. 1819
PROTECTING ALABAMA CONSUMERS
Alabama Life & Health Insurance Exam
CO M P L E T E ST U DY G U I D E | A L R E A DY G RA D E D A +
INSTITUTION Alabama Department of Insurance COURSE CODE L&H Exam
PROGRAM Life & Health Insurance Licensing ACADEMIC YEAR
EXAM TITLE Alabama Life & Health Insurance TOTAL QUESTIONS 97 Questions
Exam
COURSE TITLE Life & Health Insurance Pre- FORMAT Multiple Choice — Select the
Licensing Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Life insurance, health insurance, annuities, and Alabama-specific regulations are all testable content.
▸ Correct answers and detailed rationales appear below each question for review purposes.
▸ All content reflects current Alabama insurance licensing requirements.
, SECTION I — LIFE & HEALTH INSURANCE PRINCIPLES Questions 1 – 97
1. Insurance is a method risk is transferred to an insurer for consideration up to what?
A. A predetermined limit
B. An unlimited amount
C. The face amount of the policy
D. The premium amount
CORRECT ANSWER A — A predetermined limit
RATIONALE Insurance transfers risk to an insurer for consideration up to a predetermined
limit, which is the policy's face amount or benefit limit. The insurer agrees to pay
up to this limit in exchange for premiums.
2. Which of the following would be considered proper establishment of insurable interest in
the life insurance area?
A. Spouses in each other, parents in their children, creditors in their debtors
B. Business associates only
C. Friends and neighbors
D. Anyone with a financial interest
CORRECT ANSWER A — Spouses in each other, parents in their children, creditors in their
debtors
RATIONALE Insurable interest in life insurance exists in relationships of blood, marriage, or
business. Proper examples include spouses in each other, parents in their
children, and creditors in their debtors. These relationships create a reasonable
expectation of financial loss upon death.
,3. Which of the following statements about the average number of people who die each year
is true?
A. It is called the mortality rate
B. It is called the morbidity rate
C. It is called the lapse rate
D. It is called the interest rate
CORRECT ANSWER A — It is called the mortality rate
RATIONALE Mortality rate is the statistical probability of death in a large population of
insureds. This is the basis for life insurance pricing. Morbidity rate refers to the
incidence of sickness or injury.
4. An insurance contract is an aleatory contract. This means:
A. Equal value is not necessarily given by both parties to the contract
B. Equal value is given by both parties
C. Only the insurer gives value
D. Only the insured gives value
CORRECT ANSWER A — Equal value is not necessarily given by both parties to the contract
RATIONALE Aleatory means a contract of unequal values exchanged. In an insurance contract,
the insured pays a small premium and may receive a large death benefit, or may
receive nothing if the loss does not occur. The values exchanged are unequal.
, 5. A life insurance policy is a unilateral contract because:
A. Only the insurance company is bound to live up to its side of the agreement
B. Both parties are bound to the agreement
C. Only the insured is bound
D. Neither party is bound
CORRECT ANSWER A — Only the insurance company is bound to live up to its side of the
agreement
RATIONALE A life insurance policy is a unilateral contract because only the insurance company
is legally bound to perform its obligations. The insured makes a promise to pay
premiums, but if premiums are not paid, the insurer is not obligated to pay the
death benefit.
6. All of the following are elements of a contract:
A. Legal purpose, offer and acceptance, consideration
B. Legal purpose only
C. Offer and acceptance only
D. Consideration only
CORRECT ANSWER A — Legal purpose, offer and acceptance, consideration
RATIONALE The four elements of a valid contract are: offer and acceptance (agreement),
consideration, competent parties, and legal purpose. Legal purpose, offer and
acceptance, and consideration are three of these essential elements.
MAXE H&L
Insurance
★ ★
AL
State of Alabama
EST. 1819
PROTECTING ALABAMA CONSUMERS
Alabama Life & Health Insurance Exam
CO M P L E T E ST U DY G U I D E | A L R E A DY G RA D E D A +
INSTITUTION Alabama Department of Insurance COURSE CODE L&H Exam
PROGRAM Life & Health Insurance Licensing ACADEMIC YEAR
EXAM TITLE Alabama Life & Health Insurance TOTAL QUESTIONS 97 Questions
Exam
COURSE TITLE Life & Health Insurance Pre- FORMAT Multiple Choice — Select the
Licensing Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Life insurance, health insurance, annuities, and Alabama-specific regulations are all testable content.
▸ Correct answers and detailed rationales appear below each question for review purposes.
▸ All content reflects current Alabama insurance licensing requirements.
, SECTION I — LIFE & HEALTH INSURANCE PRINCIPLES Questions 1 – 97
1. Insurance is a method risk is transferred to an insurer for consideration up to what?
A. A predetermined limit
B. An unlimited amount
C. The face amount of the policy
D. The premium amount
CORRECT ANSWER A — A predetermined limit
RATIONALE Insurance transfers risk to an insurer for consideration up to a predetermined
limit, which is the policy's face amount or benefit limit. The insurer agrees to pay
up to this limit in exchange for premiums.
2. Which of the following would be considered proper establishment of insurable interest in
the life insurance area?
A. Spouses in each other, parents in their children, creditors in their debtors
B. Business associates only
C. Friends and neighbors
D. Anyone with a financial interest
CORRECT ANSWER A — Spouses in each other, parents in their children, creditors in their
debtors
RATIONALE Insurable interest in life insurance exists in relationships of blood, marriage, or
business. Proper examples include spouses in each other, parents in their
children, and creditors in their debtors. These relationships create a reasonable
expectation of financial loss upon death.
,3. Which of the following statements about the average number of people who die each year
is true?
A. It is called the mortality rate
B. It is called the morbidity rate
C. It is called the lapse rate
D. It is called the interest rate
CORRECT ANSWER A — It is called the mortality rate
RATIONALE Mortality rate is the statistical probability of death in a large population of
insureds. This is the basis for life insurance pricing. Morbidity rate refers to the
incidence of sickness or injury.
4. An insurance contract is an aleatory contract. This means:
A. Equal value is not necessarily given by both parties to the contract
B. Equal value is given by both parties
C. Only the insurer gives value
D. Only the insured gives value
CORRECT ANSWER A — Equal value is not necessarily given by both parties to the contract
RATIONALE Aleatory means a contract of unequal values exchanged. In an insurance contract,
the insured pays a small premium and may receive a large death benefit, or may
receive nothing if the loss does not occur. The values exchanged are unequal.
, 5. A life insurance policy is a unilateral contract because:
A. Only the insurance company is bound to live up to its side of the agreement
B. Both parties are bound to the agreement
C. Only the insured is bound
D. Neither party is bound
CORRECT ANSWER A — Only the insurance company is bound to live up to its side of the
agreement
RATIONALE A life insurance policy is a unilateral contract because only the insurance company
is legally bound to perform its obligations. The insured makes a promise to pay
premiums, but if premiums are not paid, the insurer is not obligated to pay the
death benefit.
6. All of the following are elements of a contract:
A. Legal purpose, offer and acceptance, consideration
B. Legal purpose only
C. Offer and acceptance only
D. Consideration only
CORRECT ANSWER A — Legal purpose, offer and acceptance, consideration
RATIONALE The four elements of a valid contract are: offer and acceptance (agreement),
consideration, competent parties, and legal purpose. Legal purpose, offer and
acceptance, and consideration are three of these essential elements.
