NC LIFE INSURANCE PRACTICE EXAM QUESTIONS &
ANSWERS
All of the following are included within the Insurance Commissioner's duties EXCEPT
a) Conducting investigation of all domestic insurers.
b) Reviewing the insurers' annual reports.
c) Writing North Carolina insurance laws.
d) Reporting any violations of insurance laws to the Attorney General. Writing insurance
law is not the Insurance Commissioner's responsibility, but enforcing the law is. -
Answers - c) Writing North Carolina insurance laws.
Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing
the law is.
Which of the following insurance providers must be nonprofit and sell insurance only to
its members?
a) Reciprocal
b) Fraternal
c) Service
d) Mutual - Answers - b) Fraternal
To be characterized as a fraternal benefit society, the organization must be nonprofit,
have a lodge system that includes ritualistic work and maintain a representative form of
government with elected officers. Insurance may only be sold to members of the
society.
A married couple owns a permanent policy which covers both of their lives and pays the
death benefit only upon the death of the first insured. Which policy is that?
a)Second-to-Die
b)Family Income Policy
c)Joint Life Policy
d)Survivorship Life Policy - Answers - c)Joint Life Policy
Joint life policies cover the lives of two insureds; rates are blended. Upon the death of
the first insured, the policy ends.
The insured under a $100,000 life insurance policy with a triple indemnity rider for
accidental death was killed in a car accident. It was determined that the accident was
his fault. The triple indemnity rider in the policy specifies that the death must not be
contributed to by the insured in any manner. In this case, what will the policy beneficiary
receive?
,a)$0
b)$50,000 (50% of the policy value)
c)$100,000
d)$300,000 (triple the amount of policy value) - Answers - c)$100,000
The triple indemnity accidental death rider obligates the company to pay three times the
face amount of the policy if the insured dies as a result of an accident. The death must
be accidental and not contributed to by any other factors and must occur within 90 days
of the accident. In this case, since the insured contributed to his own death, the triple
indemnity rider is void, but the beneficiary will still receive the policy's death benefit.
In term policies, what happens to the premium throughout the term of the policy?
a) Premium gradually increases.
b) Premium gradually decreases.
c) Premium fluctuates.
d) Premium always remains level. - Answers - d) Premium always remains level.
Insurance companies are required to provide proof of loss forms to the claimant within
how many days after receipt of notice of loss?
a) 15
b) 30
c) 31
d) 45 - Answers - a) 15
When any company under any insurance policy requires a written proof of loss after
notice of the loss has been given by the insured or beneficiary, the company must
furnish a blank form within 15 days.
Which is true about a spouse term rider?
a) The rider is usually level term insurance.
b) Coverage is allowed for an unlimited time.
c) The rider is decreasing term insurance.
d) Coverage is allowed up to age 75. - Answers - a) The rider is usually level term
insurance.
The spouse term rider allows a spouse to be added for coverage. It is available for a
limited amount of time, typically expiring at age 65. A spouse term rider (just like any
other insured rider) is usually level term insurance.
A policy will pay the death benefit if the insured dies during the 20-year premium-paying
period, and nothing if death occurs after the 20-year period. What type of policy is this?
a)Level term
b)Term to specified age
,c)Ordinary life policy
d)Limited pay whole life - Answers - a)Level term
A 20-year term policy is written to provide a level death benefit for 20 years.
Which nonforfeiture option provides coverage for the longest period of time?
a)Accumulated at interest
b)Reduced paid-up
c)Extended term
d)Paid-up option - Answers - b)Reduced paid-up
The reduced paid-up nonforfeiture option would provide protection until the insured
reaches 100, but the face amount is reduced to what the cash would buy.
Which of the following is NOT true regarding the accumulation period of an annuity?
a)It is also known as the pay-in period.
b)It would not occur in a deferred annuity.
c)It is the period during which the annuity payments earn interest.
d)It is the period over which the owner makes payments into an annuity. - Answers -
b)It would not occur in a deferred annuity.
The "accumulation period" is the period of time over which the annuity owner makes
payments (premiums) into an annuity. This is the period of time during which the
payments earn interest and grow tax deferred (which would be the case in a deferred
annuity).
Life insurance death proceeds are
a)Taxed as ordinary income.
b)Generally not taxed as income.
c)Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross
income.
d)Taxed as a capital gain. - Answers - b)Generally not taxed as income.
Life insurance death benefits are generally not taxed as income.
Which of the following is TRUE regarding an indeterminate premium whole life policy?
a) The premium is lower in the first year of the policy; then it is gradually raised every
year.
b) The premium is level throughout the life of the policy.
c) The premium is usually higher in the first few years of the policy.
d) The premium can be raised up to a guaranteed maximum rate. - Answers - d) The
premium can be raised up to a guaranteed maximum rate.
, Indeterminate premium whole life policy premium rate may vary from year to year. After
the initial period (usually 2-3 years) when a lower premium is paid, the insurer
establishes a new rate which could be raised up to the guaranteed maximum stated in
the policy, kept the same or lowered, based on the company's expected mortality,
expense and investments.
A person who knowingly obtains information about an individual from an agent or the
insurer under false pretenses has committed a(n)
a)Class 1 misdemeanor.
b)Trustworthy act.
c)Unfair trade practice.
d)Felony. - Answers - a) Class 1 misdemeanor.
A person who knowingly obtains information about an individual from an insurer or
agent under false pretenses is guilty of a Class 1 misdemeanor.
The initial amount of credit life insurance may NOT exceed
a)An amount set by statute and adjusted regularly for inflation.
b)The borrower's monthly income.
c)The borrower's annual income.
d)The amount to be repaid under the contract. - Answers - d) The amount to be repaid
under the contract.
The initial amount of credit life insurance may not exceed the total amount repayable
under the contract of indebtedness.
There are three basic types of term coverage available, based on how the face amount
(death benefit) changes during the policy term: Level, Increasing, and Decreasing.
Regardless of the type of term insurance purchased, the premium is often level
throughout the term of the policy.
An insurer neglects to pay a legitimate claim that is covered under the terms of the
policy. Which of the following insurance principles has the insurer violated?
a) Representation
b) Adhesion
c) Consideration
d) Good faith - Answers - c) Consideration
The binding force in any contract is consideration. Consideration on the part of the
insured is the payment of premiums and the health representations made in the
ANSWERS
All of the following are included within the Insurance Commissioner's duties EXCEPT
a) Conducting investigation of all domestic insurers.
b) Reviewing the insurers' annual reports.
c) Writing North Carolina insurance laws.
d) Reporting any violations of insurance laws to the Attorney General. Writing insurance
law is not the Insurance Commissioner's responsibility, but enforcing the law is. -
Answers - c) Writing North Carolina insurance laws.
Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing
the law is.
Which of the following insurance providers must be nonprofit and sell insurance only to
its members?
a) Reciprocal
b) Fraternal
c) Service
d) Mutual - Answers - b) Fraternal
To be characterized as a fraternal benefit society, the organization must be nonprofit,
have a lodge system that includes ritualistic work and maintain a representative form of
government with elected officers. Insurance may only be sold to members of the
society.
A married couple owns a permanent policy which covers both of their lives and pays the
death benefit only upon the death of the first insured. Which policy is that?
a)Second-to-Die
b)Family Income Policy
c)Joint Life Policy
d)Survivorship Life Policy - Answers - c)Joint Life Policy
Joint life policies cover the lives of two insureds; rates are blended. Upon the death of
the first insured, the policy ends.
The insured under a $100,000 life insurance policy with a triple indemnity rider for
accidental death was killed in a car accident. It was determined that the accident was
his fault. The triple indemnity rider in the policy specifies that the death must not be
contributed to by the insured in any manner. In this case, what will the policy beneficiary
receive?
,a)$0
b)$50,000 (50% of the policy value)
c)$100,000
d)$300,000 (triple the amount of policy value) - Answers - c)$100,000
The triple indemnity accidental death rider obligates the company to pay three times the
face amount of the policy if the insured dies as a result of an accident. The death must
be accidental and not contributed to by any other factors and must occur within 90 days
of the accident. In this case, since the insured contributed to his own death, the triple
indemnity rider is void, but the beneficiary will still receive the policy's death benefit.
In term policies, what happens to the premium throughout the term of the policy?
a) Premium gradually increases.
b) Premium gradually decreases.
c) Premium fluctuates.
d) Premium always remains level. - Answers - d) Premium always remains level.
Insurance companies are required to provide proof of loss forms to the claimant within
how many days after receipt of notice of loss?
a) 15
b) 30
c) 31
d) 45 - Answers - a) 15
When any company under any insurance policy requires a written proof of loss after
notice of the loss has been given by the insured or beneficiary, the company must
furnish a blank form within 15 days.
Which is true about a spouse term rider?
a) The rider is usually level term insurance.
b) Coverage is allowed for an unlimited time.
c) The rider is decreasing term insurance.
d) Coverage is allowed up to age 75. - Answers - a) The rider is usually level term
insurance.
The spouse term rider allows a spouse to be added for coverage. It is available for a
limited amount of time, typically expiring at age 65. A spouse term rider (just like any
other insured rider) is usually level term insurance.
A policy will pay the death benefit if the insured dies during the 20-year premium-paying
period, and nothing if death occurs after the 20-year period. What type of policy is this?
a)Level term
b)Term to specified age
,c)Ordinary life policy
d)Limited pay whole life - Answers - a)Level term
A 20-year term policy is written to provide a level death benefit for 20 years.
Which nonforfeiture option provides coverage for the longest period of time?
a)Accumulated at interest
b)Reduced paid-up
c)Extended term
d)Paid-up option - Answers - b)Reduced paid-up
The reduced paid-up nonforfeiture option would provide protection until the insured
reaches 100, but the face amount is reduced to what the cash would buy.
Which of the following is NOT true regarding the accumulation period of an annuity?
a)It is also known as the pay-in period.
b)It would not occur in a deferred annuity.
c)It is the period during which the annuity payments earn interest.
d)It is the period over which the owner makes payments into an annuity. - Answers -
b)It would not occur in a deferred annuity.
The "accumulation period" is the period of time over which the annuity owner makes
payments (premiums) into an annuity. This is the period of time during which the
payments earn interest and grow tax deferred (which would be the case in a deferred
annuity).
Life insurance death proceeds are
a)Taxed as ordinary income.
b)Generally not taxed as income.
c)Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross
income.
d)Taxed as a capital gain. - Answers - b)Generally not taxed as income.
Life insurance death benefits are generally not taxed as income.
Which of the following is TRUE regarding an indeterminate premium whole life policy?
a) The premium is lower in the first year of the policy; then it is gradually raised every
year.
b) The premium is level throughout the life of the policy.
c) The premium is usually higher in the first few years of the policy.
d) The premium can be raised up to a guaranteed maximum rate. - Answers - d) The
premium can be raised up to a guaranteed maximum rate.
, Indeterminate premium whole life policy premium rate may vary from year to year. After
the initial period (usually 2-3 years) when a lower premium is paid, the insurer
establishes a new rate which could be raised up to the guaranteed maximum stated in
the policy, kept the same or lowered, based on the company's expected mortality,
expense and investments.
A person who knowingly obtains information about an individual from an agent or the
insurer under false pretenses has committed a(n)
a)Class 1 misdemeanor.
b)Trustworthy act.
c)Unfair trade practice.
d)Felony. - Answers - a) Class 1 misdemeanor.
A person who knowingly obtains information about an individual from an insurer or
agent under false pretenses is guilty of a Class 1 misdemeanor.
The initial amount of credit life insurance may NOT exceed
a)An amount set by statute and adjusted regularly for inflation.
b)The borrower's monthly income.
c)The borrower's annual income.
d)The amount to be repaid under the contract. - Answers - d) The amount to be repaid
under the contract.
The initial amount of credit life insurance may not exceed the total amount repayable
under the contract of indebtedness.
There are three basic types of term coverage available, based on how the face amount
(death benefit) changes during the policy term: Level, Increasing, and Decreasing.
Regardless of the type of term insurance purchased, the premium is often level
throughout the term of the policy.
An insurer neglects to pay a legitimate claim that is covered under the terms of the
policy. Which of the following insurance principles has the insurer violated?
a) Representation
b) Adhesion
c) Consideration
d) Good faith - Answers - c) Consideration
The binding force in any contract is consideration. Consideration on the part of the
insured is the payment of premiums and the health representations made in the
