NAIC 390 PRACTICE EXAMINATION 2026
QUESTIONS WITH ANSWERS GRADED A+
◍ Who does the NAIC Model Regulation 275 apply to?
A. Insurance producers
B. Investment advisors
C. Broker dealers and associated persons
D. All licensed insurance adjustors.
Answer: AWhy: producer means a person or entity required to be licensed
under the laws of this state to sell, solicit, or negotiate insurance, including
annuities. For purposes of this regulation, producer includes an insurer
where no producer is involved.
◍ direct writer.
Answer: salaried employee; works for one company
◍ The account set up by the insurance company to handle variable contracts is
called
A. The registered account
B. The segregated asset account
C. The separate account
D. The general account.
Answer: CWhy: a separate account is set up to handle variable contracts
◍ Understand the risk management matrix (Exhibit 3.3).
Answer: review in book or slides
◍ Which of the following is a purpose of the annuity?
A. The replacement of earnings upon the disability of an individual
B. The distribution of a lifetime income
C. The discounting of a principal sum back to its present value
D. The creation of a fund at the earth of an individual.
, Answer: BWhy: the purpose of an annuity is the distribution of a lifetime
income
◍ If an annuity owner, age 55, sets up a properly designed systematic
withdrawal plan,
A. The owner generally will not be subject to the penalty tax on premature
distributions
B. With most companies, the withdrawal payments will be subject to a
surrender charge
C. The owner normally loses rights to the cash value accumulated in the
annuity
D. The payments will be based on the annuity payments projected at
retirement.
Answer: AWhy: properly designed, the systematic withdrawal plan will not
subject the annuity owner to the penalty tax on premature distributions
◍ relative objective risk.
Answer: * Objective risk/ expected loss
◍ How do you use AM Best ratings to identify companies with strong
financial strength?.
Answer: The first is the financial strength rating represented by an
alphabetical range between A++ and E. When providing this rating AM Best
completes a comprehensive quantitative and qualitative analysis of a
company's balance sheet strength, operating performance and business
profile.The second symbol is numeric and designates the Financial Size
Category.
◍ The rate of return on a variable annuity is
A. Tied to the performance of securities in the insurer's separate account
B. Variable within a specified number of percentage points
C. Flexible but guaranteed to be no less than the minimum rate specified in
the contract
D. Guaranteed to reflect activity on the New York Stock Exchange.
Answer: AWhy: a variable annuity's rate of return is tied to the performance
, of securities in the insurer's separate account
◍ objective risk.
Answer: the relative variation of actual loss from expected loss (i.e.,
standard deviation or coeff. of variation)•It can be statistically calculated
using a measure of dispersion, such as the standard deviation
◍ Measurable losses.
Answer: a dollar amount must be established in order to place an insured
back in the same financial position before the loss occurred.
◍ What is the main types of mutual insurer we study?.
Answer: -An advance premium mutual is owned by the policyowners; there
are no stockholders, and the insurer does not issue assessable policies
◍ Which of the following enjoys tax deferral of the earnings on annuity cash
values?
A. Individuals
B. Any type of trust
C. Any type of non natural person
D. Corporations.
Answer: AWhy: non natural persons do not enjoy tax deferred accumulation
of earnings in an annuity
◍ Stock insurance companies have all the following characteristics.
Answer: -Ownership by people who are not necessarily insureds of the
company.-Management elected by owners.-Being incorporated.
◍ What is insurance risk classification?.
Answer: States should (1) develop standards for the appropriate use of data
for the pricing of personal lines insurance, (2) study and report on the ways
in which personal information is used for insurance rating and coverage
purposes, and (3) extend regulatory oversight to vendors that provide
insurance scores to insurers for products that use insurance scores in
underwriting and rating. Insurance scores are used in auto insurance and are
based on driving history, age, gender, zip code, marital status, and credit
, score. The impact of these scores is significant. Some studies suggest that
drivers with poor credit-based insurance scores may pay 40 percent or more
for auto insurance premiums.
◍ Use-and-File Law:.
Answer: insurers can put into effect immediately any rate changes, but the
rates must be filed with regulatory authorities within a certain period after
first being used.
◍ Which of the following is(are) tax restriction(s) on premature withdrawals
on annuity contracts?
A. Both answers are correct
B. Neither answer is correct
C. Interest-out-first rule
D. 10% penalty tax.
Answer: AWhy: tax restrictions on premature withdrawals from annuity
contracts include both the interest-out-first rule and the 10% penalty tax
◍ The primary difference between traditional insurance contracts and variable
contracts is that
A. Traditional contracts were designed to last for the lifetime of the insured,
while variable contracts are designed for a shorter term
B. Agents do not need to be licensed to sell variable contracts
C. Under traditional contracts, the company assumed the investment risk,
while under variable contracts, the contract owner assumes the risk
D. Traditional contracts are regulated by the federal and state governments,
while variable contracts are not subject to state regulation.
Answer: CWhy: under traditional contracts, the company assumed the
investment risk; under variable contracts, the contract owner assumes that
risk
◍ Explain the essential requirement of an insurable risk:Calculable COL.
Answer: -to establish an adequate premium
◍ Which of the following payout options guarantees that the annuitant will
have an income regardless of how long the annuitant lives?
QUESTIONS WITH ANSWERS GRADED A+
◍ Who does the NAIC Model Regulation 275 apply to?
A. Insurance producers
B. Investment advisors
C. Broker dealers and associated persons
D. All licensed insurance adjustors.
Answer: AWhy: producer means a person or entity required to be licensed
under the laws of this state to sell, solicit, or negotiate insurance, including
annuities. For purposes of this regulation, producer includes an insurer
where no producer is involved.
◍ direct writer.
Answer: salaried employee; works for one company
◍ The account set up by the insurance company to handle variable contracts is
called
A. The registered account
B. The segregated asset account
C. The separate account
D. The general account.
Answer: CWhy: a separate account is set up to handle variable contracts
◍ Understand the risk management matrix (Exhibit 3.3).
Answer: review in book or slides
◍ Which of the following is a purpose of the annuity?
A. The replacement of earnings upon the disability of an individual
B. The distribution of a lifetime income
C. The discounting of a principal sum back to its present value
D. The creation of a fund at the earth of an individual.
, Answer: BWhy: the purpose of an annuity is the distribution of a lifetime
income
◍ If an annuity owner, age 55, sets up a properly designed systematic
withdrawal plan,
A. The owner generally will not be subject to the penalty tax on premature
distributions
B. With most companies, the withdrawal payments will be subject to a
surrender charge
C. The owner normally loses rights to the cash value accumulated in the
annuity
D. The payments will be based on the annuity payments projected at
retirement.
Answer: AWhy: properly designed, the systematic withdrawal plan will not
subject the annuity owner to the penalty tax on premature distributions
◍ relative objective risk.
Answer: * Objective risk/ expected loss
◍ How do you use AM Best ratings to identify companies with strong
financial strength?.
Answer: The first is the financial strength rating represented by an
alphabetical range between A++ and E. When providing this rating AM Best
completes a comprehensive quantitative and qualitative analysis of a
company's balance sheet strength, operating performance and business
profile.The second symbol is numeric and designates the Financial Size
Category.
◍ The rate of return on a variable annuity is
A. Tied to the performance of securities in the insurer's separate account
B. Variable within a specified number of percentage points
C. Flexible but guaranteed to be no less than the minimum rate specified in
the contract
D. Guaranteed to reflect activity on the New York Stock Exchange.
Answer: AWhy: a variable annuity's rate of return is tied to the performance
, of securities in the insurer's separate account
◍ objective risk.
Answer: the relative variation of actual loss from expected loss (i.e.,
standard deviation or coeff. of variation)•It can be statistically calculated
using a measure of dispersion, such as the standard deviation
◍ Measurable losses.
Answer: a dollar amount must be established in order to place an insured
back in the same financial position before the loss occurred.
◍ What is the main types of mutual insurer we study?.
Answer: -An advance premium mutual is owned by the policyowners; there
are no stockholders, and the insurer does not issue assessable policies
◍ Which of the following enjoys tax deferral of the earnings on annuity cash
values?
A. Individuals
B. Any type of trust
C. Any type of non natural person
D. Corporations.
Answer: AWhy: non natural persons do not enjoy tax deferred accumulation
of earnings in an annuity
◍ Stock insurance companies have all the following characteristics.
Answer: -Ownership by people who are not necessarily insureds of the
company.-Management elected by owners.-Being incorporated.
◍ What is insurance risk classification?.
Answer: States should (1) develop standards for the appropriate use of data
for the pricing of personal lines insurance, (2) study and report on the ways
in which personal information is used for insurance rating and coverage
purposes, and (3) extend regulatory oversight to vendors that provide
insurance scores to insurers for products that use insurance scores in
underwriting and rating. Insurance scores are used in auto insurance and are
based on driving history, age, gender, zip code, marital status, and credit
, score. The impact of these scores is significant. Some studies suggest that
drivers with poor credit-based insurance scores may pay 40 percent or more
for auto insurance premiums.
◍ Use-and-File Law:.
Answer: insurers can put into effect immediately any rate changes, but the
rates must be filed with regulatory authorities within a certain period after
first being used.
◍ Which of the following is(are) tax restriction(s) on premature withdrawals
on annuity contracts?
A. Both answers are correct
B. Neither answer is correct
C. Interest-out-first rule
D. 10% penalty tax.
Answer: AWhy: tax restrictions on premature withdrawals from annuity
contracts include both the interest-out-first rule and the 10% penalty tax
◍ The primary difference between traditional insurance contracts and variable
contracts is that
A. Traditional contracts were designed to last for the lifetime of the insured,
while variable contracts are designed for a shorter term
B. Agents do not need to be licensed to sell variable contracts
C. Under traditional contracts, the company assumed the investment risk,
while under variable contracts, the contract owner assumes the risk
D. Traditional contracts are regulated by the federal and state governments,
while variable contracts are not subject to state regulation.
Answer: CWhy: under traditional contracts, the company assumed the
investment risk; under variable contracts, the contract owner assumes that
risk
◍ Explain the essential requirement of an insurable risk:Calculable COL.
Answer: -to establish an adequate premium
◍ Which of the following payout options guarantees that the annuitant will
have an income regardless of how long the annuitant lives?
