Chartered Life Underwriter Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationale 2026
Q&A| Instant Download Pdf
1. A Chartered Life Underwriter (CLU) is advising a client who wants to
provide income replacement for dependents if the client dies
prematurely. Which life insurance planning principle should the CLU
apply first when determining the appropriate amount of coverage?
A. Selecting the policy with the highest cash surrender value
B. Determining the client’s financial obligations and income replacement
needs
C. Comparing only the insurer’s dividend performance history
D. Choosing the shortest policy duration available
Answer: B. Determining the client’s financial obligations and income
replacement needs
The first step in life insurance planning is a thorough needs analysis that
evaluates debts, future expenses, income replacement requirements,
,education costs, and survivor needs. Policy selection should occur only after
the appropriate amount of protection has been determined.
2. A policyowner purchases a participating whole life insurance policy
and receives payments from the insurer based on favorable mortality
and expense experience. What are these payments called?
A. Policy loans
B. Guaranteed additions
C. Dividends
D. Settlement options
Answer: C. Dividends
Participating whole life insurance policies may pay dividends when the
insurer’s actual experience is better than expected. These dividends are
generally considered a return of excess premium and may be used in
several ways, including purchasing paid-up additions or reducing
premiums.
3. A CLU explains that the primary purpose of life insurance in estate
planning is to provide liquidity. What does liquidity mean in this
context?
A. Increasing investment returns through market participation
B. Providing readily available funds to meet financial obligations
C. Eliminating all estate taxation permanently
D. Guaranteeing that assets will appreciate
,Answer: B. Providing readily available funds to meet financial obligations
Life insurance creates liquidity because death benefits can provide
immediate cash to pay estate expenses, taxes, debts, and other obligations
without forcing heirs to sell assets under unfavorable conditions.
4. A client owns a life insurance policy and wants to transfer ownership of
the policy to another person. What is the effect of this action?
A. The policy becomes automatically void
B. The ownership rights are transferred to the new owner
C. The beneficiary automatically becomes the owner
D. The insurer cancels all policy benefits
Answer: B. The ownership rights are transferred to the new owner
A life insurance policyowner has contractual ownership rights, including
the ability to transfer ownership. An ownership transfer changes who
controls policy decisions, such as beneficiary changes, loans, and surrender
decisions.
5. A CLU recommends term life insurance to a young family with limited
financial resources. What is the primary reason term insurance may be
appropriate?
A. It provides permanent cash accumulation
B. It offers temporary protection at a lower initial cost
, C. It guarantees increasing investment returns
D. It eliminates the need for financial planning
Answer: B. It offers temporary protection at a lower initial cost
Term insurance provides pure death benefit protection for a specified
period and usually has lower initial premiums than permanent insurance. It
is often suitable when maximum protection is needed during income-
earning years.
6. A whole life insurance policy has a cash value that grows over time.
Which statement best describes this cash value?
A. It is the amount paid only at death
B. It is a living benefit available during the insured’s lifetime
C. It belongs to the beneficiary immediately after purchase
D. It eliminates all insurance costs
Answer: B. It is a living benefit available during the insured’s lifetime
The cash value component of permanent life insurance accumulates during
the insured’s lifetime and may be accessed through withdrawals or policy
loans, subject to policy provisions and tax considerations.
7. A CLU is determining whether a client needs personal life insurance
protection. Which factor is most important?
A. The client’s favorite investment type
B. The client’s financial dependents and obligations
Practice Questions And Correct Answers
(Verified Answers) Plus Rationale 2026
Q&A| Instant Download Pdf
1. A Chartered Life Underwriter (CLU) is advising a client who wants to
provide income replacement for dependents if the client dies
prematurely. Which life insurance planning principle should the CLU
apply first when determining the appropriate amount of coverage?
A. Selecting the policy with the highest cash surrender value
B. Determining the client’s financial obligations and income replacement
needs
C. Comparing only the insurer’s dividend performance history
D. Choosing the shortest policy duration available
Answer: B. Determining the client’s financial obligations and income
replacement needs
The first step in life insurance planning is a thorough needs analysis that
evaluates debts, future expenses, income replacement requirements,
,education costs, and survivor needs. Policy selection should occur only after
the appropriate amount of protection has been determined.
2. A policyowner purchases a participating whole life insurance policy
and receives payments from the insurer based on favorable mortality
and expense experience. What are these payments called?
A. Policy loans
B. Guaranteed additions
C. Dividends
D. Settlement options
Answer: C. Dividends
Participating whole life insurance policies may pay dividends when the
insurer’s actual experience is better than expected. These dividends are
generally considered a return of excess premium and may be used in
several ways, including purchasing paid-up additions or reducing
premiums.
3. A CLU explains that the primary purpose of life insurance in estate
planning is to provide liquidity. What does liquidity mean in this
context?
A. Increasing investment returns through market participation
B. Providing readily available funds to meet financial obligations
C. Eliminating all estate taxation permanently
D. Guaranteeing that assets will appreciate
,Answer: B. Providing readily available funds to meet financial obligations
Life insurance creates liquidity because death benefits can provide
immediate cash to pay estate expenses, taxes, debts, and other obligations
without forcing heirs to sell assets under unfavorable conditions.
4. A client owns a life insurance policy and wants to transfer ownership of
the policy to another person. What is the effect of this action?
A. The policy becomes automatically void
B. The ownership rights are transferred to the new owner
C. The beneficiary automatically becomes the owner
D. The insurer cancels all policy benefits
Answer: B. The ownership rights are transferred to the new owner
A life insurance policyowner has contractual ownership rights, including
the ability to transfer ownership. An ownership transfer changes who
controls policy decisions, such as beneficiary changes, loans, and surrender
decisions.
5. A CLU recommends term life insurance to a young family with limited
financial resources. What is the primary reason term insurance may be
appropriate?
A. It provides permanent cash accumulation
B. It offers temporary protection at a lower initial cost
, C. It guarantees increasing investment returns
D. It eliminates the need for financial planning
Answer: B. It offers temporary protection at a lower initial cost
Term insurance provides pure death benefit protection for a specified
period and usually has lower initial premiums than permanent insurance. It
is often suitable when maximum protection is needed during income-
earning years.
6. A whole life insurance policy has a cash value that grows over time.
Which statement best describes this cash value?
A. It is the amount paid only at death
B. It is a living benefit available during the insured’s lifetime
C. It belongs to the beneficiary immediately after purchase
D. It eliminates all insurance costs
Answer: B. It is a living benefit available during the insured’s lifetime
The cash value component of permanent life insurance accumulates during
the insured’s lifetime and may be accessed through withdrawals or policy
loans, subject to policy provisions and tax considerations.
7. A CLU is determining whether a client needs personal life insurance
protection. Which factor is most important?
A. The client’s favorite investment type
B. The client’s financial dependents and obligations
