MICHIGAN LIFE INSURANCE STATE EXAM | 150 QUESTIONS
AND ANSWERS 100% CORRECT
Question 1
Variable life insurance and Universal life insurance are very similar. Which of these features are
held exclusively by variable universal life insurance?
A) Policyowner may increase or decrease premium payments
B) Policyowner may increase or decrease the face amount
C) Policyowner can contribute large sums of money
D) Policyowner has the right to select the investment which will provide the greatest return
Correct Answer: D) Policyowner has the right to select the investment which will provide the
greatest return
Rationale: Variable Universal Life (VUL) is distinguished from other permanent life
insurance policies by its investment component. While Universal Life offers flexible
premiums (A) and face amounts (B), the cash value grows based on a rate set by the
insurer. In a VUL policy, the cash value is invested in separate sub-accounts chosen by the
policyowner, giving them control over the investment strategy and the potential for higher
returns (and higher risk).
Question 2
Field underwriting performed by the producer involves
A) assigning a risk classification to the insured
B) providing commission information to the applicant
C) approving or declining an applicant
D) completing the application and collecting the initial premium
Correct Answer: D) completing the application and collecting the initial premium
Rationale: Field underwriting is the initial step in the underwriting process, performed by
the insurance producer (agent). It includes gathering information on the application,
observing the applicant, collecting the initial premium with the application, and issuing a
conditional receipt. The producer's role is to gather information; assigning risk
classifications (A) and making the final approval or decline decision (C) are the
responsibilities of the home office underwriter.
Question 3
All of the following are examples of pure risk EXCEPT
A) Losing money at a casino
B) Injured while playing football
C) Falling at a casino and breaking a hip
D) Jewelry stolen during a home robbery
,[Type here]
Correct Answer: A) Losing money at a casino
Rationale: Pure risk involves only the chance of loss or no loss, with no possibility of gain.
The other options (B, C, D) are all examples of pure risk because the best outcome is that
the loss does not happen. Speculative risk involves a chance of loss, no loss, or gain.
Gambling at a casino (A) is the classic example of speculative risk, as you have the chance
to lose your money or win more.
Question 4
A partial surrender is allowed in which of the following life policies?
A) Adjustable whole life
B) Universal life
C) Decreasing term life
D) limited whole life
Correct Answer: B) Universal life
Rationale: Universal Life insurance is characterized by its flexibility. One of these flexible
features is the ability for the policyowner to take a partial surrender (or withdrawal) from
the cash value. This is distinct from a policy loan, as the withdrawn amount does not have
to be paid back, though it will reduce the death benefit. Whole life policies (A, D) do not
typically allow partial surrenders, only loans, and term life (C) has no cash value to
withdraw from.
Question 5
Which of these is a method of determining the level of funds required for ongoing support in the
event of the breadwinner's death?
A) Financial loss value
B) Human Life Value
C) Assessment Value
D) Replacement value
Correct Answer: B) Human Life Value
Rationale: The Human Life Value approach is a method of determining how much life
insurance is needed. It calculates the present value of an individual's future earnings that
would be lost to their dependents in the event of their premature death. It focuses on
replacing the economic value of the insured individual to their family.
Question 6
Of the following dividend options, which of these is taxable?
A) Reduction of premium
B) One year term
C) Paid up additions
D) Accumulation at interest
,[Type here]
Correct Answer: D) Accumulation at interest
Rationale: Dividends paid by a mutual insurer are generally considered a return of an
overpaid premium and are therefore not taxable income. However, if the policyowner
chooses the "Accumulation at Interest" option, the dividends themselves are not taxed, but
the interest earned on those dividends while they are held by the insurer is taxable as
ordinary income in the year it is credited.
Question 7
An insurance producer license is required for which of the following?
A) An office manager who sets sales appointments for an agency's producers
B) An officer of a Fortune 500 Insurance company
C) A business entity soliciting insurance
D) The head underwriter of a large insurer
Correct Answer: C) A business entity soliciting insurance
Rationale: In Michigan, not only individuals but also business entities (like corporations or
partnerships) that sell, solicit, or negotiate insurance must be licensed as an insurance
producer. Administrative staff who do not discuss policy terms or receive commissions (A)
and certain officers or underwriters (B, D) are typically exempt from licensing
requirements as they are not directly involved in the sale.
Question 8
Elizabeth is the beneficiary of a life insurance policy. She is receiving the death benefit in
payments of $10,000 per month until the principal and interest have been paid out. Which option
was chosen?
A) Fixed Period
B) Fixed Amount
C) Life Income
D) Interest only
Correct Answer: B) Fixed Amount
Rationale: The Fixed Amount settlement option provides the beneficiary with a specific,
fixed payment amount (in this case, $10,000 per month). These payments continue until
both the principal death benefit and the interest earned on it are fully paid out. The Fixed
Period option (A) would provide payments for a set number of years, with the payment
amount being calculated by the insurer.
Question 9
A producer has allowed his/her license to lapse by failing to complete the required continuing
education credits. The license may be reinstated by completing the requirement within___ days
of the renewal date.
A) 45
B) 60
, [Type here]
C) 90
D) 120
Correct Answer: C) 90
Rationale: According to Michigan insurance regulations, if a producer's license lapses due
to failure to complete continuing education, they have a 90-day window from the license
renewal date to complete the required credits and pay any associated fees to have the
license reinstated without having to retake the state licensing exam.
Question 10
All of the following are examples of a Business Continuation Plan EXCEPT
A) Key person insurance
B) Cross purchase agreement
C) Stock redemption Plan
D) Deferred compensation
Correct Answer: D) Deferred compensation
Rationale: A business continuation plan is designed to ensure a business can continue
operating after a key owner or partner dies. Key Person insurance (A) indemnifies the
business for the loss of a key employee. Cross Purchase (B) and Stock Redemption (C) are
types of buy-sell agreements that fund the purchase of a deceased owner's share of the
business. Deferred Compensation is a non-qualified benefit plan for an employee, not a
plan for business continuation.
Question 11
A rollover from a Traditional IRA to another IRA must be done within ___ days to avoid tax
consequences.
A) 15
B) 30
C) 60
D) 90
Correct Answer: C) 60
Rationale: The IRS allows for an indirect rollover where an individual takes a distribution
from an IRA and has 60 days to deposit the funds into another IRA. If the 60-day deadline
is missed, the distribution is considered a taxable withdrawal and may be subject to a 10%
early withdrawal penalty if the individual is under age 59 1/2.
Question 12
Decreasing term life insurance is often used to
A) Provide retirement funds
B) Provide coverage for a home mortgage
AND ANSWERS 100% CORRECT
Question 1
Variable life insurance and Universal life insurance are very similar. Which of these features are
held exclusively by variable universal life insurance?
A) Policyowner may increase or decrease premium payments
B) Policyowner may increase or decrease the face amount
C) Policyowner can contribute large sums of money
D) Policyowner has the right to select the investment which will provide the greatest return
Correct Answer: D) Policyowner has the right to select the investment which will provide the
greatest return
Rationale: Variable Universal Life (VUL) is distinguished from other permanent life
insurance policies by its investment component. While Universal Life offers flexible
premiums (A) and face amounts (B), the cash value grows based on a rate set by the
insurer. In a VUL policy, the cash value is invested in separate sub-accounts chosen by the
policyowner, giving them control over the investment strategy and the potential for higher
returns (and higher risk).
Question 2
Field underwriting performed by the producer involves
A) assigning a risk classification to the insured
B) providing commission information to the applicant
C) approving or declining an applicant
D) completing the application and collecting the initial premium
Correct Answer: D) completing the application and collecting the initial premium
Rationale: Field underwriting is the initial step in the underwriting process, performed by
the insurance producer (agent). It includes gathering information on the application,
observing the applicant, collecting the initial premium with the application, and issuing a
conditional receipt. The producer's role is to gather information; assigning risk
classifications (A) and making the final approval or decline decision (C) are the
responsibilities of the home office underwriter.
Question 3
All of the following are examples of pure risk EXCEPT
A) Losing money at a casino
B) Injured while playing football
C) Falling at a casino and breaking a hip
D) Jewelry stolen during a home robbery
,[Type here]
Correct Answer: A) Losing money at a casino
Rationale: Pure risk involves only the chance of loss or no loss, with no possibility of gain.
The other options (B, C, D) are all examples of pure risk because the best outcome is that
the loss does not happen. Speculative risk involves a chance of loss, no loss, or gain.
Gambling at a casino (A) is the classic example of speculative risk, as you have the chance
to lose your money or win more.
Question 4
A partial surrender is allowed in which of the following life policies?
A) Adjustable whole life
B) Universal life
C) Decreasing term life
D) limited whole life
Correct Answer: B) Universal life
Rationale: Universal Life insurance is characterized by its flexibility. One of these flexible
features is the ability for the policyowner to take a partial surrender (or withdrawal) from
the cash value. This is distinct from a policy loan, as the withdrawn amount does not have
to be paid back, though it will reduce the death benefit. Whole life policies (A, D) do not
typically allow partial surrenders, only loans, and term life (C) has no cash value to
withdraw from.
Question 5
Which of these is a method of determining the level of funds required for ongoing support in the
event of the breadwinner's death?
A) Financial loss value
B) Human Life Value
C) Assessment Value
D) Replacement value
Correct Answer: B) Human Life Value
Rationale: The Human Life Value approach is a method of determining how much life
insurance is needed. It calculates the present value of an individual's future earnings that
would be lost to their dependents in the event of their premature death. It focuses on
replacing the economic value of the insured individual to their family.
Question 6
Of the following dividend options, which of these is taxable?
A) Reduction of premium
B) One year term
C) Paid up additions
D) Accumulation at interest
,[Type here]
Correct Answer: D) Accumulation at interest
Rationale: Dividends paid by a mutual insurer are generally considered a return of an
overpaid premium and are therefore not taxable income. However, if the policyowner
chooses the "Accumulation at Interest" option, the dividends themselves are not taxed, but
the interest earned on those dividends while they are held by the insurer is taxable as
ordinary income in the year it is credited.
Question 7
An insurance producer license is required for which of the following?
A) An office manager who sets sales appointments for an agency's producers
B) An officer of a Fortune 500 Insurance company
C) A business entity soliciting insurance
D) The head underwriter of a large insurer
Correct Answer: C) A business entity soliciting insurance
Rationale: In Michigan, not only individuals but also business entities (like corporations or
partnerships) that sell, solicit, or negotiate insurance must be licensed as an insurance
producer. Administrative staff who do not discuss policy terms or receive commissions (A)
and certain officers or underwriters (B, D) are typically exempt from licensing
requirements as they are not directly involved in the sale.
Question 8
Elizabeth is the beneficiary of a life insurance policy. She is receiving the death benefit in
payments of $10,000 per month until the principal and interest have been paid out. Which option
was chosen?
A) Fixed Period
B) Fixed Amount
C) Life Income
D) Interest only
Correct Answer: B) Fixed Amount
Rationale: The Fixed Amount settlement option provides the beneficiary with a specific,
fixed payment amount (in this case, $10,000 per month). These payments continue until
both the principal death benefit and the interest earned on it are fully paid out. The Fixed
Period option (A) would provide payments for a set number of years, with the payment
amount being calculated by the insurer.
Question 9
A producer has allowed his/her license to lapse by failing to complete the required continuing
education credits. The license may be reinstated by completing the requirement within___ days
of the renewal date.
A) 45
B) 60
, [Type here]
C) 90
D) 120
Correct Answer: C) 90
Rationale: According to Michigan insurance regulations, if a producer's license lapses due
to failure to complete continuing education, they have a 90-day window from the license
renewal date to complete the required credits and pay any associated fees to have the
license reinstated without having to retake the state licensing exam.
Question 10
All of the following are examples of a Business Continuation Plan EXCEPT
A) Key person insurance
B) Cross purchase agreement
C) Stock redemption Plan
D) Deferred compensation
Correct Answer: D) Deferred compensation
Rationale: A business continuation plan is designed to ensure a business can continue
operating after a key owner or partner dies. Key Person insurance (A) indemnifies the
business for the loss of a key employee. Cross Purchase (B) and Stock Redemption (C) are
types of buy-sell agreements that fund the purchase of a deceased owner's share of the
business. Deferred Compensation is a non-qualified benefit plan for an employee, not a
plan for business continuation.
Question 11
A rollover from a Traditional IRA to another IRA must be done within ___ days to avoid tax
consequences.
A) 15
B) 30
C) 60
D) 90
Correct Answer: C) 60
Rationale: The IRS allows for an indirect rollover where an individual takes a distribution
from an IRA and has 60 days to deposit the funds into another IRA. If the 60-day deadline
is missed, the distribution is considered a taxable withdrawal and may be subject to a 10%
early withdrawal penalty if the individual is under age 59 1/2.
Question 12
Decreasing term life insurance is often used to
A) Provide retirement funds
B) Provide coverage for a home mortgage
