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PSI LIFE INSURANCE EXAM ACTUAL PREP
QUESTIONS AND WELL REVISED ANSWERS -
LATEST AND COMPLETE UPDATE WITH VERIFIED
SOLUTIONS – ASSURES PASS
Description
This comprehensive PSI Life Insurance Exam practice set is designed to mirror
actual PSI testing standards used across multiple U.S. states. The exam covers key
areas such as life insurance basics, types of policies, underwriting, policy
provisions, riders, annuities, taxation, federal regulations, state regulations, and
ethical producer conduct. Questions incorporate scenario-based reasoning to
simulate real test difficulty. Each question includes four options, with the correct
answer and rationale provided in italics for quick mastery and high-performance
exam preparation.
1. The primary purpose of life insurance is to:
A. Create investment profits
B. Provide protection against financial loss
C. Increase taxable income
D. Provide government-regulated retirement income
Answer: B
Rationale: Life insurance is fundamentally designed to protect beneficiaries
against financial loss resulting from the insured’s death.
2. Which of the following determines insurability during underwriting?
A. Marital status only
B. Health, occupation, and lifestyle
C. Annual income only
D. Payment history only
Answer: B
Rationale: Underwriters evaluate health, job risk, and lifestyle to determine
eligibility and premium cost.
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3. A policyowner's consideration in a life insurance contract includes:
A. Payment of premiums
B. The insurer’s promise to pay claims
C. The producer’s commission
D. State licensing fees
Answer: A
Rationale: Consideration is what each party gives; the owner gives premiums, and
the insurer provides the promise to pay.
4. Which policy has flexible premiums and an adjustable death benefit?
A. Whole life
B. Universal life
C. Term life
D. Endowment
Answer: B
Rationale: Universal life offers flexible payments and allows changes to the death
benefit.
5. Term life insurance is best suited for:
A. Lifetime coverage needs
B. Only investment accumulation
C. Temporary needs at the lowest cost
D. Estate planning for seniors
Answer: C
Rationale: Term life provides temporary, low-cost protection without cash value.
6. What is the cash value of a term life policy at maturity?
A. 100% of premiums paid
B. Equal to face amount
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C. Zero
D. State-regulated amount
Answer: C
Rationale: Term life has no savings feature, so cash value is zero.
7. Which rider waives premiums if the insured becomes disabled?
A. Accidental Death Rider
B. Waiver of Premium
C. Payor Benefit
D. Guaranteed Insurability
Answer: B
Rationale: The Waiver of Premium rider eliminates premiums during qualifying
disability.
8. What does the incontestability clause prevent?
A. The insurer from denying claims after two years
B. The policyowner from canceling coverage
C. The insured from changing beneficiaries
D. Premium increases in the first year
Answer: A
Rationale: After two years, the insurer cannot void the contract due to
misstatements (except fraud).
9. When a policy lapses, it means:
A. The cash value doubles
B. Premiums were not paid on time
C. Benefits automatically increase
D. The policy becomes whole life
Answer: B
Rationale: Lapse occurs when the grace period ends without premium payment.
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10. The free-look period allows:
A. The insurer to change premiums
B. The policyowner to cancel for a full refund
C. Unlimited beneficiary changes
D. The insured to convert term to whole life
Answer: B
Rationale: Free-look grants customers time to review and cancel for a refund.
11. Which type of beneficiary must sign to change their designation?
A. Primary
B. Revocable
C. Contingent
D. Irrevocable
Answer: D
Rationale: Irrevocable beneficiaries have vested rights; changes require their
consent.
12. Which settlement option provides income for life regardless of lifespan?
A. Fixed amount
B. Life income
C. Lump sum
D. Interest only
Answer: B
Rationale: Life income (annuity-like) continues for the beneficiary’s entire life.
13. Which annuity begins payments immediately after purchase?
A. Single premium immediate annuity
B. Flexible premium deferred annuity
C. Variable deferred annuity
D. Indexed annuity
PSI LIFE INSURANCE EXAM ACTUAL PREP
QUESTIONS AND WELL REVISED ANSWERS -
LATEST AND COMPLETE UPDATE WITH VERIFIED
SOLUTIONS – ASSURES PASS
Description
This comprehensive PSI Life Insurance Exam practice set is designed to mirror
actual PSI testing standards used across multiple U.S. states. The exam covers key
areas such as life insurance basics, types of policies, underwriting, policy
provisions, riders, annuities, taxation, federal regulations, state regulations, and
ethical producer conduct. Questions incorporate scenario-based reasoning to
simulate real test difficulty. Each question includes four options, with the correct
answer and rationale provided in italics for quick mastery and high-performance
exam preparation.
1. The primary purpose of life insurance is to:
A. Create investment profits
B. Provide protection against financial loss
C. Increase taxable income
D. Provide government-regulated retirement income
Answer: B
Rationale: Life insurance is fundamentally designed to protect beneficiaries
against financial loss resulting from the insured’s death.
2. Which of the following determines insurability during underwriting?
A. Marital status only
B. Health, occupation, and lifestyle
C. Annual income only
D. Payment history only
Answer: B
Rationale: Underwriters evaluate health, job risk, and lifestyle to determine
eligibility and premium cost.
,2|Page
3. A policyowner's consideration in a life insurance contract includes:
A. Payment of premiums
B. The insurer’s promise to pay claims
C. The producer’s commission
D. State licensing fees
Answer: A
Rationale: Consideration is what each party gives; the owner gives premiums, and
the insurer provides the promise to pay.
4. Which policy has flexible premiums and an adjustable death benefit?
A. Whole life
B. Universal life
C. Term life
D. Endowment
Answer: B
Rationale: Universal life offers flexible payments and allows changes to the death
benefit.
5. Term life insurance is best suited for:
A. Lifetime coverage needs
B. Only investment accumulation
C. Temporary needs at the lowest cost
D. Estate planning for seniors
Answer: C
Rationale: Term life provides temporary, low-cost protection without cash value.
6. What is the cash value of a term life policy at maturity?
A. 100% of premiums paid
B. Equal to face amount
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C. Zero
D. State-regulated amount
Answer: C
Rationale: Term life has no savings feature, so cash value is zero.
7. Which rider waives premiums if the insured becomes disabled?
A. Accidental Death Rider
B. Waiver of Premium
C. Payor Benefit
D. Guaranteed Insurability
Answer: B
Rationale: The Waiver of Premium rider eliminates premiums during qualifying
disability.
8. What does the incontestability clause prevent?
A. The insurer from denying claims after two years
B. The policyowner from canceling coverage
C. The insured from changing beneficiaries
D. Premium increases in the first year
Answer: A
Rationale: After two years, the insurer cannot void the contract due to
misstatements (except fraud).
9. When a policy lapses, it means:
A. The cash value doubles
B. Premiums were not paid on time
C. Benefits automatically increase
D. The policy becomes whole life
Answer: B
Rationale: Lapse occurs when the grace period ends without premium payment.
, 4|Page
10. The free-look period allows:
A. The insurer to change premiums
B. The policyowner to cancel for a full refund
C. Unlimited beneficiary changes
D. The insured to convert term to whole life
Answer: B
Rationale: Free-look grants customers time to review and cancel for a refund.
11. Which type of beneficiary must sign to change their designation?
A. Primary
B. Revocable
C. Contingent
D. Irrevocable
Answer: D
Rationale: Irrevocable beneficiaries have vested rights; changes require their
consent.
12. Which settlement option provides income for life regardless of lifespan?
A. Fixed amount
B. Life income
C. Lump sum
D. Interest only
Answer: B
Rationale: Life income (annuity-like) continues for the beneficiary’s entire life.
13. Which annuity begins payments immediately after purchase?
A. Single premium immediate annuity
B. Flexible premium deferred annuity
C. Variable deferred annuity
D. Indexed annuity
