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Life insurance exam study guide
Here is what the life insurance producer exam actually tests, in plain English. Work through each topic below, then prove you know it on a timed practice test — that is where you find out which of these you only think you know.
Insurance basics and contract law
Every exam opens with the vocabulary. Know the difference between risk, peril and hazard, and why an insurance policy is a contract of adhesion you did not get to negotiate.
- Insurable interest must exist when the policy is issued, not at death
- Representations are believed-true statements; warranties are guaranteed-true
- Contracts are unilateral, conditional, aleatory and adhesion
- Adverse selection and the law of large numbers
Types of life policies
Term buys pure protection for a set period. Permanent policies add cash value, and the exam mostly tests who controls the premium and who carries the investment risk.
- Term: level, decreasing, renewable, convertible
- Whole life: fixed premium, guaranteed cash value
- Universal life: flexible premium, adjustable death benefit
- Variable and variable universal life require a securities registration
- Indexed universal life credits interest tied to an index, with caps and floors
Policy provisions and options
This is the heaviest scoring block on most state exams. The questions are usually about deadlines and who gets to choose.
- Grace period, free look and reinstatement windows
- Incontestability after two years
- Nonforfeiture options: cash surrender, reduced paid-up, extended term
- Policy loans, automatic premium loan and the spendthrift clause
Beneficiaries
Beneficiary questions are word problems. Read who is primary, who is contingent, and whether the designation can be changed without consent.
- Primary versus contingent
- Revocable versus irrevocable designations
- Per stirpes versus per capita distribution
- Common disaster and simultaneous death provisions
Riders
Riders add or accelerate a benefit for extra premium. Expect scenarios asking which rider solves the customer's specific problem.
- Waiver of premium and payor benefit
- Guaranteed insurability
- Child and family term riders
- Accidental death, accelerated death benefit and long-term care
Underwriting and field practice
The application is part of the contract. Most misses here come from delivery rules and the privacy notices a producer must give.
- Conditional receipts and when coverage actually begins
- MIB reports and FCRA disclosure requirements
- GLBA and HIPAA privacy obligations
- Preferred, standard and substandard risk classes
Annuities
An annuity is life insurance run backwards: it protects against living too long. Know the accumulation period, the payout period and who bears the market risk.
- Fixed versus variable, immediate versus deferred
- Payout options: life only, period certain, joint and survivor
- Surrender charges and free-withdrawal provisions
Retirement plans
Qualified plans get a tax deduction going in and are taxed coming out. Roth accounts flip that order.
- Traditional IRA versus Roth IRA
- 401(k) and 403(b) eligibility basics
- Qualified versus non-qualified plan taxation
Taxation of life insurance
Death benefits paid as a lump sum are generally income-tax free. Everything else on the exam hangs off cost basis.
- Cash value grows tax-deferred; gains above basis are taxable on surrender
- 1035 exchanges preserve basis without triggering tax
- Modified Endowment Contracts lose favourable distribution treatment
State insurance law
The state-specific section is short but very missable. It is mostly licensing mechanics and named unfair trade practices.
- Producer licensing, appointment and renewal
- Twisting, rebating and misrepresentation
- Replacement disclosure requirements
- Authority of the state Department of Insurance
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