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Idaho Life Practice Exam

20 exam-style questions drawn from the same bank as our full Idaho Life course (Idaho Insurance Producer — Life — Exam Prep). Answer all 20, then grade yourself — most state exams require 70% to pass. Explanations for every question are part of the full course.

1. An automatic premium loan (APL) provision authorizes the insurer to:
Convert the in-force permanent life policy to renewable term insurance at the insured's attained-age classCancel the in-force life policy contract entirely if a single modal premium is missed past the grace periodRefund the most-recent modal premium to the policyowner with interest at the contract's guaranteed rateBorrow against available cash value to pay an overdue premium and keep the policy in force
2. In an annuity contract, who is the natural person whose life expectancy is used to determine the amount and duration of benefit payments?
The beneficiaryThe contingent payeeThe ownerThe annuitant
3. A life insurance contract is classified as a Modified Endowment Contract (MEC) when it fails the:
Cash value accumulation test of IRC §72Corridor test of IRC §7702Seven-pay test of IRC §7702AThree-year rule of IRC §2035
4. An insured carries a $200,000 whole life policy with an ADB rider equal to the face amount. The insured is severely injured in an auto accident, lingers in a coma for 100 days, and then dies from those injuries. How is the claim settled under the typical ADB clause?
$600,000, base, ADB, and a triple-indemnity bonus for catastrophic injury$200,000, base only, because coma is treated as a sickness, not an accident$200,000, base only, because the 90-day causation window in most ADB riders has elapsed$400,000, both base and ADB are paid because death resulted from the accident
5. The Insuring Clause of a life insurance policy:
Itemizes the policy's standard and specially endorsed exclusions, including the war, suicide, aviation, and hazardous-occupation provisions required by state codeAuthorizes the producer to bind permanent coverage on the spot when an applicant initials the application and remits the first modal premium with the formSets out the insurer's basic promise to pay the face amount upon death of the insured, identifies the parties, and is generally signed by an officer of the companyDefines how participating-policy dividends will be paid each year and which of the five standard dividend options is in effect by default upon issue
6. Which phase of an annuity contract is characterized by the systematic liquidation of accumulated value into a stream of income payments?
Surrender phaseAnnuitization (payout) phaseFree-look phaseAccumulation phase
7. Stranger-Originated Life Insurance (STOLI) typically involves:
A standard IRC §1035 tax-free exchange in which the policyowner exchanges one in-force life contract for another life contract on the same insured without recognizing any current gainAn insured who funds his own coverage out of personal earnings and names his immediate family members as the primary and contingent beneficiaries on the new contract at policy issueA bank loan secured by an in-force life policy's accumulated cash value used as collateral under a standard assignment of policy rights and net death benefits to the institutional lenderA third-party investor who induces the insured to purchase a life policy with the intent to transfer it to the investor for profit, when the investor lacks insurable interest at issue
8. An insured pays an annual premium of $1,200 on a whole life policy. If she switches to a monthly mode, she will most likely pay slightly MORE than $100 per month. Why?
The producer earns a higher first-year commission on monthly mode, which the insurer fully passes through.State insurance code requires a 5% modal surcharge on every monthly-pay individual life policy.The insurer loses time-value of money and incurs more billing expense than with annual.Monthly modes always include a hidden disability rider that adds 5% to the contract's modal premium.
9. In a fixed annuity, the investment risk during the accumulation phase is borne by:
The insurance companyThe beneficiaryThe annuitantThe owner
10. A guaranteed insurability (GIO) rider allows the insured to purchase additional coverage at specified ages or events without:
Providing evidence of insurabilityPaying any premiumNaming a beneficiaryNotifying the insurer
11. A Disability Income (DI) rider attached to a life policy generally pays:
Tax-free retirement income beginning at age 65 funded by accumulated cash value under the standard NAIC disability annuitization ruleAn additional lump-sum death benefit equal to the face amount if the insured dies of any cause during a recognized total-disability periodA monthly income, often $10 of monthly income per $1,000 of face amount, to the insured upon total disability after an elimination periodReimbursement of medical bills incurred by the insured during a disability under HIPAA-qualified provider plans of care arrangements
12. An applicant pays the first premium with the application and receives a CONDITIONAL receipt. Coverage takes effect when:
The policy is delivered to the applicant and any required statement of continued good health is signedThe applicant signs the application and pays the first modal premium to the appointed soliciting producerThe producer submits the completed application and medical-exam results to the insurer's underwriting home officeThe applicant is determined to have been insurable on a stated date (typically the application or medical-exam date)
13. Which statement about a single premium deferred annuity (SPDA) is CORRECT?
The owner pays one lump sum and income payments begin within twelve months under the SPDA contract's immediate-pay ruleThe owner pays one lump sum and earnings accumulate tax-deferred until annuitization or withdrawalThe owner pays periodic premiums on a flexible schedule and earnings are taxed annually to the owner on Form 1099-DIVThe owner pays periodic premiums on a flexible schedule and income payments begin immediately on the first contract anniversary
14. An insured and his sole primary beneficiary (his wife) are killed in the same accident, and it is unclear who died first. The policy contains no specific common-disaster clause. Which rule most often applies?
The death proceeds are divided equally between the insured's probate estate and the predeceasing primary beneficiary's probate estate, with each estate's executor administering its share separatelyUnder the Uniform Simultaneous Death Act, as adopted by most states, the beneficiary is presumed to have predeceased the insured (typically by 120 hours), so proceeds pass to the contingent or estateProceeds are held by the state insurance department in escrow until a court of competent jurisdiction enters a final order establishing the legal sequence of the two deaths to a reasonable certaintyThe insurer retains the entire proceeds as unclaimed surplus because the legal order of death cannot be established to a reasonable certainty, allowing the carrier to credit its general account
15. A policyholder takes a $10,000 loan against the cash value of a non-MEC whole life policy. How is the loan treated for federal income tax purposes?
Taxable immediately to the extent of any gain accumulated in the policyGenerally not taxable while the policy remains in forceTreated as a long-term capital gainFully taxable as ordinary income
16. A client owns a whole-life policy with $40,000 of cumulative premium paid and $55,000 of cash value. He exchanges it for a new universal-life policy in a properly executed §1035 exchange. What is his cost basis in the new contract?
$55,000, because the new basis equals the cash value actually transferred to the new contract.$40,000, the basis carries over from the old contract under Rev. Rul. 2003-51.$15,000, because the new basis equals the gain ($55,000 cash value minus $40,000 premiums paid).$0, because the basis resets to zero when a new contract is issued in a §1035 exchange.
17. Mara, age 62, opened her first Roth IRA three years ago and has contributed $5,000 each year. She now wants to withdraw $20,000 (her $15,000 in contributions plus $5,000 of earnings). How is the distribution taxed?
The $15,000 of contributions is tax-free; the $5,000 of earnings is taxable and subject to a 10% penalty.The $15,000 of contributions is tax-free; the $5,000 of earnings is taxable but not subject to the 10% penalty.The entire $20,000 is taxable as ordinary income because the account is less than 5 years old.The entire $20,000 is tax-free because Mara is over age 59½.
18. An applicant disclosed asthma on a prior application five years ago but did not disclose it on a current application. The underwriter compares the current application against the MIB report and notes the discrepancy. The underwriter MUST:
Treat the MIB coded entry as a confirmed clinical diagnosis and rate the case substandard accordingly under the tableAutomatically deny coverage solely on the basis of the discrepancy between the current application and MIB reportUse the MIB report as a flag to investigate further (e.g., request an APS) and not as a sole basis for adverse actionNotify the MIB in writing within ten business days to remove the prior asthma code from the applicant's report file
19. Under IRC §408, contributions to a Traditional IRA are generally:
Excluded from the owner's federal gross income only if rolled over within 90 days of contribution under IRC §408 indirect-rollover rulesTax-deductible (subject to income limits if covered by an employer plan), with earnings tax-deferred until distributionAlways fully income-tax-free in retirement, regardless of the contributing owner's marginal income tax rate or annual earned income levelMade with after-tax dollars contributed by the owner, with all subsequent distributions of contributions and earnings tax-free as qualified
20. After the application is submitted, the applicant remembers she forgot to disclose a recent hospitalization. What is the proper procedure to amend the application?
No amendment is permitted once the application has been signed by the applicant and submitted to the carrier underwriterThe change can only be made by the carrier's home office underwriter after a formal post-application addendum filingThe applicant must reinitial each amendment, or a new application must be completedThe soliciting producer may quietly add the missing hospitalization information to the application without notifying the applicant

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