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Kansas Life Practice Exam

20 exam-style questions drawn from the same bank as our full Kansas Life course (Kansas Insurance Agent — 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. Diana exchanges her whole life policy (cash value $60,000, basis $45,000) for a new universal life policy on the same insured under IRC §1035. What is the immediate tax effect?
$15,000 of gain is taxed as long-term capital gain.No gain is currently recognized; basis carries over to the new policy.$15,000 of gain is taxed as ordinary income.Diana must add the $60,000 to gross income because the policy was surrendered.
2. A retiree pays $250,000 in a lump sum and begins receiving monthly income one month later. This contract is best described as a:
Flexible Premium Immediate Annuity (FPIA)Flexible Premium Deferred Annuity (FPDA)Single Premium Deferred Annuity (SPDA)Single Premium Immediate Annuity (SPIA)
3. If a life insurance policy was issued exactly as applied for, when does coverage typically begin?
When the application was completed and the initial premium was paidWhen the policy contract is mailed by the insurer to the soliciting producer for deliveryWhen the proposed insured passes the paramedical exam and any required attending-physician reviewWhen the soliciting producer signs the field-underwriting report attached to the original application
4. A client wants permanent coverage but only wants to pay premiums until age 65, after which the policy must be fully paid up. Which whole life variation fits?
Modified whole lifeStraight (ordinary) whole lifeLimited-pay whole lifeSingle-premium whole life
5. Under IRC §101(a), life insurance death proceeds paid to a beneficiary 'by reason of the death of the insured' are generally:
Taxed as ordinary incomeExcluded from the beneficiary's gross incomeTaxed to the beneficiary as long-term capital gainsSubject to FICA tax
6. Under the NAIC Producer Licensing Model Act, which of the following is NOT a recognized line of authority on a resident producer license?
LifePropertyAccident and health or sicknessReal estate
7. An owner exchanges one non-qualified annuity directly for another non-qualified annuity issued by a different insurer. Under IRC Section 1035, this transaction:
Triggers immediate federal income taxation of all accumulated gain in the original surrendered non-qualified annuity contractIs tax-free if the annuitant remains the same and proceeds go directly between insurersIs tax-free only if both the original surrendered and the new annuity contracts are issued by the same carrier in the U.S.Requires the owner to pay a special 10% surrender tax under IRC §72(q) to qualify for the §1035 tax-free exchange treatment
8. Which of the following is NOT a typical use of term life insurance?
Funding a permanent estate-tax liability at deathCovering a business loan that will be paid off in 10 yearsMortgage protectionIncome replacement during child-rearing years
9. Dividends paid on a participating life insurance policy are, for federal income tax purposes, generally treated as:
Tax-free indefinitely, regardless of the cumulative amount the owner receives over the policy lifetimeFully taxable to the owner as ordinary income at the marginal rate when paid each policy yearA nontaxable return of premium until cumulative dividends exceed the owner's cost basis in the contractLong-term capital gains taxable at preferential federal capital-gains rates when distributed in cash
10. Which employer is generally eligible to establish a SIMPLE IRA plan?
Only unincorporated sole proprietorships and general partnerships organized in the United States may sponsor a SIMPLE-IRA plan under IRC §408(p) rules.Only tax-exempt §501(c)(3) charitable organizations and public schools may sponsor a SIMPLE-IRA plan under the §408(p) employer-sponsorship eligibility rules.Any employer regardless of total headcount or industry sector, under the SIMPLE-IRA sponsorship rules in IRC §408(p) as currently in effect for the plan year.An employer with no more than 100 employees who earned at least $5,000 in the prior calendar year, and which does not maintain another qualified plan.
11. In a fixed annuity, the investment risk during the accumulation phase is borne by:
The insurance companyThe beneficiaryThe ownerThe annuitant
12. Under the NAIC Life and Health Insurance Guaranty Association Model Act (Model #520), membership in the state's life and health guaranty association is:
Voluntary for any insurer that elects membership when it is first admitted to the stateLimited to domestic insurers, with foreign and alien insurers excluded from membershipRequired only for insurers that hold more than $1 billion in policyholder surplusRequired as a condition of authority to write life or health business in the state
13. Premiums paid for a personally owned life insurance policy are:
Deductible only if the policy is term insuranceGenerally NOT deductible by the policyownerAlways tax-deductible as a medical expenseDeductible up to $5,000 per year
14. Why are most modern endowment contracts treated unfavorably under federal tax law?
They generally fail the IRC §7702 definition of life insurance, losing tax-deferred inside buildupThey violate state-level NAIC suitability rules for seniors purchasing permanent life insurance contracts at advanced agesThey are classified as registered variable contracts requiring a Securities Act of 1933 prospectus for saleThey cannot be sold to any applicant under age 18 under the federal juvenile-policy underwriting prohibition rule
15. A paramedical exam typically includes all of the following EXCEPT:
Blood and urine specimensA coronary angiogramHeight, weight, and blood pressureA health-history interview
16. A universal life policy has a current cash value of $42,000 and a specified amount of $250,000. The policy is issued under Option B (increasing death benefit = specified amount + cash value). On the date of death, the cash value has grown to $58,000. Assuming no loans, how much does the beneficiary receive?
$292,000$308,000$258,000$250,000
17. Decreasing term life insurance is most commonly used to cover which type of obligation?
Estate taxes that grow over timeA mortgage or other amortizing debtA child's future college tuitionFinal expenses such as funeral costs
18. An indexed annuity has a participation rate of 70% and the underlying index returns 10% during the crediting period. Ignoring caps and spreads, the index credit (before any minimum guarantee) is:
3%17%10%7%
19. Under the NAIC Suitability in Annuity Transactions Model Regulation (Model #275), a producer recommending an annuity must:
Only obtain the consumer's name, residence address, and contact telephone number for the carrier's underwriting records, with no further documentation of needs or financial positionGuarantee a minimum rate of return that is higher than the rate actually stated in the new annuity contract being recommended to the consumer at the point of saleAvoid disclosing the new annuity contract's surrender charges or surrender period to the consumer to prevent the consumer from being confused by the technical product detailMake reasonable efforts to obtain the consumer's suitability information (financial situation, objectives, needs) and have a reasonable basis for the recommendation
20. Annual renewable term (ART) premiums increase each year because:
State insurance codes require annual rate adjustments on term contractsCash value accumulation forces a corresponding premium adjustmentThe insurer must recover acquisition costs in the early yearsThe mortality cost of insuring the same person rises each year as the insured ages

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