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Massachusetts Life Practice Exam

20 exam-style questions drawn from the same bank as our full Massachusetts Life course (Massachusetts 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. In a variable annuity, the contract owner's premiums are allocated to:
U.S. Treasury direct-purchase bonds only, held in a separately registered investor accountThe insurer's general account, where the carrier credits a declared minimum interest rateSeparate account subaccounts holding professionally managed portfoliosA bank custodial trust account governed by the contract's institutional-custody addendum
2. What is the key consequence of naming a beneficiary 'irrevocably'?
The owner cannot change the beneficiary, take a loan, or assign the policy without the irrevocable beneficiary's written consentThe designation is treated as a federal gift complete only at the insured's eventual death, with the gift-tax value determined at that time under the IRC §2503 annual exclusionThe beneficiary may unilaterally surrender the policy, pocket the entire cash surrender value, and end coverage at any time without obtaining the policy owner's signed consentThe owner may still change the beneficiary, take a loan, or assign the contract at any time without obtaining the irrevocable beneficiary's signed consent on file with the insurer
3. An annuity's main purpose is to protect against the risk of
Dying too soonOutliving savingsMarket inflationDisability
4. Paying the beneficiary an income guaranteed for life is the
Lump sum optionFixed period optionLife income optionInterest only option
5. Why are traditional endowment contracts rarely sold in the United States today?
They cannot be issued on insureds over age 18 under federal juvenile-policy rules, leaving them commercially viable only for child savings programs rather than adult coverageThey have been prohibited by state insurance codes nationwide since NAIC model act revisions of the mid-1980s barred policies promising both a maturity payout and a death benefit on the same lifeFINRA classified them as securities subject to the Investment Company Act of 1940, requiring a prospectus and broker-dealer registration that most life insurance carriers were unwilling to fundTax law changes (notably the definition of life insurance under IRC §7702 in 1984) caused most endowments to fail the life-insurance tests, eliminating their tax-advantaged inside buildup
6. An insurer chooses to qualify a permanent life policy under the Cash Value Accumulation Test rather than the GPT. Which statement best describes the operating rule of the CVAT?
The contract's death benefit must always equal at least 250% of accumulated cash value through age 40, then declining gradually under the §7702(d) corridor tablePremiums paid into the contract in the first seven contract years may not exceed the cumulative 7-pay limit prescribed by IRC §7702A for MEC purposes.Cumulative premiums paid into the contract may never exceed the GPT guideline single premium or the cumulative guideline level premium, whichever is greater, throughout the policy's lifetime.Cash value at any time may not exceed the net single premium that would fund the future benefits, computed using §7702 statutory assumptions.
7. An institutional life-settlement investor purchases a $1,000,000 policy from an insured for $200,000, pays $50,000 of subsequent premiums, and ultimately collects the $1,000,000 death benefit. The investor is a stranger to the insured. How much of the death benefit is taxable to the investor under §101(a)(2) and Rev. Rul. 2009-13?
$200,000, only the institutional buyer's original purchase price paid to the insured is recoverable as tax-free return of basis; the remaining $800,000 is taxable$750,000, death benefit ($1,000,000) minus the buyer's basis (consideration $200,000 plus subsequent premiums $50,000).$1,000,000, the entire death benefit is fully taxable as ordinary income to the institutional buyer because the buyer has no investment-in-the-contract basisNothing, the §101(a) income-tax exclusion still applies to the entire death benefit because the proceeds are paid by the carrier 'by reason of death of the insured'
8. Premium before adding expenses is the
Net premiumLevel premiumGross premiumModal premium
9. Under IRC §7702A, a life-insurance contract becomes a Modified Endowment Contract (MEC) when it fails which test?
The 7-pay test, when cumulative premiums in the first seven contract years exceed the sum of the 7-pay net level premiums payable to that point.The §7702(d) corridor test by more than 10%, when the death benefit drops below the corridor-table required percentage of cash value for the insured's then-attained ageThe §7702 Guideline Premium Test in any year after issue, when cumulative premiums paid exceed the lifetime guideline-premium ceiling computed under the guideline-single-premium-or-level methodThe §7702 Cash Value Accumulation Test in any of the first seven contract years, when cash value exceeds the net single premium needed to fund the contract's projected future benefits
10. An indexed annuity has an 80% participation rate, no spread, and no cap. If the underlying index increases 10% during the crediting period, what interest rate is credited?
10%8%12.5%2%
11. Which annuity settlement option produces the largest periodic income payment for a given premium?
Joint and 100% survivorLife with 20-year period certainLife only (straight life)Installment refund
12. The provision adjusting benefits if the insured's age was misstated is
ReinstatementMisstatement of ageIncontestabilityEntire contract
13. A 55-year-old client wants to systematically save for retirement over the next 10 years using after-tax dollars and would like to vary contribution amounts year to year. Which annuity funding type is most appropriate?
Period-certain immediate annuitySPIAFPDASPDA
14. Which of the following is TRUE about MEC status?
MEC status automatically disappears and reverts to ordinary life-insurance tax treatment once the policy is more than ten contract years old, regardless of original premium funding pattern.Once a contract is classified as a MEC, all subsequent distributions are subject to MEC rules, and a 1035 exchange to a new policy carries the MEC taint forward.The death benefit paid on a MEC is included in the named beneficiary's gross income because the contract failed the §7702A 7-pay test during its first seven contract years after issue.MEC status is reset and removed each year if the seven-pay test is satisfied retroactively for the contract's cumulative premiums-paid history through that contract anniversary date.
15. The provision barring the insurer from contesting statements after a set period is the
Free lookReinstatementIncontestable clauseEntire contract
16. A dividend option buying small amounts of extra permanent coverage is
Accumulation at interestReduction of premiumOne-year termPaid-up additions
17. A beneficiary who cannot be changed without that beneficiary's consent is
ContingentTertiaryIrrevocableRevocable
18. A non-MEC universal-life policy lapses when the cumulative loan balance exceeds the cash value. At lapse, cumulative net premiums were $50,000, gross cash value was $80,000, and the outstanding loan was $80,000 (so the owner receives nothing). What does the policyowner report on Form 1099-R?
$30,000 of long-term capital gain at preferential federal capital-gains rates because the underlying universal-life policy was held for more than one calendar year$80,000 of ordinary income, equal to the gross cash value of the contract at the moment of lapse, i.e., the entire pre-loan cash-value figure is treated as taxable income$30,000 of ordinary income, the gain in the contract ($80,000 cash value − $50,000 basis), even though no cash is received ('phantom income').Nothing, no actual cash was received by the policyowner from the carrier at lapse, so there is no reportable taxable amount on the Form 1099-R for the lapse year
19. Under IRC §101(g), accelerated death benefits paid because the insured is terminally ill are generally treated for federal income tax purposes as:
Tax-free, like death proceeds under §101(a)Taxable to the extent the benefit exceeds basis in the contractFully taxable as ordinary incomeTax-free only if the insured is age 59½ or older
20. Which of the following must an agent possess to sell variable annuities?
Only the FINRA Series 7 general securities registration with no state-level life producer licenseA state life producer license alone, issued by the agent's resident state insurance departmentA state property and casualty producer license with a personal-lines variable-products endorsementA state life license plus FINRA Series 6 or 7 and a state securities registration

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