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Montana Life Practice Exam

20 exam-style questions drawn from the same bank as our full Montana Life course (Montana 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. The premium suggested to keep a universal life policy in force as illustrated is the
Minimum premiumMaximum premiumTarget premiumPlanned premium
2. A Disability Income (DI) rider attached to a life policy generally pays:
Reimbursement of medical bills incurred by the insured during a disability under HIPAA-qualified provider plans of care arrangementsTax-free retirement income beginning at age 65 funded by accumulated cash value under the standard NAIC disability annuitization ruleA monthly income — often $10 of monthly income per $1,000 of face amount — to the insured upon total disability after an elimination periodAn additional lump-sum death benefit equal to the face amount if the insured dies of any cause during a recognized total-disability period
3. 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?
$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 basis$750,000 — death benefit ($1,000,000) minus the buyer's basis (consideration $200,000 plus subsequent premiums $50,000).Nothing — 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'$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
4. An insured with a $500,000 policy and a chronic illness ADB rider elects to accelerate $200,000 over two years for chronic-care needs. The policy's cash value at the time of acceleration is $40,000, and total premiums paid are $35,000. How are the accelerated payments most likely treated for federal income tax?
Taxable as a partial surrender to the extent the accelerated payments exceed the policy's investment-in-the-contract basisFully taxable as ordinary income because the accelerated amounts received by the insured exceed cumulative premiums paidFully tax-free as a §101(g) chronic-illness acceleration, subject to per-diem limits set annually by the IRSTax-free only up to $40,000 — the policy's cash-value amount at the time of acceleration — and ordinary income thereafter
5. All of the following are characteristics of an SPDA EXCEPT:
Earnings accumulate on a tax-deferred basisAccepts ongoing flexible contributionsFunded with a single lump-sum premiumIncome payments begin more than 12 months after purchase
6. An annuity used to make periodic payments in a lawsuit award is a
Tax-sheltered annuityStructured settlementSplit annuityCharitable annuity
7. By IRS definition, an immediate annuity must begin making income payments within how many months of the purchase date?
6 months24 months1 month12 months
8. An annuity that accepts payments of varying amounts over time is a
Single premium annuityLevel premium annuityImmediate annuityFlexible premium annuity
9. Dividing proceeds equally among surviving named beneficiaries only is
Per capitaPer stirpesCommon disasterFacility of payment
10. A child term rider added to a parent's life policy typically:
Pays the parent's full base policy face amount upon any covered child's death of any cause during the rider period, in addition to ordinary death-benefit liabilityConverts automatically at the insured child's age 18 into a tax-advantaged §529 college savings account funded by the rider's accumulated paid-up cash value at conversionInsures only the firstborn natural child under federal juvenile-insurance limits; any later children require separate underwriting and individual juvenile-policy applicationsProvides level term coverage on each eligible child up to a specified age, often with a conversion option to permanent insurance without evidence of insurability
11. Minimum withdrawals the law requires from traditional IRAs after a certain age are
Hardship withdrawalsQualified distributionsRequired minimum distributionsRollover distributions
12. An applicant whose expected mortality is average is rated
DeclinedStandardPreferredSubstandard
13. On a participating whole life policy, dividends are best described as:
Taxable income to the policy owner, reportable as ordinary income each contract anniversaryGuaranteed annual interest computed on the cash value at the contract's stated minimum rateContractually guaranteed interest credited under §7702 minimum-rate rules for life policiesA return of unused premium based on the insurer's mortality, expense, and investment experience
14. The federal law setting standards for private employer retirement and benefit plans is
FCRAHIPAAERISAGLBA
15. One of the two tests under Section 7702 is the
Transfer for value testSeven-pay testExclusion ratio testCash value accumulation test
16. An annuity crediting interest based on a market index with a minimum floor is an
Indexed annuityVariable annuityImmediate annuityFixed annuity
17. A non-MEC universal-life policy has been in force for twelve years. The owner increases the death benefit substantially and is required to provide new evidence of insurability. Under §7702A, what is the federal-tax effect of that change?
The contract is disqualified entirely under §7702 and the inside buildup becomes immediately taxable as ordinary income to the policyowner in the year of the death-benefit increaseNothing — the §7702A 7-pay testing window contractually closes at the end of contract year 7 and the policy is permanently grandfathered from any further re-testing for the remainder of its lifeThe policy automatically becomes a MEC under §7702A solely because any death-benefit increase that requires fresh medical underwriting is itself a per-se material change regardless of premium patternA 'material change' has occurred; the contract is treated as newly issued and a fresh 7-pay test begins, which may convert the policy to a MEC if the existing cash value plus future premiums exceed the new 7-pay limit.
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 tableNotify the MIB in writing within ten business days to remove the prior asthma code from the applicant's report fileUse the MIB report as a flag to investigate further (e.g., request an APS) and not as a sole basis for adverse actionAutomatically deny coverage solely on the basis of the discrepancy between the current application and MIB report
19. The rider that waives premiums if the insured becomes totally disabled is
Guaranteed insurabilityWaiver of premiumPayor benefitAccelerated benefit
20. A document summarizing a policy's key features and costs is the
IllustrationPolicy summaryBuyer's guideProspectus

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