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Nevada Life Practice Exam

20 exam-style questions drawn from the same bank as our full Nevada Life course (Nevada 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. Which statement about the death benefit on a variable life policy is correct?
The death benefit is fixed at policy issue and never varies, regardless of subaccount performance or premium pattern across the contract's lifeThe death benefit can vary with separate-account performance but cannot fall below a guaranteed minimum equal to the initial face amountThe death benefit grows only through paid-up additions purchased by participating dividends declared by the insurer's board on annual policy anniversariesThe death benefit equals the current cash value only, with no separate guaranteed face-amount component layered on top of the separate-account value
2. Loans from a non-MEC life policy are generally
Fully taxableNot taxableSubject to penaltyTaxed as gain first
3. An insurer discovers that a permanent policy issued five years ago has failed the §7702 definitional tests every year since issue. What is the federal income-tax consequence to the policyowner?
Nothing — §7702 only governs the issuing insurer's product-design rules; the individual policyowner is unaffected by the contract's failure of the definitional tests under §7702(g) for federal income tax purposesThe income on the contract is taxable to the owner each year as ordinary income, and the death benefit in excess of net premiums is also taxable when paid.Only the death benefit ultimately paid to the named beneficiary becomes taxable for federal income tax purposes, and only when actually distributed by the insurer to the named beneficiary on death of the insuredThe policy automatically converts to a Modified Endowment Contract under IRC §7702A, but otherwise nothing changes about its federal income-tax or estate-tax treatment going forward
4. The provision letting a new owner return the policy for a full refund is the
Incontestable clauseGrace periodReinstatementFree look
5. An insured stops paying premiums on a $250,000 whole life policy with a cash surrender value of $40,000. He elects Extended Term Insurance. The result is:
$40,000 of permanent participating whole life insurance at the same plan, with no further premiums and the original cash value continuing to grow tax-deferredAn immediate lump-sum payment of $40,000 cash to the policyowner, terminating all coverage and any remaining policy rights under the standard surrender provisions$250,000 of term insurance for whatever period the $40,000 (acting as a net single premium at the insured's attained age) will buy, after which coverage ends$250,000 of permanent paid-up participating whole life for life, with the original cash surrender value forfeited as the consideration paid for the paid-up status
6. Paying the premium once a year is the
Single premiumAnnual modeMonthly modeLevel mode
7. The beneficiary who receives proceeds if no primary beneficiary survives is the
Estate beneficiaryContingent beneficiaryPrimary beneficiaryRevocable beneficiary
8. An annuity crediting interest based on a market index with a minimum floor is an
Indexed annuityVariable annuityImmediate annuityFixed annuity
9. The three main factors in setting life premiums are mortality, interest and
PersistencyCommissionExpenseDividends
10. Most state insurance codes require individual life policies to contain a 'free-look' provision allowing the policyowner to return the policy for a full refund within at least:
5 days of delivery20 days of delivery30 days of delivery10 days of delivery
11. A universal life policyowner pays only the published 'minimum' premium each year. Five years in, the cash surrender value is near zero and the insurer issues a notice that, without an additional payment, the policy will lapse at the end of the grace period. What best explains this?
The mortality and expense charges have outpaced the minimum premium plus credited interest, so cash value is exhausted.The published minimum premium contractually guarantees the policy will remain in force for life under state insurance law, regardless of monthly deduction patterns.The state Standard Nonforfeiture Law categorically prohibits a universal life policy from ever lapsing, requiring the carrier to keep coverage in force using cash value alone.Minimum-premium payments are tax-disqualified under the IRC §7702 definition of life insurance once the policy's cash value declines below the corridor floor.
12. The provision adjusting benefits if the insured's age was misstated is
ReinstatementMisstatement of ageIncontestabilityEntire contract
13. Under the federal Fair Credit Reporting Act (15 U.S.C. § 1681), an applicant must be given which notice when an investigative consumer report may be ordered for life insurance underwriting?
A full advance copy of the completed investigative consumer report before it is ordered from the reporting agencyNo advance notice is required for life insurance applications under the federal Fair Credit Reporting Act provisionsOnly an oral disclosure by the soliciting producer at the point of sale, with no written confirmation requiredA written notice that an investigative consumer report may be obtained, generally within 3 days of ordering it
14. An insured who has been certified by a physician as terminally ill (reasonably expected to die within 24 months) accelerates a portion of his death benefit while still living. How is the accelerated payment taxed under IRC §101(g)?
Subject to the 10% additional federal tax on early distributions under §72(t) because the insured is under age 59½ at accelerationTreated as an amount paid by reason of the death of the insured and excluded from gross income — i.e., received income-tax-free.Fully taxable to the insured at the marginal federal income-tax rate as ordinary income under the §72(e) gain-first ordering rulesTaxable to the extent of the gain accumulated in the contract; basis recovery applies first under the §72(b) cost-recovery rule
15. An applicant is classified as a SUBSTANDARD risk. This means the applicant:
Cannot be issued any individual life coverage by the carrier under standard underwriting rulesIs acceptable for coverage at a lower-than-standard premium based on favorable underwriting findingsIs acceptable for coverage but at a higher-than-standard premium because the actuarial risk is greaterWill be issued a non-medical simplified-underwriting policy with a graded death benefit and waiting period
16. An owner takes a withdrawal from a non-qualified deferred annuity at age 55. In addition to ordinary income tax on earnings, which federal penalty generally applies?
5%0% — there is no penalty20%10%
17. Under IRC §79, the cost of how much employer-paid group term life is excluded from the employee's taxable income?
$25,000$50,000$250,000$100,000
18. What is the primary purpose of credit life insurance?
To pay off the outstanding balance of a specified debt if the borrower dies before it is repaidTo fund federal estate-tax liabilities at the borrower's death using ILIT-held permanent proceedsTo replace a borrower's income for the rest of the borrower's life on a lifetime-income annuity basisTo provide a long-term savings vehicle for the borrower with tax-deferred cash-value buildup
19. A rider that pays part of the death benefit early when the insured is terminally ill is
Paid-up additionAccelerated death benefitWaiver of premiumViatical settlement
20. Which three factors are the foundation of every life insurance premium calculation, before the insurer adds a contingency margin or profit load?
Underwriting class, sales channel, and inflationMortality, interest, and expenseMortality, persistency, and reinsurance costPremium mode, policy fee, and surrender charge

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