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South Carolina Life Practice Exam

20 exam-style questions drawn from the same bank as our full South Carolina Life course (South Carolina 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 applicant is classified as a SUBSTANDARD risk. This means the applicant:
Will be issued a non-medical simplified-underwriting policy with a graded death benefit and waiting periodIs 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 greaterCannot be issued any individual life coverage by the carrier under standard underwriting rules
2. If an insurer revises its pricing assumption to use a HIGHER assumed interest rate on accumulated reserves, what is the most likely effect on the gross level premium for a new whole life policy, holding mortality and expense assumptions constant?
The premium goes up because the insurer is more aggressive.The premium is unaffected because interest only matters for dividends.The premium goes down because future benefits are discounted at a higher rate.The premium is unaffected because mortality is the only required input under state law.
3. Replacing policies with the same insurer mainly to earn new commissions is
ChurningTwistingCoercionRebating
4. Under most state insurance codes (modeled on the NAIC Standard Nonforfeiture Law), an insurer issuing a whole life policy must offer the policyowner certain guaranteed nonforfeiture options if premiums stop. Which of the following is NOT one of the standard nonforfeiture options?
Extended term insuranceCash surrenderAutomatic dividend reinvestmentReduced paid-up insurance
5. Surrendering a policy for its cash value is the
Cash surrender optionAutomatic premium loanExtended term optionReduced paid-up option
6. 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 ruleReimbursement of medical bills incurred by the insured during a disability under HIPAA-qualified provider plans of care arrangementsA 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
7. A payout that returns any unpaid premium in a lump sum at death is
Life onlyPeriod certainCash refundInstallment refund
8. Why are traditional endowment contracts rarely sold in the United States today?
FINRA 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 fundThey 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 lifeThey 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 coverageTax 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
9. A 403(b) tax-sheltered annuity plan is restricted to which group of employers?
State and local government agencies, including municipal utilities.For-profit corporations and other private employers of any size.Public schools, 501(c)(3) tax-exempt organizations, and certain ministers.Self-employed individuals, sole proprietors, and partnerships.
10. On a non-MEC universal life policy, a policyowner takes a partial WITHDRAWAL (not a loan) of $15,000 from a $50,000 cash value. Her cumulative premiums to date total $40,000. How much of the withdrawal is taxable income?
$5,000, only the cost-recovery shortfall is taxed.$10,000, only the gain portion of the contract is taxed.$15,000, all withdrawals from life insurance are immediately taxable.$0, withdrawals from a non-MEC are FIFO and recover basis first.
11. Which form of term life insurance has a level premium and a death benefit that decreases on a stated schedule, making it commonly paired with a mortgage?
Level termAnnual renewable termDecreasing termIncreasing term
12. Which settlement option pays the beneficiary equal periodic installments for a fixed number of years until the proceeds plus interest are exhausted?
Fixed amountLife income onlyFixed periodInterest only
13. A BINDING (or temporary insurance) receipt differs from a conditional receipt in that the binding receipt:
Provides interim coverage from the date of application regardless of subsequent insurability findings, until the insurer formally accepts or rejects (subject to its terms)Is required by statute on every life application under the NAIC model regulation adopted by most state insurance codes, regardless of whether the first premium is paid at signingProvides coverage only after the insurer's formal underwriting acceptance and policy issue is completed and the policy is constructively delivered to the named applicantIs identical to a conditional receipt under most state laws, with coverage retroactive to the application date contingent on a finding of standard-class insurability at the medical-exam date
14. Permanent life with level premiums, a guaranteed death benefit and cash value is
Term lifeWhole lifeVariable lifeUniversal life
15. Under the NAIC Suitability in Annuity Transactions Model Regulation (Model #275), an agent recommending an annuity must do all of the following EXCEPT:
Have a reasonable basis to believe the recommendation is suitableAct in the best interest of the consumerMake reasonable efforts to obtain the consumer's suitability informationGuarantee the future investment performance of the annuity
16. On July 1, 2024, Frank gifted an existing $1,000,000 whole life policy on his life to an irrevocable life insurance trust (ILIT). Frank dies on June 1, 2027, within three years of the transfer. What is the estate tax consequence under IRC §2035?
The full $1,000,000 death benefit is pulled back into Frank's gross estate under the three-year rule.Only the cash value at the date of gift is pulled back into the estate.The premiums Frank paid in the last three years are pulled back, but not the death benefit.Nothing, once a policy is in an ILIT, it is always outside the estate.
17. An endowment contract is best described as one that:
Continues coverage for life with no maturity date and provides a guaranteed cash value that endows at age 100 under standard mortality tablesPays the death benefit only if the insured dies during a stated coverage period and pays nothing if the insured survives to the period's endPays the face amount at the earlier of the insured's death during the endowment period or the insured's survival to the end of the periodHas no death benefit and accumulates only cash value, distributing the entire account as a lump sum on the contract's stated maturity date
18. The provision adjusting benefits if the insured's age was misstated is
ReinstatementMisstatement of ageIncontestabilityEntire contract
19. An insured purchases a 20-year level term policy with a $500,000 face amount. Five years in, the insured is diagnosed with a terminal illness. Which feature, required on most modern term policies, lets the insured switch to permanent coverage without proving insurability?
Renewability provisionConvertibility provisionWaiver of premium riderReinstatement provision
20. Taking part of a universal life cash value without a loan is a
Partial withdrawalFull surrenderAssignmentPolicy loan

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