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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. Which of the following is NOT a typical use of term life insurance?
Funding a permanent estate-tax liability at deathIncome replacement during child-rearing yearsMortgage protectionCovering a business loan that will be paid off in 10 years
2. A father gifts a fully paid-up life-insurance policy to his adult daughter. No money or other consideration changes hands. Several years later the father dies and the daughter, as both owner and beneficiary, collects the death benefit. Which statement correctly describes the §101(a)(2) analysis?
The §101(a)(2)(B)(v) carryover-basis safe harbor must be affirmatively elected on the executor's IRS Form 706 estate-tax return in order for the gratuitous transfer of the in-force life-insurance policy to preserve the income-tax exclusionThe death-benefit proceeds are taxable to the daughter to the extent of the policy's federally determined fair-market gift-tax value at the date of the original father-to-daughter transfer, with anything above that value also taxableThe §101(a)(2) transfer-for-value rule applies to the gratuitous transfer of the in-force life-insurance policy because the daughter received the contract 'for free' without paying her father any consideration, and so the entire death-benefit proceeds become fully taxable to herA pure gift is not a transfer 'for valuable consideration,' so no transfer-for-value problem arises and the death benefit is income-tax-free under §101(a).
3. Which of the following is a classic AML 'red flag' a life insurance producer should escalate?
Applicant pays the first annual premium by a personal check drawn from his own routinely used bank account on file with the insurer at issueApplicant names his spouse of more than ten years as the primary beneficiary and his adult children as equal contingent beneficiaries per stirpesApplicant requests carrier illustrations for several different permanent and term life-insurance products before making a final selection on the applicationApplicant insists on overpaying premium with multiple money orders just under the reporting threshold and quickly requests partial surrender
4. Which of the following exchanges qualifies for tax-free treatment under IRC §1035?
Life insurance policy exchanged for another life insurance policy on the same insuredLife insurance policy on Insured A exchanged for a policy on Insured BLife insurance policy exchanged for a health insurance policyAnnuity contract exchanged for a life insurance policy
5. A policy is issued other than as applied for (e.g., rated up). At delivery, the producer should:
Quietly hand over the issued policy to the applicant at delivery without any further explanation or new signature collectedExplain the changes to the applicant and obtain a new acceptance signature, since the modified policy is a counter-offerRefuse to deliver the issued policy contract until the applicant first pays an additional rated premium installment without any explanationReturn the issued policy to the insurer's home office for full cancellation and refund any premium paid to the applicant
6. A wealthy client buys two separate Modified Endowment Contracts from the same insurer in the same calendar year. The client takes a partial withdrawal from one of them. For purposes of computing the taxable portion under §72(e), how are the two MECs treated?
Each contract stands alone; the distribution is tested only against the gain in the contract from which it was withdrawn.They are treated as a single contract; gain and basis are aggregated when calculating the taxable amount of the distribution.Aggregation applies only to non-MEC policies.Aggregation applies only if the contracts share the same insured.
7. Premiums paid for a personally owned life insurance policy are:
Deductible up to $5,000 per yearGenerally NOT deductible by the policyownerAlways tax-deductible as a medical expenseDeductible only if the policy is term insurance
8. Premiums paid into a fixed annuity are deposited into the insurer's:
Suspense accountGeneral accountSeparate accountReinsurance pool
9. The standard suicide clause in a life policy provides that if the insured commits suicide within the stated period (typically two years), the insurer will:
Pay nothing on the policy and retain all premiums paid into the contractPay the full face amount of the policy to the named primary beneficiaryPay only the policy's accumulated cash surrender value as of the date of deathPay only a return of premiums paid (less any indebtedness)
10. Brandon was born in 1962, making his Social Security Full Retirement Age (FRA) 67. If he elects to begin retirement benefits at age 62, his Primary Insurance Amount (PIA) is reduced by approximately:
8%30%20%50%
11. Which document must be delivered to a prospect at or before the sale of a variable annuity?
A current prospectusAn illustration of the general accountA buyer's guide onlyA statement of the insurer's surplus
12. 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?
0% — there is no penalty20%5%10%
13. A producer offers a $50 gift card to anyone who purchases a life insurance policy. Under the NAIC Unfair Trade Practices Act (Model #880) adopted by every state, this offer is best characterized as:
Permitted only for term insurance and never for permanent cash-value life policiesPermitted if disclosed on the applicationA normal and permitted marketing expenseA prohibited rebate or inducement not specified in the policy
14. An owner exchanges one non-qualified deferred annuity for another non-qualified deferred annuity directly between insurers. Which Internal Revenue Code section provides for the tax-free treatment of this exchange?
IRC § 501(c)(3)IRC § 1035IRC § 401(k)IRC § 72
15. A paramedical exam typically includes all of the following EXCEPT:
Height, weight, and blood pressureA coronary angiogramBlood and urine specimensA health-history interview
16. Which licensing requirement applies to an agent who recommends only traditional fixed annuities?
A FINRA Series 7 registration is requiredA state life insurance license is sufficientA FINRA Series 6 registration is requiredA state securities (Series 63) license is required
17. A 45-year-old policyowner takes a $20,000 loan from a Modified Endowment Contract that has $30,000 of gain over basis. How is the loan taxed?
The loan is not a taxable event because loans taken against any individual life insurance contract are categorically never taxed under the gain-first rules of IRC §72(e)The full $20,000 is taxed as long-term capital gain at preferential federal capital-gains rates because the underlying MEC has been in force for more than one yearOnly $10,000 of the loan amount is taxable as ordinary income; the other $10,000 is treated as a tax-free recovery of investment-in-the-contract basis under §72(b)The full $20,000 is taxed as ordinary income (LIFO-out-of-gain) and is also subject to a 10% additional tax because the owner is under age 59½.
18. 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
19. If the applicant did not pay the first premium with the application, at policy delivery the producer must:
Collect the first premium AND obtain a signed statement of continued good health (or similar declaration) before coverage takes effectHave the applicant sign a brand-new application with revised health questions before delivering the policy contractBackdate the policy to the original application date so the contract's effective date matches the medical-exam datePhysically hand the policy contract to the policyowner and immediately leave the residence to log delivery completion
20. Which statement best describes the defining characteristic of a term life insurance policy?
It provides death-benefit protection for a specified period and pays nothing if the insured survives the termIt allows the insured to participate in separate-account equity-market gains, like variable universal lifeIt is permanent coverage that endows at age 100 under the §7702 corridor table for life insuranceIt builds guaranteed cash value the policyowner can borrow against, similar to ordinary whole life contracts

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