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Tennessee Life Practice Exam

20 exam-style questions drawn from the same bank as our full Tennessee Life course (Tennessee 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. A plan where benefits depend on contributions and investment results is a
Pension annuityDefined contribution planDefined benefit planDeferred comp plan
2. A term feature allowing exchange for permanent coverage without evidence of insurability is
RenewableLevel premiumDecreasingConvertible
3. Converting annuity value into a stream of income payments is
AnnuitizationExchangeAccumulationSurrender
4. The document each covered employee receives under group life is a
Policy summaryBinderCertificate of insuranceMaster policy
5. A 60-year-old policyowner takes a $25,000 loan against her non-MEC whole-life policy that has $40,000 of gain. How is the loan taxed?
Fully taxable to the policyowner as ordinary income at the marginal federal rate because the contract has gain inside it under the §72(e) LIFO ordering ruleHalf taxable as ordinary income and the other half treated as return of basis under the IRC §72(b) blended FIFO-LIFO pro-rata recovery ruleSubject to the 10% additional federal tax on early distributions because she is under age 65 and no §72(t) exception applies to her policy loanNot currently taxable — a loan against a non-MEC life-insurance contract is treated as debt, not a distribution, while the policy remains in force.
6. A client wants permanent coverage but only wants to pay premiums until age 65, after which the policy must be fully paid up. Which whole life variation fits?
Single-premium whole lifeModified whole lifeLimited-pay whole lifeStraight (ordinary) whole life
7. An employee's right to keep employer contributions after leaving is
EligibilityAccrualPortabilityVesting
8. An annuity's main purpose is to protect against the risk of
Dying too soonOutliving savingsMarket inflationDisability
9. A medical exam done by a nurse or technician instead of a doctor is a
Paramedical examFull physicalInspection reportAttending physician statement
10. A policy bought on a person's life for the benefit of an investor with no insurable interest is
Stranger-originated lifeViatical settlementSplit-dollar planKey person insurance
11. The Automatic Premium Loan (APL) provision works in which of the following ways?
It waives premiums during any qualifying total disability that lasts longer than the six-month elimination period, similar to a Waiver of Premium rider attached at policy issue under the NAIC model regulationIt is automatic on every cash-value life policy and cannot be declined by the policyowner, under the standard NAIC Standard Nonforfeiture Law and the related premium-payment provisions adopted by most statesIt triggers an automatic partial surrender of cash value at the grace-period end to pay each overdue premium, reducing the policy's face amount on a pro-rata basis and ending coverage at zero valueIt loans an unpaid premium against the policy's cash value at the end of the grace period, keeping the policy in force at full face amount but reducing available cash value and accruing interest
12. Which settlement option pays the beneficiary equal periodic installments for a fixed number of years until the proceeds plus interest are exhausted?
Fixed amountInterest onlyFixed periodLife income only
13. Under the NAIC Life Insurance and Annuities Replacement Model Regulation, 'replacement' generally means a transaction in which a new life policy is purchased and, in connection with the sale, an existing policy is or will be:
Renewed at the end of its level term under the standard renewability provision attached to the existing in-force life policy at issueReinstated within the contract's three-year reinstatement window upon evidence of insurability and payment of all back premiums with interestLapsed, surrendered, forfeited, assigned, reduced, paid up, converted, borrowed against in excess of 25% of the loan value, or otherwise terminatedAudited by the state department of insurance during a routine periodic market-conduct review of the insurer's individual in-force life book
14. Life insurance death benefits paid in a lump sum to a beneficiary are generally
Fully taxableTaxed after five yearsIncome tax freeTaxed as capital gains
15. Under the Incontestable Clause required in individual life policies, after the policy has been in force during the lifetime of the insured for the contestable period (usually 2 years), the insurer:
May reduce the face amount if it later finds underwriting was based on incomplete informationHas no protection from claim payment under any circumstanceGenerally cannot contest the policy except for nonpayment of premium and, in some forms, fraudMay still rescind for any innocent misstatement
16. Under IRC §7702, a life-insurance contract must satisfy one of two alternative tests in order for the inside cash-value buildup to enjoy tax-deferred treatment. Which pair of tests does §7702 prescribe?
The NAIC Standard Valuation Law deficiency-reserve test or the §7702 actuarial-equivalence net-premium test.The §7702A 7-pay test or the IRC §72(t) substantially-equal-periodic-payments test alternative.The Cash Value Accumulation Test (CVAT) or the Guideline Premium / Cash Value Corridor Test (GPT).The §7702(d) corridor test or the §7702A Modified Endowment Contract premium-funding test alternative.
17. Why is an IUL policy NOT considered a security under federal law?
Because it is sold by state-licensed insurance agents rather than through FINRA-registered broker-dealers under the 1933 Securities ActBecause cash value is held in the insurer's general account and the owner does not bear direct investment risk in an external portfolioBecause IUL contracts have no death benefit component and therefore fall outside the SEC's jurisdiction over variable insurance productsBecause IUL is expressly exempted under IRC §7702A's modified endowment contract rules covering single-premium-equivalent policies
18. Group life where the employer pays the entire premium is
VoluntaryContributorySupplementalNoncontributory
19. The document the owner signs to confirm the policy was received is a
Delivery receiptStatement of good healthPolicy summaryBinding receipt
20. A client owns a whole-life policy with $40,000 of cumulative premium paid and $55,000 of cash value. He exchanges it for a new universal-life policy in a properly executed §1035 exchange. What is his cost basis in the new contract?
$0, because the basis fully resets to zero at issue under IRC §1035's tax-free exchange treatment for newly delivered contracts$40,000 — the basis carries over from the old contract under Rev. Rul. 2003-51.$55,000, because the basis in the new contract equals the cash value that was actually transferred to the new universal life policy$15,000, because the basis in the new contract equals the cash-value gain ($55,000 cash value minus $40,000 premiums paid)

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