Free Maine life insurance practice test.

Answer C. It decreases as the loan balance drops

Decreasing term is often used with mortgages so the death benefit falls as the loan is paid down. It does not stay level, that would be level term. It does not increase with inflation. It does not automatically convert to whole life unless a separate convertibility feature is exercised.

Answer D. To give the insurer information it relies on to decide whether and how to issue the policy

Representations are statements the applicant believes to be true that help the insurer underwrite the risk; the insurer relies on them to decide whether to issue and at what rate. They are not guarantees against claims, do not automatically eliminate a medical exam, and have nothing to do with transferring ownership.

Answer B. A properly funded policy passes the 7-pay test so its loans are generally not taxed as income

A policy that passes the 7-pay test is not a MEC, so its loans generally are not treated as taxable income. A MEC does not allow tax-favored loans, so choice A is wrong. Neither type taxes a normal death benefit, so choice C is wrong. MEC status comes from overfunding against the 7-pay test, not from the insured's health, so choice D is wrong.

Answer D. Acting as an unlicensed producer, which is prohibited

Selling or soliciting insurance for compensation requires a current, valid license. Once the license lapses, continuing to sell is acting as an unlicensed producer, which is unlawful. Prior licensure, a future reinstatement, or an appointment does not cure the lack of a current license.

Title 24-A M.R.S.A. (producer licensing requirements)

Answer C. A buyer's guide and a policy summary

Maine solicitation and cost disclosure rules require that consumers receive a buyer's guide and a policy summary so they can compare and understand the coverage. The signed application alone does not explain the policy's costs or benefits. A producer's license copy is not a disclosure document. A guaranty association claim form is only used if an insurer becomes insolvent, not at delivery.

Answer A. A combination plan

Blending permanent whole life with a term rider is a combination plan that mixes coverage types. A modified endowment is a tax status based on funding, not a coverage blend. A single premium annuity is a lump-sum income product. A pure term policy has only term coverage with no permanent base.

Answer B. A misrepresentation

An inaccurate statement believed to be true is a misrepresentation; whether it lets the insurer avoid the policy usually depends on whether it was material. A warranty is a guaranteed condition, concealment is deliberately hiding a known material fact, and waiver is voluntarily giving up a known right, so those do not fit an accidental misstatement.

Answer B. They are made with pre-tax dollars and reduce current taxable income

Traditional 401(k) contributions are pre-tax, lowering current taxable income, and are taxed later when withdrawn. Because they go in before tax, choice A is wrong. They are taxed at withdrawal, so choice C (never taxed) is wrong. They are taxed only once, at distribution, so choice D is wrong.

Answer B. To give a designated person the chance to prevent an unintended lapse

The third-party notice rule lets an insured designate someone (such as a relative) to be warned before the policy lapses, helping prevent an unintended loss of coverage, which is especially important for older or ill insureds. It does not change premiums, transfer ownership, or speed cancellation.

Title 24-A M.R.S.A. (third-party notice of cancellation and reinstatement)

Answer A. The applicant's informed written consent

Maine requires informed written consent from the applicant before an insurer may conduct HIV/AIDS-related testing, along with confidentiality protections for results. The guaranty association has no role in underwriting tests. No court order is needed for routine underwriting. Testing without consent is not permitted.

Answer C. Level premiums and guaranteed cash value

Traditional whole life uses level premiums for life and builds guaranteed cash value. Premiums that change yearly describe adjustable or interest-sensitive products. A fixed-year death benefit describes term. Having no cash value describes term, not whole life.

Answer C. Notify the applicant that an adverse action was taken and how to obtain the report information

FCRA requires that when a consumer report leads to an adverse action such as denial or higher premium, the applicant must be notified and told how to learn about the report and the reporting agency. Destroying the report, sending it to an employer, or auto-approving all conflict with FCRA's notice and privacy requirements.

Answer B. To provide a base of support that private insurance can supplement

Social Security survivor benefits give a foundation of income to eligible survivors, and life insurance is used to fill the gap. They rarely fully replace income, so choice A is wrong. They do not automatically pay debts, so choice C is wrong. They are broader than just burial costs, so choice D is wrong.

Answer B. Protect policyholders when a member insurer becomes insolvent

The guaranty association pays covered claims and protects resident policyholders when a member insurer becomes insolvent. It does not guarantee insurer profits, does not set rates (that is a separate regulatory function), and it does not sell policies to the public.

Title 24-A M.R.S.A. (Maine Life and Health Insurance Guaranty Association Act)

Answer A. Provide the applicant a notice regarding replacement and submit required replacement forms

Maine's replacement rule requires giving the applicant a replacement notice and completing the proper replacement paperwork so the buyer understands the consequences of dropping existing coverage; the existing insurer is also notified. The producer should not have the applicant cancel old coverage before new coverage is in force, should not pay premiums for the client, and cannot conceal the replacement from the existing insurer.

Maine Bureau of Insurance Rule 917 (replacement of life insurance and annuities)

Answer B. Universal life credits interest to cash value, while variable life places cash value in owner-selected investment subaccounts

The key difference is where the cash value goes: universal life credits interest to the cash value, while variable life lets the owner invest in subaccounts with market risk. The first choice reverses the two. Their cash values are not identical because variable values fluctuate. Both do build cash value, so saying neither does is wrong.

Answer A. An arrangement where a person with no insurable interest funds a policy intending to profit from another's death

STOLI/IOLI is an illegal scheme where investors with no insurable interest arrange coverage on a stranger to profit when that person dies. A spouse has a valid insurable interest, living benefits are accelerated benefits, and employer group coverage is legitimate, so none of those describe STOLI.

Answer B. Withdrawals and loans are taxed on a last-in-first-out basis and may face a penalty

A MEC is a life policy funded too quickly (failing the 7-pay test). It keeps a tax-free death benefit, but living distributions like loans and withdrawals are taxed gains-first (LIFO), and amounts taken before age 59 1/2 can face a 10% penalty. The death benefit remaining tax-free is why choice A is wrong. The policy still earns interest, so choice C is wrong. Life insurance premiums are never tax deductible for individuals, so choice D is wrong.

Answer D. Induce a person to buy insurance by promoting guaranty association coverage

Using the existence of the guaranty association as a sales inducement is prohibited because it is a form of misleading solicitation. Simply answering a client's honest question, referring a client to the Bureau, or accurately describing benefits are all permissible activities.

Title 24-A M.R.S.A. (Guaranty Association Act; prohibited use in solicitation)

Answer B. The applicant must agree to the correction, typically shown by an initial or a new signed application

Changes to application answers require the applicant's knowledge and consent, usually shown by initialing the change or completing a new application. A producer cannot alter answers without the applicant's agreement. The insurer's board is not involved in individual application corrections. Corrections are allowed when properly authorized by the applicant.