Free Maryland life insurance practice test.

Answer B. Providing incorrect information on a license application intentionally

Intentionally providing false information on a license application is grounds for disciplinary action against the license. Outselling a competitor, charging the insurer's set premium, and referring a client to another licensed producer are all lawful, ordinary activities and are not grounds for discipline.

Md. Code, Insurance Article, Sec. 10-126 (grounds for denial, suspension, revocation)

Answer B. Defamation of an insurer

Making false or malicious statements about another insurer's financial condition is defamation. Twisting is convincing someone to replace an existing policy through misleading statements, which is different. Coercion involves pressure or force, such as tying a loan to buying insurance. Misrepresentation of policy terms means lying about a policy's own features, not about a competitor's solvency.

Md. Code, Insurance Article, Title 27 (Unfair Trade Practices, defamation)

Answer C. An external replacement

When the new policy comes from a different insurer than the old one, it is an external replacement. An internal replacement is when the same insurer issues both policies, so the second is wrong. Conversion changes one form of coverage to another with the same insurer, so the third is wrong. Reinstatement restores a lapsed policy, not replacing it, so the fourth is wrong.

Answer B. Retention and transfer

Priya retains the small risks by paying for minor repairs herself and transfers the large risks to the insurer by buying a policy. Avoidance would mean giving up the activity entirely, which she is not doing. Reduction means lowering the chance of loss, which is not described. Sharing and reduction do not match paying small losses out of pocket while insuring big ones.

Answer A. Apparent authority

Apparent authority arises when the insurer's own actions cause a reasonable customer to believe the producer has powers she does not actually have. Express authority is only what the contract grants, and here the contract forbids binding. Implied authority relates to acts needed to perform express duties, not powers the customer merely believes exist. Void authority is not a real term.

Answer C. Consideration exchanged by both parties

A valid contract requires offer and acceptance, consideration, competent parties, and legal purpose. Consideration is the value each side gives: the applicant pays premium and the insurer promises to pay claims. A witness, a mandatory medical exam, and notarization are not legal elements of a contract.

Answer A. Provide notice to the applicant that a consumer report may be obtained

FCRA requires that the applicant be notified in advance that a consumer report may be requested and used. Getting permission from the employer is wrong because the applicant, not the employer, is the subject of the report. Filing with the state is not required by FCRA. There is no mandatory 30 day waiting period under FCRA.

Fair Credit Reporting Act, 15 U.S.C. 1681 et seq. (notice requirement)

Answer C. Model laws and regulations

The NAIC creates model laws and model regulations that individual states can adopt, modify, or reject. They are not federal statutes because the NAIC is not Congress. They are not binding until a state adopts them, so 'binding national rules' is wrong. They are not court opinions, the NAIC is not a court.

Answer B. To prevent life insurance from being used as a wager or gambling on a stranger's death

Insurable interest laws exist to stop people from profiting from a stranger's death, which would turn insurance into gambling and create a dangerous incentive. Affordability, insurer profit, and agent sales limits are unrelated policy goals.

Answer C. Values the policyowner can use while still alive, such as cash value and loans

Living benefits are the features an insured can access during life, such as cash value, policy loans, and certain accelerated benefits. The death benefit is paid after death, not a living benefit. Dividends to shareholders are not a policy feature for the owner. A premium refund at the grace period end is not a defined living benefit.

Answer A. A stranger-originated life insurance transaction

When a policy is created for the purpose of selling it to investors who have no insurable interest, it is called stranger-originated life insurance (STOLI), which is prohibited. A standard viatical settlement involves a policy the viator already owned for a legitimate reason. An accelerated benefit is a living benefit paid by the insurer, not an investor purchase. A group conversion involves changing a group certificate to an individual policy.

Md. Code, Insurance Article, Title 8, Subtitle 6 (prohibited STOLI practices)

Answer B. Needs approach

The needs approach totals the family's obligations, such as final expenses, debts, mortgage, education, and ongoing income needs, to decide how much coverage is required. The human life value approach is wrong because it focuses on the insured's future earnings, not the family's expenses. Cash value refers to a policy feature, not a way to size coverage. Income replacement ratio is not a formal needs-analysis method taught here.

Answer D. Credit life insurance

Credit life is designed to pay off a specific debt if the borrower dies, matching the loan payoff purpose. Whole life is general permanent coverage not tied to a loan. Group universal life is employer-based permanent coverage. Variable life is investment-based permanent coverage, not debt protection.

Answer B. They lower the premium

Interest is a credit in pricing: the more the insurer expects to earn on invested premium dollars, the less it needs to collect up front, so the premium goes down. Raising the premium is the opposite of what interest earnings do. Interest is one of the three core factors, so it clearly affects premium. Mortality is a separate factor and interest assumptions do not remove it.

Answer D. It must not be untrue, deceptive, or misleading

Advertising rules require that ads be truthful and not deceptive or misleading. Ads cannot guarantee returns that are not actually guaranteed. Applicant approval is not required for an ad to be used. Ads generally must identify the insurer, not conceal it.

Answer D. Preferred

A preferred class is offered to applicants healthier than average and results in lower premiums. Substandard means higher-than-average risk and higher premiums. Declined means the insurer will not offer coverage. Rated is another way to describe a substandard risk with an added premium.

Answer B. Continue the term coverage for another term without proving insurability

Renewability lets the insured keep the term coverage for a new term without a new medical exam or proof of good health. Converting to permanent insurance is the convertibility feature, not renewability, so the first choice is wrong. Term has no cash value to cash in, so the third choice is wrong. Renewability does not grant unlimited face increases, so the fourth choice is wrong.

Answer B. It builds cash value and provides lifetime coverage if premiums are paid

Whole life provides permanent coverage for the insured's entire life and accumulates a guaranteed cash value. Coverage for a set number of years describes term insurance. Whole life does build cash value, so the third choice is wrong. Traditional whole life has level premiums, not annually increasing ones.

Answer C. Keep the regulator informed so misconduct can be tracked

The termination notice keeps the Commissioner informed, especially when a producer is terminated for cause, so patterns of misconduct can be tracked across the industry. Notification does not create an automatic appeal, is unrelated to taxes, and does not itself govern commission repayment.

Answer A. The Maryland Insurance Administration

Maryland's insurance regulator is the Maryland Insurance Administration (MIA), led by the Insurance Commissioner. The Department of Commerce handles business development, not insurance oversight. The Bureau of Financial Institutions regulates banks and lenders. The Guaranty Board is not the regulator; guaranty associations only pay claims of insolvent insurers.

Md. Code, Insurance Article, Title 2 (Maryland Insurance Administration)