Free Montana life insurance practice test.

Answer B. Permanent coverage with level premiums payable for the insured's entire life and a building cash value

Ordinary (straight) whole life provides lifetime protection with level premiums paid until death or age 100/121, and it builds guaranteed cash value. The first choice describes term insurance, which expires and usually has no cash value. The third choice is term insurance. The fourth choice is wrong because whole life always builds cash value regardless of dividends.

Answer C. Indexed universal life

Indexed life credits interest tied to an index but typically includes a floor, often zero percent, so the owner is protected from index losses. Variable whole life puts money in subaccounts with no such floor, so losses are possible. Term life builds no cash value. Standard whole life pays a fixed guaranteed rate and does not link to an index.

Answer A. Life with period certain

Life with period certain pays for life but guarantees payments to a beneficiary if the annuitant dies before a set number of years pass, meeting both of Linda's goals. Life only stops at death with nothing to the spouse. There is no standard option called cash refund only after 20 years. Interest only does not provide lifetime income of principal.

Answer A. It generally costs less than two separate policies for the same total coverage

A single joint life policy is usually cheaper than two individual policies because it insures two lives under one contract and one set of costs, paying just one death benefit. Choice B is wrong because joint life pays only once, at the first death. Choice C is false; a policy does not guarantee lifelong insurability of anyone. Choice D is wrong because every life policy still needs a named beneficiary to receive the proceeds.

Answer A. A representation

Statements on a life application are representations, meaning they are believed true to the best of the applicant's knowledge, not guarantees. A warranty is a guaranteed absolute truth, which applications are not. Concealment is the deliberate hiding of a known fact, which did not happen here. A material misrepresentation requires a false statement that affects the risk and was relied upon, but an honest good-faith answer is not treated the same as an intentional falsehood.

Answer D. Risk classification groups applicants by actual risk factors, while unfair discrimination treats similar risks differently for prohibited reasons

Risk classification is the legal, sound practice of grouping applicants by real factors that affect mortality such as health and age, so rates match risk. Unfair discrimination means charging different rates or denying coverage to people of the same risk class for prohibited reasons. They are not the same, classification is legal, and unfair discrimination is what is prohibited.

Answer D. On the date shown on the conditional receipt, subject to insurability

When premium is paid with the application, the producer gives a conditional receipt, and coverage begins as of that date as long as the applicant is later found insurable at the applied for rate. Waiting for delivery is only true when no premium is paid up front. Thirty days is a made up figure. The producer signing the application does not trigger coverage.

Answer D. Consideration

Consideration is the value each side gives. The insured gives the premium and the truthful statements in the application, and the insurer gives the promise to pay. Offer and acceptance is the agreement process, not the value exchange. Legal purpose means the contract cannot be for something illegal. Competent parties means both sides have legal capacity to contract.

Answer C. An owner controls the policy rights, while a beneficiary only collects the death benefit

The owner holds control rights such as changing beneficiaries and surrendering the policy, while a beneficiary simply receives the death benefit when the insured dies. Beneficiaries do not control the policy. The two roles are distinct. Owners, not just beneficiaries, can also make changes, so that statement is wrong.

Answer A. The sale of an existing life insurance policy to a third party for more than the cash value but less than the death benefit

A life settlement is when a policyowner sells the policy to a third party (the buyer) for a lump sum that is more than the surrender value but less than the face amount. Paying a death claim is a normal claim, not a settlement. Getting the cash value back is a surrender. Borrowing against cash value is a policy loan. Only the sale of the policy to a third party fits.

Answer D. Tax free including earnings

Roth IRA contributions are made with after-tax dollars, so qualified withdrawals, including the earnings, come out completely tax free. Fully taxable describes a traditional IRA. Taxing only the contributions is backward, since contributions were already taxed and earnings are the part that could be taxed if not qualified. Roth earnings in a qualified withdrawal are not taxed at capital gains rates.

Answer C. Survivor benefits

Survivor benefits are payable to eligible dependents, such as a surviving spouse caring for a young child, when an insured worker dies. Disability benefits are for a living worker who cannot work due to disability, not for survivors. Social Security does not pay a supplemental retirement annuity or long term care benefits.

Answer C. Generally received free of federal income tax

Life insurance death proceeds paid in a lump sum are generally received income tax free by the beneficiary. The other choices are wrong because the benefit is not treated as ordinary income, is not limited to gain above premiums, and is not taxed as a capital gain.

Answer A. Additional penalties, including fines and possible license suspension or revocation

Violating a cease and desist order exposes a producer to added penalties such as fines and license action. A cease and desist violation does not automatically become a criminal conviction without any process. While consumer refunds may occur in some cases, ignoring the order still triggers enforcement against the producer. The Commissioner does not automatically reassign a producer's clients to someone else.

Answer B. A certificate of authority

A certificate of authority is the state's authorization allowing an insurer to transact business, making it an authorized insurer. A producer license authorizes an individual to sell, not the company to operate. A fraternal charter applies only to fraternal societies. Guaranty association membership is a consequence of being authorized, not the permission to operate.

Mont. Code Ann. Title 33, certificate of authority requirement

Answer A. Revocation takes away the license itself, while termination only ends the tie to one insurer

Revocation is a regulatory action by the Commissioner that removes the person's license entirely. Termination of appointment simply ends the relationship with one insurer, and the person may still hold a valid license. The other choices reverse who does the action, misstate which is permanent, and invent a resident versus nonresident split that does not exist.

Mont. Code Ann. Title 33, Chapter 17 (revocation vs. appointment termination)

Answer A. Defamation

Defamation is making or spreading false statements that are maliciously critical of an insurer's financial condition or business. Twisting targets replacing a client's own policy through deception. Misrepresentation involves false statements about a policy's terms or benefits. Coercion uses threats to control someone's insurance decisions.

Mont. Code Ann. Title 33, Chapter 18 (Unfair Trade Practices), defamation provisions

Answer C. A paid-up-at-65 limited-pay whole life policy

A limited-pay policy such as paid-up at 65 lets David finish paying premiums by retirement while keeping coverage for life. Twenty-year term would expire and offers no lifetime coverage. Single-premium requires one large payment now, which does not match paying over his working years. Annually renewable term is temporary and gets more expensive each year.

Answer D. Deductions are taken from the accumulated cash value to pay the cost of insurance

With universal life, the monthly cost of insurance and charges are deducted from the accumulated cash value, so coverage continues as long as there is enough value. Insurers do not permanently waive charges. The death benefit does not automatically increase from missed payments. No refund happens; coverage relies on existing cash value.

Answer A. The time when the contract earns interest before payout begins

The accumulation period is the phase when premiums grow and earn interest before any income is paid out. The time income is paid is the annuity (payout) period, not accumulation. The free look is an unrelated cancellation right. The period after death is handled by the death benefit or beneficiary provisions.