Free Texas life insurance practice test.

Answer C. Term life

Term life provides the most coverage for the lowest cost because it has no cash value and covers only a set period. Whole life and universal life cost more because they build cash value. An endowment is designed to pay out at a set date and is expensive, not a low-cost protection choice.

Answer C. Coverage stays in force and the death benefit is paid, less any premium owed

During the grace period the policy remains in force. If the insured dies in that window, the death benefit is paid, and the insurer may deduct the unpaid premium. Coverage does not lapse the instant a payment is late, is not voided, and the beneficiary is not required to pay future premiums to collect the current claim.

Tex. Ins. Code Chapter 1101 (grace period provision)

Answer C. Grace period

The grace period keeps coverage in force for a time after a premium due date so a late payment does not immediately cancel the policy. The free look is for returning a new policy, reinstatement is restoring a lapsed policy, and the contestable period is when the insurer may challenge the policy for misstatements.

Answer A. When the insured is diagnosed with a qualifying terminal illness

An accelerated death benefit rider pays a portion of the death benefit while the insured is still living if a qualifying condition such as terminal illness occurs. Reaching age 65 or holding the policy a year does not trigger it. Changing a beneficiary is unrelated to accelerating benefits.

Answer A. To give general information helping the buyer understand and compare life insurance

The Buyer's Guide is a consumer education document that explains life insurance basics to help the buyer make an informed choice. It is not a medical record. It is not evidence of coverage. It never replaces the actual policy, which is the legal contract.

Answer B. Life with period certain

Life with period certain pays for the annuitant's life but guarantees payments for a minimum number of years to a beneficiary if she dies early. Life only stops at death with nothing to a beneficiary. Joint and survivor covers two lives, not a fixed guaranteed period. A cash refund returns unpaid principal as a lump sum, not continued payments for a set term.

Answer D. Builds guaranteed cash value the policyowner can borrow against

Whole life builds guaranteed cash value that the owner can borrow against, which term does not. Term, not whole life, covers only a set number of years. Both types require premiums to stay in force. Both pay a death benefit if the policy is in force when the insured dies.

Answer C. To protect policyholders when a member insurer becomes insolvent

The guaranty association exists to protect policyholders, up to statutory limits, when a member insurer becomes insolvent. It does not pay agent commissions, it does not license or appoint agents (that is the Department's role), and it does not set premium rates.

Tex. Ins. Code Chapter 463 (Life and Health Insurance Guaranty Association)

Answer C. To allow the owner to review the policy and return it for a full premium refund if not satisfied

The free look lets the buyer examine the actual policy and, if unhappy, return it for a full refund of premium paid. The insurer canceling is wrong because the free look is a consumer right, not an insurer right. Collecting premium and extending underwriting are unrelated to the purpose of the free look.

Answer C. Twice the face amount is paid

An accidental death benefit rider, often called a double indemnity rider, pays an extra amount equal to the face when death is accidental, so the beneficiary gets twice the face amount. Paying only the face ignores the rider. Half the face and returning premiums are not how this rider works.

Answer D. A conditional receipt

When the first premium is paid with the application, the producer gives a conditional receipt, which starts coverage only if the applicant is found insurable under the insurer's rules. A policy summary is a separate disclosure and not the receipt for premium. A buyer's guide is required but is not the receipt for money paid. A 'binding certificate' is a property/casualty concept, not standard in life insurance where underwriting must be completed first.

Answer A. One life insurance or annuity contract can be exchanged for another without immediate tax on the gain

A 1035 exchange lets an owner swap one qualifying life or annuity contract for another without triggering immediate income tax on the gain. It does not eliminate future premiums. It does not increase or double cash value. It has nothing to do with paying out the death benefit.

Answer C. Whole life

Whole life features level premiums, a guaranteed death benefit, and guaranteed cash value growth. Term has no cash value. Adjustable life lets you change premiums and coverage, so it is not fixed. Variable universal life has no guaranteed cash value because it depends on investment performance.

Answer B. Make sure applicants get information to compare before dropping existing coverage

Replacement regulation protects consumers by requiring disclosure so they can compare the existing and proposed coverage before making a decision. The rules do not guarantee lower cost, do not force the old insurer to keep coverage in force, and do not ban replacement outright; they only regulate how it is done.

Tex. Admin. Code Title 28, Chapter 3 (replacement of life insurance)

Answer D. Protect policyholders when a member insurer becomes insolvent

The guaranty association protects covered policyholders by paying claims, up to statutory limits, when a member insurer becomes insolvent. It does not pay producer commissions, does not set premium rates, and does not license producers, which is TDI's role.

Texas Insurance Code Chapter 463, Life and Health Guaranty Association

Answer B. It waives premiums if the adult paying the premiums dies or becomes disabled

A payor benefit rider waives premiums on a child's policy if the adult who pays the premiums dies or becomes disabled, keeping the policy in force. It focuses on the payor, not the child insured. It does not increase the death benefit or give the child an early cash out.

Answer D. To classify and price the risk being insured

Underwriting evaluates the applicant's risk so the insurer can accept, decline, or rate the coverage and set the correct premium. Collecting premium happens at application, not as the purpose of underwriting. Delivery happens after the policy is issued. The free look period is set by law, not by underwriting.

Answer A. A variable annuity places value in separate accounts and shifts investment risk to the owner

A variable annuity invests in separate accounts, so the owner bears investment risk and returns vary. A fixed annuity is what guarantees a set minimum interest rate. A fixed annuity does not track the stock market. Selling a variable annuity, not a fixed one, requires a securities registration in addition to an insurance license.

Answer C. Decreasing term

Decreasing term has a death benefit that goes down over time while the premium stays level, which is why it fits a shrinking mortgage. Increasing term has a growing benefit. Level term keeps the death benefit the same. Renewable term describes the ability to renew without new evidence of insurability, not the benefit pattern.

Answer A. Imposing an administrative penalty and disciplining the license

The Commissioner may impose administrative penalties and take disciplinary action against a license, such as suspension or revocation. The Commissioner is a regulator, not a criminal court, so ordering jail time directly is outside that authority. Existing policies are not automatically voided as a penalty, and the agent is not made responsible for the insurer's future losses.

Tex. Ins. Code Chapters 82 and 84 (sanctions and administrative penalties)