These twenty questions come from six sections of the official Texas outline. Answer each one in your head first, then reveal the correct choice and the reason behind it.
Question 1 of 20
Types of Policies
A young couple wants the largest possible death benefit for the lowest premium to protect their family while their children are young. Which policy best meets that goal?
- A. Whole life
- B. Term life
- C. Universal life
- D. Endowment
+Reveal answer
Answer: B. 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.
Life - General Knowledge > Types of Policies
Question 2 of 20
Texas Statutes and Rules Common to Life and Health Insurance
David misses his life insurance premium payment but dies during the grace period; what happens to his coverage?
- A. Coverage lapsed immediately at the due date
- B. Coverage stays in force and the death benefit is paid, less any premium owed
- C. Coverage is void because payment was late
- D. The beneficiary must pay all future premiums to collect
+Reveal answer
Answer: B. 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)
Question 3 of 20
Texas Statutes and Rules Pertinent to Life Insurance Only
A Texas life policy lapses when the premium is not paid, but the policy stays in force for a set period after the due date. What is this period called?
- A. Free look period
- B. Grace period
- C. Reinstatement period
- D. Contestable period
+Reveal answer
Answer: B. 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.
Texas Insurance Code, grace period provision (concept tested; day count varies)
Question 4 of 20
Policy Riders
Under a typical accelerated death benefit rider, when can the insured receive part of the death benefit before dying?
- A. When the insured reaches age 65
- B. When the insured is diagnosed with a qualifying terminal illness
- C. When the policy has been in force for one year
- D. When the insured changes the beneficiary
+Reveal answer
Answer: B. 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.
Life - General Knowledge > Policy Riders (accelerated death benefit)
Question 5 of 20
Completing the Application
What is the purpose of the Buyer's Guide that must be provided to a life insurance applicant?
- A. To give general information helping the buyer understand and compare life insurance
- B. To list the insured's medical conditions
- C. To serve as proof coverage is in force
- D. To replace the policy contract
+Reveal answer
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.
Life General Knowledge outline: Completing the Application (Buyer's Guide disclosure)
Question 6 of 20
Retirement and Other Insurance Concepts
Karen wants an annuity payout that guarantees income for her lifetime and, if she dies early, continues payments to her beneficiary for a set number of years. Which option fits?
- A. Life only (straight life)
- B. Life with period certain
- C. Joint and survivor
- D. Cash refund only
+Reveal answer
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.
Life - General Knowledge > Retirement and Other Insurance Concepts (annuity settlement options)
Question 7 of 20
Types of Policies
A key difference between whole life and term life insurance is that whole life:
- A. Covers only a set number of years
- B. Builds guaranteed cash value the policyowner can borrow against
- C. Never requires premium payments
- D. Pays no death benefit
+Reveal answer
Answer: B. 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.
Life - General Knowledge > Types of Policies
Question 8 of 20
Texas Statutes and Rules Common to Life and Health Insurance
What is the primary purpose of the Texas Life, Accident, Health, and Hospital Service Insurance Guaranty Association?
- A. To pay commissions to agents of failed insurers
- B. To protect policyholders when a member insurer becomes insolvent
- C. To license and appoint insurance agents
- D. To set the premium rates charged by insurers
+Reveal answer
Answer: B. 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)
Question 9 of 20
Texas Statutes and Rules Pertinent to Life Insurance Only
In Texas, a life insurance policy must give the policyowner a free look period during which the policy can be returned for a full refund. What is the purpose of this required provision?
- A. To let the insurer cancel the policy after issue
- B. To allow the owner to review the policy and return it for a full premium refund if not satisfied
- C. To give the producer time to collect the first premium
- D. To extend the time the insurer has to underwrite the risk
+Reveal answer
Answer: B. 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.
Texas Insurance Code, free look provision (concept tested; day count varies)
Question 10 of 20
Policy Riders
Maria buys a whole life policy and dies in an auto accident; her policy has a rider that doubles the payout for accidental death, so how is the claim paid?
- A. Only the face amount is paid
- B. Twice the face amount is paid
- C. Half the face amount is paid
- D. Face amount plus all premiums paid is returned
+Reveal answer
Answer: B. 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.
Life - General Knowledge > Policy Riders (accidental death benefit)
Question 11 of 20
Completing the Application
When a producer takes a life insurance application and collects the first premium, what document must be given to the applicant?
- A. A policy summary
- B. A conditional receipt
- C. A buyer's guide only
- D. A binding certificate of coverage
+Reveal answer
Answer: B. 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.
Life General Knowledge outline: Completing the Application (conditional receipt concept)
Question 12 of 20
Retirement and Other Insurance Concepts
Under a Section 1035 exchange, what is the main advantage to the policyowner?
- A. The exchange avoids paying any future premiums
- B. One life insurance or annuity contract can be exchanged for another without immediate tax on the gain
- C. The cash value doubles upon exchange
- D. The insurer must pay the death benefit immediately
+Reveal answer
Answer: B. 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.
Life - General Knowledge > Retirement and Other Insurance Concepts (1035 exchanges)
Question 13 of 20
Types of Policies
A permanent policy that offers a fixed premium, a guaranteed death benefit, and a guaranteed cash value that grows on a set schedule is best described as which type?
- A. Term life
- B. Whole life
- C. Adjustable life
- D. Variable universal life
+Reveal answer
Answer: B. 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.
Life - General Knowledge > Types of Policies
Question 14 of 20
Texas Statutes and Rules Common to Life and Health Insurance
Texas replacement rules are designed mainly to accomplish what goal?
- A. Guarantee the new policy will cost less than the old one
- B. Make sure applicants get information to compare before dropping existing coverage
- C. Require the old insurer to keep the policy in force for the applicant
- D. Prohibit any replacement of an existing life policy
+Reveal answer
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)
Question 15 of 20
Texas Statutes and Rules Pertinent to Life Insurance Only
The Texas Life and Health Insurance Guaranty Association exists primarily to do what?
- A. Pay commissions to producers whose insurer failed
- B. Protect policyholders when a member insurer becomes insolvent
- C. Regulate premium rates for all life insurers
- D. License new life insurance producers
+Reveal answer
Answer: B. 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
Question 16 of 20
Policy Riders
What is the main purpose of a payor benefit rider on a juvenile life policy?
- A. It waives premiums if the child insured becomes disabled
- B. It waives premiums if the adult paying the premiums dies or becomes disabled
- C. It increases the child's death benefit each year
- D. It lets the child cash out the policy at age 18
+Reveal answer
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.
Life - General Knowledge > Policy Riders (payor benefit)
Question 17 of 20
Completing the Application
What is the main purpose of the underwriting process in life insurance?
- A. To classify and price the risk being insured
- B. To collect the first premium
- C. To deliver the policy to the insured
- D. To set the free look period
+Reveal answer
Answer: A. 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.
Life General Knowledge outline: Underwriting
Question 18 of 20
Retirement and Other Insurance Concepts
Which statement best describes how a variable annuity differs from a fixed annuity?
- A. A variable annuity guarantees a set interest rate
- B. A variable annuity places value in separate accounts and shifts investment risk to the owner
- C. A fixed annuity ties returns to stock market performance
- D. A fixed annuity requires a securities license to sell
+Reveal answer
Answer: B. 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.
Life - General Knowledge > Retirement and Other Insurance Concepts (fixed vs variable annuities)
Question 19 of 20
Types of Policies
Robert selects a term policy on which the death benefit reduces each year while the premium stays level, often used to match a mortgage balance. This is known as what?
- A. Increasing term
- B. Decreasing term
- C. Level term
- D. Renewable term
+Reveal answer
Answer: B. 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.
Life - General Knowledge > Types of Policies
Question 20 of 20
Texas Statutes and Rules Common to Life and Health Insurance
If the Texas Commissioner finds that an agent committed a violation of the Insurance Code, which action is within the Commissioner's authority?
- A. Imposing an administrative penalty and disciplining the license
- B. Ordering the agent to serve jail time directly
- C. Voiding all policies the agent ever sold automatically
- D. Requiring the agent to pay the insurer's future losses
+Reveal answer
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)