PEARSON VUE LIFE INSURANCE EXAM 2 LATEST VERSIONS 2026 (VERSION A AND B)
COMPLETE 170 QUESTIONS AND CORRECT DETAILED ANSWERS/NEWEST UPDATE!!
Question 1
Under the Social Security system, several factors are used to determine the monthly income
benefit a retiring individual will receive. Which of the following is NOT a factor used in this
calculation?
A) The individual's average indexed monthly earnings
B) The individual's age at retirement
C) The individual's sex
D) The number of credits earned during the individual's working years
E) The individual's primary insurance amount (PIA)
Correct Answer: C) Sex
Rationale: While private life insurance companies often use gender/sex as a primary rating
factor for premiums and benefits, Social Security benefits are gender-neutral. Benefits are
based on earnings history, age, and insured status, but not the sex of the individual.
Question 2
In life insurance, at what specific point must insurable interest exist between the applicant and
the proposed insured?
A) At the time of the insured's death
B) At the time the policy is delivered to the owner
C) At the time the producer writes the application
D) At the time the first claim is filed
E) Throughout the entire duration of the contract
Correct Answer: C) Producer writes an application on a proposed insured
Rationale: Unlike property insurance, where insurable interest must exist at the time of loss,
life insurance only requires that insurable interest exists at the inception of the contract
(the time of application). This prevents individuals from purchasing policies on strangers as
a form of "wagering" on their lives.
Question 3
Which of the following statements is NOT correct regarding "Representations" made on a life
insurance application?
A) They are statements made by the applicant that they believe to be true
B) They are not guaranteed to be true in every respect
C) They are considered to be legal warranties
D) They can only void a policy if they are material to the risk
E) They are used by underwriters to assess the risk of the proposed insured
Correct Answer: C) They are considered to be legal warranties
Rationale: In most states, including those using the Pearson VUE standard, statements on
an application are considered representations, not warranties. A warranty is a statement
, 2
guaranteed to be true in every respect, whereas a representation is only true to the best of
the applicant's knowledge.
Question 4
An insurance producer takes an application for a life insurance policy but does not collect the
initial premium at that time. Upon delivery of the policy, what must the producer collect in
addition to the initial premium?
A) A secondary application for a rider
B) A copy of the insured's tax returns
C) The insured's signed statement of continued good health
D) A referral for a new client
E) A power of attorney form
Correct Answer: C) The insured's signed statement of continued good health
Rationale: Because the premium was not paid with the application, the policy is not "in
force" during the underwriting period. To ensure the risk has not changed since the
application was taken, the insurer requires the applicant to sign a statement affirming their
health has not declined before the policy is officially activated.
Question 5
Which of the following retirement plans is considered "tax-qualified" under Internal Revenue
Service rules?
A) Non-qualified deferred compensation
B) Key person life insurance
C) Defined contribution plan
D) Split-dollar life insurance
E) Executive bonus plan
Correct Answer: C) Defined contribution
Rationale: Qualified plans, such as 401(k)s or Defined Contribution plans, meet specific
ERISA and IRS requirements. They allow for tax-deductible contributions by the employer
and tax-deferred growth for the employee.
Question 6
When a policyowner receives a dividend from a participating whole life policy and chooses the
"paid-up additions" option, how is the premium for those additions calculated?
A) Using the insured's original issue age
B) Using a flat rate regardless of age
C) Using the insured's attained age basis
D) Using the age of the beneficiary
E) Using a five-year average of the insured's age
Correct Answer: C) They are purchased on an attained age basis
Rationale: Paid-up additions are essentially small "mini-policies" of the same type as the
, 3
base policy. Because they are purchased at various points throughout the life of the policy,
the cost is based on how old the insured is at the time the dividend is applied (attained age).
Question 7
The right to change a beneficiary designation, exercise the free look provision, or take a policy
loan is reserved exclusively for the:
A) Primary beneficiary
B) Insured
C) Policyowner
D) Irrevocable beneficiary
E) Insurance producer
Correct Answer: C) Policyowner
Rationale: In an insurance contract, the policyowner holds all the "incidents of ownership."
The insured is the person whose life the policy is based on, but they have no legal rights to
the contract unless they are also the owner.
Question 8
Which provision in a life insurance policy specifies the various ways the death benefit proceeds
can be paid out to a beneficiary?
A) Nonforfeiture options
B) Dividend options
C) Settlement options
D) Insuring clause
E) Assignment provision
Correct Answer: C) Settlement options
Rationale: Settlement options provide flexibility for the beneficiary (or owner) to choose
how money is received, such as a lump sum, interest-only, or fixed-period installments.
Question 9
Two business partners own life insurance on each other to protect their business interest. Which
contract ensures that if one partner dies, the survivor can purchase 100 percent of the deceased's
business interest?
A) Key employee insurance
B) Split-dollar agreement
C) Buy-sell agreement
D) Annuity certain
E) Reinstatement provision
Correct Answer: C) buy-sell agreement
Rationale: A buy-sell agreement (often funded by life insurance) is a legal contract that
mandates the sale of a business interest to the surviving partners or the entity upon the
death or disability of a principal.
, 4
Question 10
The "Waiver of Premium" provision (or rider) allows the insurer to waive future premiums under
which of the following circumstances?
A) If the insured is unemployed for more than 90 days
B) If the policyowner reaches age 65
C) If the insured becomes totally disabled before a certain age
D) If the insured is diagnosed with a terminal illness
E) If the beneficiary dies before the insured
Correct Answer: C) waive an insured's premiums if the insured becomes totally disabled
before a certian age
Rationale: This rider prevents the policy from lapsing if the insured is unable to work due to
total disability. Most insurers require a 6-month waiting period before the waiver takes
effect, but they will refund premiums paid during that waiting period once the disability is
confirmed.
Question 11
A life insurance application is considered legally incomplete and will be returned by the home
office if it lacks the signature of:
A) The primary beneficiary
B) The medical examiner
C) The proposed adult insured
D) The contingent beneficiary
E) The CEO of the insurance company
Correct Answer: C) The proposed adult insured
Rationale: An application generally requires three signatures: the producer, the
policyowner, and the proposed insured (if they are an adult). Without the proposed
insured's consent/signature, the policy cannot be issued.
Question 12
Regarding group life insurance conversion privileges, which of the following is true?
A) The individual must provide evidence of insurability to convert
B) The individual must convert to a term policy
C) Death during the 31-day conversion period is covered even if the individual did not apply for
the new policy yet
D) Conversion is only available if the employee was fired
E) The premium for the new policy will be the same as the group rate
Correct Answer: C) Death during the conversion period is covered if the departing employee
chose not to conver the policy.
Rationale: The 31-day conversion window provides an automatic extension of coverage. If
COMPLETE 170 QUESTIONS AND CORRECT DETAILED ANSWERS/NEWEST UPDATE!!
Question 1
Under the Social Security system, several factors are used to determine the monthly income
benefit a retiring individual will receive. Which of the following is NOT a factor used in this
calculation?
A) The individual's average indexed monthly earnings
B) The individual's age at retirement
C) The individual's sex
D) The number of credits earned during the individual's working years
E) The individual's primary insurance amount (PIA)
Correct Answer: C) Sex
Rationale: While private life insurance companies often use gender/sex as a primary rating
factor for premiums and benefits, Social Security benefits are gender-neutral. Benefits are
based on earnings history, age, and insured status, but not the sex of the individual.
Question 2
In life insurance, at what specific point must insurable interest exist between the applicant and
the proposed insured?
A) At the time of the insured's death
B) At the time the policy is delivered to the owner
C) At the time the producer writes the application
D) At the time the first claim is filed
E) Throughout the entire duration of the contract
Correct Answer: C) Producer writes an application on a proposed insured
Rationale: Unlike property insurance, where insurable interest must exist at the time of loss,
life insurance only requires that insurable interest exists at the inception of the contract
(the time of application). This prevents individuals from purchasing policies on strangers as
a form of "wagering" on their lives.
Question 3
Which of the following statements is NOT correct regarding "Representations" made on a life
insurance application?
A) They are statements made by the applicant that they believe to be true
B) They are not guaranteed to be true in every respect
C) They are considered to be legal warranties
D) They can only void a policy if they are material to the risk
E) They are used by underwriters to assess the risk of the proposed insured
Correct Answer: C) They are considered to be legal warranties
Rationale: In most states, including those using the Pearson VUE standard, statements on
an application are considered representations, not warranties. A warranty is a statement
, 2
guaranteed to be true in every respect, whereas a representation is only true to the best of
the applicant's knowledge.
Question 4
An insurance producer takes an application for a life insurance policy but does not collect the
initial premium at that time. Upon delivery of the policy, what must the producer collect in
addition to the initial premium?
A) A secondary application for a rider
B) A copy of the insured's tax returns
C) The insured's signed statement of continued good health
D) A referral for a new client
E) A power of attorney form
Correct Answer: C) The insured's signed statement of continued good health
Rationale: Because the premium was not paid with the application, the policy is not "in
force" during the underwriting period. To ensure the risk has not changed since the
application was taken, the insurer requires the applicant to sign a statement affirming their
health has not declined before the policy is officially activated.
Question 5
Which of the following retirement plans is considered "tax-qualified" under Internal Revenue
Service rules?
A) Non-qualified deferred compensation
B) Key person life insurance
C) Defined contribution plan
D) Split-dollar life insurance
E) Executive bonus plan
Correct Answer: C) Defined contribution
Rationale: Qualified plans, such as 401(k)s or Defined Contribution plans, meet specific
ERISA and IRS requirements. They allow for tax-deductible contributions by the employer
and tax-deferred growth for the employee.
Question 6
When a policyowner receives a dividend from a participating whole life policy and chooses the
"paid-up additions" option, how is the premium for those additions calculated?
A) Using the insured's original issue age
B) Using a flat rate regardless of age
C) Using the insured's attained age basis
D) Using the age of the beneficiary
E) Using a five-year average of the insured's age
Correct Answer: C) They are purchased on an attained age basis
Rationale: Paid-up additions are essentially small "mini-policies" of the same type as the
, 3
base policy. Because they are purchased at various points throughout the life of the policy,
the cost is based on how old the insured is at the time the dividend is applied (attained age).
Question 7
The right to change a beneficiary designation, exercise the free look provision, or take a policy
loan is reserved exclusively for the:
A) Primary beneficiary
B) Insured
C) Policyowner
D) Irrevocable beneficiary
E) Insurance producer
Correct Answer: C) Policyowner
Rationale: In an insurance contract, the policyowner holds all the "incidents of ownership."
The insured is the person whose life the policy is based on, but they have no legal rights to
the contract unless they are also the owner.
Question 8
Which provision in a life insurance policy specifies the various ways the death benefit proceeds
can be paid out to a beneficiary?
A) Nonforfeiture options
B) Dividend options
C) Settlement options
D) Insuring clause
E) Assignment provision
Correct Answer: C) Settlement options
Rationale: Settlement options provide flexibility for the beneficiary (or owner) to choose
how money is received, such as a lump sum, interest-only, or fixed-period installments.
Question 9
Two business partners own life insurance on each other to protect their business interest. Which
contract ensures that if one partner dies, the survivor can purchase 100 percent of the deceased's
business interest?
A) Key employee insurance
B) Split-dollar agreement
C) Buy-sell agreement
D) Annuity certain
E) Reinstatement provision
Correct Answer: C) buy-sell agreement
Rationale: A buy-sell agreement (often funded by life insurance) is a legal contract that
mandates the sale of a business interest to the surviving partners or the entity upon the
death or disability of a principal.
, 4
Question 10
The "Waiver of Premium" provision (or rider) allows the insurer to waive future premiums under
which of the following circumstances?
A) If the insured is unemployed for more than 90 days
B) If the policyowner reaches age 65
C) If the insured becomes totally disabled before a certain age
D) If the insured is diagnosed with a terminal illness
E) If the beneficiary dies before the insured
Correct Answer: C) waive an insured's premiums if the insured becomes totally disabled
before a certian age
Rationale: This rider prevents the policy from lapsing if the insured is unable to work due to
total disability. Most insurers require a 6-month waiting period before the waiver takes
effect, but they will refund premiums paid during that waiting period once the disability is
confirmed.
Question 11
A life insurance application is considered legally incomplete and will be returned by the home
office if it lacks the signature of:
A) The primary beneficiary
B) The medical examiner
C) The proposed adult insured
D) The contingent beneficiary
E) The CEO of the insurance company
Correct Answer: C) The proposed adult insured
Rationale: An application generally requires three signatures: the producer, the
policyowner, and the proposed insured (if they are an adult). Without the proposed
insured's consent/signature, the policy cannot be issued.
Question 12
Regarding group life insurance conversion privileges, which of the following is true?
A) The individual must provide evidence of insurability to convert
B) The individual must convert to a term policy
C) Death during the 31-day conversion period is covered even if the individual did not apply for
the new policy yet
D) Conversion is only available if the employee was fired
E) The premium for the new policy will be the same as the group rate
Correct Answer: C) Death during the conversion period is covered if the departing employee
chose not to conver the policy.
Rationale: The 31-day conversion window provides an automatic extension of coverage. If
