Nevada Life and Health License Exam Prep
NRS 679A-692A NAIC Actual Exam
2026/2027 with Detailed Rationales |
Complete Exam-Style Questions | Pass
Guaranteed – A+ Graded
Section 1: Life Insurance Basics (Term, Whole Life, Universal
Life, Variable Life) — 15 Questions
Q1: A 35-year-old non-smoking father of two wants the maximum death benefit for the lowest
possible premium over the next 20 years while his children are dependent. He has no need for
cash value accumulation. Which policy type best fits his needs?
A. Whole life insurance with a limited pay option
B. 20-year level term life insurance
C. Variable universal life insurance with maximum premium funding
D. Single premium whole life insurance
,Correct Answer: B
Rationale: The best answer is 20-year level term life insurance. Term insurance provides pure
death protection without cash value, making it the most cost-effective way to secure a large death
benefit for a specific time period. Since this client only needs coverage during his children's
dependency years and wants the lowest premium, level term is the perfect fit. Whole life and
variable universal life would build cash value he doesn't need at a much higher cost.
Q2: A policyowner has a whole life policy with an indeterminate premium structure. Which statement
accurately describes how her premiums may change?
A. Premiums are guaranteed never to increase under any circumstances
B. The insurer may adjust premiums based on actual mortality, interest, and expense experience,
subject to a guaranteed maximum
C. Premiums automatically decrease every five years as the cash value grows
D. Premiums are only payable for the first 20 years, after which the policy is fully paid up
Correct Answer: B
Rationale: The best answer is that the insurer may adjust premiums based on actual experience,
subject to a guaranteed maximum. Indeterminate premium whole life allows the company to raise or
lower premiums depending on how actual results compare to projections, but there's always a
contractual cap on how high they can go. This differs from ordinary whole life with fixed premiums
or limited pay policies where you pay for a set period.
Q3: Under a universal life insurance policy, the policyowner selects Option B (Type 2) for the death
benefit. Which statement correctly describes how the death benefit is calculated?
,A. The death benefit equals the face amount only, with no inclusion of cash value
B. The death benefit equals the face amount plus the accumulated cash value
C. The death benefit decreases by one dollar for every dollar of cash value accumulated
D. The death benefit is equal to the face amount minus any outstanding policy loans
Correct Answer: B
Rationale: The best answer is that the death benefit equals the face amount plus the accumulated
cash value. Option B, also called Type 2, provides an increasing death benefit because the
beneficiary receives both the stated face amount and the policy's cash value component. This
differs from Option A (Type 1), where the death benefit remains level at the face amount because
the cash value is essentially kept by the insurer and not paid out separately.
Q4: A client is considering a variable life insurance policy. Which statement accurately describes
the investment risk associated with this product?
A. The insurer guarantees a minimum 4% return on all separate account investments
B. The policyowner bears the investment risk; poor separate account performance can reduce the
cash value and potentially the death benefit
C. The state insurance guarantee fund covers any investment losses in the separate account
D. The insurer absorbs all investment losses while the policyowner keeps all gains
Correct Answer: B
, Rationale: The best answer is that the policyowner bears the investment risk. Variable life
insurance puts the investment risk squarely on the policyowner because the cash value and
potentially the death benefit fluctuate based on the performance of the underlying subaccounts in
the separate account. Unlike fixed products, there's no guaranteed cash value growth, and the
Nevada insurance guarantee association does not cover investment losses.
Q5: A policy fails the seven-pay test in the first policy year. What is the immediate tax consequence
of this failure?
A. The policy becomes a Modified Endowment Contract (MEC) and loses certain tax advantages
B. The policy is automatically voided by the insurer
C. The policyowner must pay a 50% excise tax on the death benefit
D. The policy converts to term insurance with no cash value
Correct Answer: A
Rationale: The best answer is that the policy becomes a Modified Endowment Contract (MEC) and
loses certain tax advantages. When premiums paid in the first seven years exceed the total amount
needed to fund a paid-up policy based on the seven-pay test, the policy is reclassified as a MEC.
This means withdrawals and loans are taxed on an income-first basis rather than recovering cost
basis first, and withdrawals before age 59½ may incur a 10% penalty.
Q6: Which three factors are used to calculate life insurance premiums, often referred to as the
"three bases" of premium calculation?
A. Mortality, morbidity, and lapse rate
B. Mortality, interest, and expense
NRS 679A-692A NAIC Actual Exam
2026/2027 with Detailed Rationales |
Complete Exam-Style Questions | Pass
Guaranteed – A+ Graded
Section 1: Life Insurance Basics (Term, Whole Life, Universal
Life, Variable Life) — 15 Questions
Q1: A 35-year-old non-smoking father of two wants the maximum death benefit for the lowest
possible premium over the next 20 years while his children are dependent. He has no need for
cash value accumulation. Which policy type best fits his needs?
A. Whole life insurance with a limited pay option
B. 20-year level term life insurance
C. Variable universal life insurance with maximum premium funding
D. Single premium whole life insurance
,Correct Answer: B
Rationale: The best answer is 20-year level term life insurance. Term insurance provides pure
death protection without cash value, making it the most cost-effective way to secure a large death
benefit for a specific time period. Since this client only needs coverage during his children's
dependency years and wants the lowest premium, level term is the perfect fit. Whole life and
variable universal life would build cash value he doesn't need at a much higher cost.
Q2: A policyowner has a whole life policy with an indeterminate premium structure. Which statement
accurately describes how her premiums may change?
A. Premiums are guaranteed never to increase under any circumstances
B. The insurer may adjust premiums based on actual mortality, interest, and expense experience,
subject to a guaranteed maximum
C. Premiums automatically decrease every five years as the cash value grows
D. Premiums are only payable for the first 20 years, after which the policy is fully paid up
Correct Answer: B
Rationale: The best answer is that the insurer may adjust premiums based on actual experience,
subject to a guaranteed maximum. Indeterminate premium whole life allows the company to raise or
lower premiums depending on how actual results compare to projections, but there's always a
contractual cap on how high they can go. This differs from ordinary whole life with fixed premiums
or limited pay policies where you pay for a set period.
Q3: Under a universal life insurance policy, the policyowner selects Option B (Type 2) for the death
benefit. Which statement correctly describes how the death benefit is calculated?
,A. The death benefit equals the face amount only, with no inclusion of cash value
B. The death benefit equals the face amount plus the accumulated cash value
C. The death benefit decreases by one dollar for every dollar of cash value accumulated
D. The death benefit is equal to the face amount minus any outstanding policy loans
Correct Answer: B
Rationale: The best answer is that the death benefit equals the face amount plus the accumulated
cash value. Option B, also called Type 2, provides an increasing death benefit because the
beneficiary receives both the stated face amount and the policy's cash value component. This
differs from Option A (Type 1), where the death benefit remains level at the face amount because
the cash value is essentially kept by the insurer and not paid out separately.
Q4: A client is considering a variable life insurance policy. Which statement accurately describes
the investment risk associated with this product?
A. The insurer guarantees a minimum 4% return on all separate account investments
B. The policyowner bears the investment risk; poor separate account performance can reduce the
cash value and potentially the death benefit
C. The state insurance guarantee fund covers any investment losses in the separate account
D. The insurer absorbs all investment losses while the policyowner keeps all gains
Correct Answer: B
, Rationale: The best answer is that the policyowner bears the investment risk. Variable life
insurance puts the investment risk squarely on the policyowner because the cash value and
potentially the death benefit fluctuate based on the performance of the underlying subaccounts in
the separate account. Unlike fixed products, there's no guaranteed cash value growth, and the
Nevada insurance guarantee association does not cover investment losses.
Q5: A policy fails the seven-pay test in the first policy year. What is the immediate tax consequence
of this failure?
A. The policy becomes a Modified Endowment Contract (MEC) and loses certain tax advantages
B. The policy is automatically voided by the insurer
C. The policyowner must pay a 50% excise tax on the death benefit
D. The policy converts to term insurance with no cash value
Correct Answer: A
Rationale: The best answer is that the policy becomes a Modified Endowment Contract (MEC) and
loses certain tax advantages. When premiums paid in the first seven years exceed the total amount
needed to fund a paid-up policy based on the seven-pay test, the policy is reclassified as a MEC.
This means withdrawals and loans are taxed on an income-first basis rather than recovering cost
basis first, and withdrawals before age 59½ may incur a 10% penalty.
Q6: Which three factors are used to calculate life insurance premiums, often referred to as the
"three bases" of premium calculation?
A. Mortality, morbidity, and lapse rate
B. Mortality, interest, and expense
