PSI INSURANCE PRODUCER LICENSING FINAL
EXAM (2026/2027 LATEST) | ACTUAL VERIFIED
REAL EXAM QUESTIONS WITH 100% CORRECT
ANSWERS PLUS DETAILED EXPLANATIONS!!
QUESTION 1
What does the fixed amount annuity certain payment option guarantee?
A. a higher rate of return
B. the highest monthly income
C. payments will continue until all of the funds are exhausted
D. benefits will be paid to the beneficiary for the remainder of their life
Correct Answer: C
Feedback: An annuity certain (fixed amount) guarantees that payments will continue
until all funds in the annuity are exhausted. If the annuitant dies before funds are
exhausted, the remaining payments go to a beneficiary.
QUESTION 2
According to the Uniform Optional Provisions, what action can the insurance
company take if the insured unintentionally understated his or her age on the original
application?
A. The policy can be terminated for misrepresentation.
B. No punitive actions can be taken because the error was unintentional.
C. All amounts payable can be reduced to what they would be if the insured had
reported the correct age.
D. Current claims must be paid under the incorrect age, but future claims can be paid
under the correct age.
Correct Answer: C
Feedback: Under the misstatement of age provision, the insurer can adjust benefits to
the amount that the premiums paid would have purchased at the correct age. This
applies regardless of intent.
QUESTION 3
An insured has disability insurance through his employer. The employer pays 60% of
the premium, and the insured pays the remaining 40%. What is the insured's tax
liability for any benefits paid from the disability plan?
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,A. He must pay taxes on all benefits.
B. His only tax liability is Social Security.
C. He must pay taxes on 40% of the benefits received.
D. He must pay taxes on 60% of the benefits received.
Correct Answer: D
Feedback: The portion of disability benefits attributable to employer-paid premiums
(60%) is taxable to the insured. The portion paid with after-tax dollars (40%) is
received tax-free.
QUESTION 4
All of the following are unfair insurance trade practices EXCEPT:
A. encouraging prospective clients to lapse their policy to their detriment.
B. offering a portion of the producer's commission to prospective clients.
C. issuing stock as an encouragement to purchase insurance.
D. receiving a commission as a licensed producer.
Correct Answer: D
Feedback: Receiving a commission as a licensed producer is a legitimate and legal
practice. The other options are illegal rebating, twisting, or inducement practices.
QUESTION 5
Individual disability income policies usually limit the monthly benefit to a percentage
of an insured's income to reduce:
A. adverse selection.
B. claims.
C. overinsurance.
D. the probationary period.
Correct Answer: C
Feedback: Limiting benefits to a percentage of income prevents overinsurance, which
could create a disincentive for the insured to return to work. Typical limits are 60-70%
of pre-disability income.
QUESTION 6
All of the following are functions of the Department of Insurance EXCEPT to:
A. ensure compliance with all insurance laws.
B. see that the public interest is protected at all times.
C. maintain records of individual policies of insurance issued.
D. assure that regulations are consistent with insurance laws.
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,Correct Answer: C
Feedback: The Department of Insurance does not maintain records of individual
policies issued. That is the responsibility of the insurance companies. The Department
regulates insurers, not individual policy records.
QUESTION 7
A primary difference between pre-certification provision and concurrent review is that
only the pre-certification provision:
A. is designed to be a cost containment measure.
B. involves a review by the physician.
C. requires the consent of the patient.
D. occurs before the treatment is provided.
Correct Answer: D
Feedback: Pre-certification occurs before treatment is provided, while concurrent
review happens during the course of treatment. Both are cost containment measures.
QUESTION 8
The insured and the primary beneficiary of a life insurance policy were in a car
together when they were involved in an accident. The insured was killed instantly and
the beneficiary died 10 days later. Which policy provision will protect the rights of the
contingent beneficiary to receive the policy benefits?
A. Accidental death rider
B. Common disaster clause
C. Facility of payment provision
D. Spendthrift clause
Correct Answer: B
Feedback: The common disaster clause specifies that if the insured and primary
beneficiary die within a short period (typically 30-90 days), the policy proceeds will
be paid as if the primary beneficiary died first, allowing the contingent beneficiary to
receive benefits.
QUESTION 9
Long-term care policies will NOT cover necessary medical services one receives in:
A. an acute care unit of a hospital.
B. a nursing home.
C. one's own home.
D. an outpatient facility.
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, Correct Answer: A
Feedback: Long-term care policies cover custodial and chronic care in nursing homes,
home care, and outpatient facilities. They do not cover acute care hospitalization,
which is covered by major medical or Medicare.
QUESTION 10
When an insurer has the right to terminate a health insurance policy for specific
reasons other than the insured's health, the plan is described as:
A. guaranteed renewable.
B. conditionally renewable.
C. flexibly renewable.
D. condition dependent.
Correct Answer: B
Feedback: A conditionally renewable policy allows the insurer to terminate coverage
for specific stated reasons (e.g., loss of membership in a group) but not due to the
insured's health status.
QUESTION 11
The dividend option where the insurer issues the policyowner a check for the dividend
amount is called a:
A. reduced premium dividend option.
B. cash dividend option.
C. one-year dividend option.
D. paid-up option.
Correct Answer: B
Feedback: The cash dividend option pays policy dividends directly to the
policyowner by check. This is a taxable option since the dividends are paid in cash.
QUESTION 12
An individual who is NOT acceptable by an insurer at standard rates because of health,
habits, or occupation is called a:
A. rating risk.
B. standard risk.
C. preferred risk.
D. substandard risk.
Correct Answer: D
Feedback: A substandard risk (also called impaired risk) is an applicant who does not
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EXAM (2026/2027 LATEST) | ACTUAL VERIFIED
REAL EXAM QUESTIONS WITH 100% CORRECT
ANSWERS PLUS DETAILED EXPLANATIONS!!
QUESTION 1
What does the fixed amount annuity certain payment option guarantee?
A. a higher rate of return
B. the highest monthly income
C. payments will continue until all of the funds are exhausted
D. benefits will be paid to the beneficiary for the remainder of their life
Correct Answer: C
Feedback: An annuity certain (fixed amount) guarantees that payments will continue
until all funds in the annuity are exhausted. If the annuitant dies before funds are
exhausted, the remaining payments go to a beneficiary.
QUESTION 2
According to the Uniform Optional Provisions, what action can the insurance
company take if the insured unintentionally understated his or her age on the original
application?
A. The policy can be terminated for misrepresentation.
B. No punitive actions can be taken because the error was unintentional.
C. All amounts payable can be reduced to what they would be if the insured had
reported the correct age.
D. Current claims must be paid under the incorrect age, but future claims can be paid
under the correct age.
Correct Answer: C
Feedback: Under the misstatement of age provision, the insurer can adjust benefits to
the amount that the premiums paid would have purchased at the correct age. This
applies regardless of intent.
QUESTION 3
An insured has disability insurance through his employer. The employer pays 60% of
the premium, and the insured pays the remaining 40%. What is the insured's tax
liability for any benefits paid from the disability plan?
1PAGE
,A. He must pay taxes on all benefits.
B. His only tax liability is Social Security.
C. He must pay taxes on 40% of the benefits received.
D. He must pay taxes on 60% of the benefits received.
Correct Answer: D
Feedback: The portion of disability benefits attributable to employer-paid premiums
(60%) is taxable to the insured. The portion paid with after-tax dollars (40%) is
received tax-free.
QUESTION 4
All of the following are unfair insurance trade practices EXCEPT:
A. encouraging prospective clients to lapse their policy to their detriment.
B. offering a portion of the producer's commission to prospective clients.
C. issuing stock as an encouragement to purchase insurance.
D. receiving a commission as a licensed producer.
Correct Answer: D
Feedback: Receiving a commission as a licensed producer is a legitimate and legal
practice. The other options are illegal rebating, twisting, or inducement practices.
QUESTION 5
Individual disability income policies usually limit the monthly benefit to a percentage
of an insured's income to reduce:
A. adverse selection.
B. claims.
C. overinsurance.
D. the probationary period.
Correct Answer: C
Feedback: Limiting benefits to a percentage of income prevents overinsurance, which
could create a disincentive for the insured to return to work. Typical limits are 60-70%
of pre-disability income.
QUESTION 6
All of the following are functions of the Department of Insurance EXCEPT to:
A. ensure compliance with all insurance laws.
B. see that the public interest is protected at all times.
C. maintain records of individual policies of insurance issued.
D. assure that regulations are consistent with insurance laws.
2PAGE
,Correct Answer: C
Feedback: The Department of Insurance does not maintain records of individual
policies issued. That is the responsibility of the insurance companies. The Department
regulates insurers, not individual policy records.
QUESTION 7
A primary difference between pre-certification provision and concurrent review is that
only the pre-certification provision:
A. is designed to be a cost containment measure.
B. involves a review by the physician.
C. requires the consent of the patient.
D. occurs before the treatment is provided.
Correct Answer: D
Feedback: Pre-certification occurs before treatment is provided, while concurrent
review happens during the course of treatment. Both are cost containment measures.
QUESTION 8
The insured and the primary beneficiary of a life insurance policy were in a car
together when they were involved in an accident. The insured was killed instantly and
the beneficiary died 10 days later. Which policy provision will protect the rights of the
contingent beneficiary to receive the policy benefits?
A. Accidental death rider
B. Common disaster clause
C. Facility of payment provision
D. Spendthrift clause
Correct Answer: B
Feedback: The common disaster clause specifies that if the insured and primary
beneficiary die within a short period (typically 30-90 days), the policy proceeds will
be paid as if the primary beneficiary died first, allowing the contingent beneficiary to
receive benefits.
QUESTION 9
Long-term care policies will NOT cover necessary medical services one receives in:
A. an acute care unit of a hospital.
B. a nursing home.
C. one's own home.
D. an outpatient facility.
3PAGE
, Correct Answer: A
Feedback: Long-term care policies cover custodial and chronic care in nursing homes,
home care, and outpatient facilities. They do not cover acute care hospitalization,
which is covered by major medical or Medicare.
QUESTION 10
When an insurer has the right to terminate a health insurance policy for specific
reasons other than the insured's health, the plan is described as:
A. guaranteed renewable.
B. conditionally renewable.
C. flexibly renewable.
D. condition dependent.
Correct Answer: B
Feedback: A conditionally renewable policy allows the insurer to terminate coverage
for specific stated reasons (e.g., loss of membership in a group) but not due to the
insured's health status.
QUESTION 11
The dividend option where the insurer issues the policyowner a check for the dividend
amount is called a:
A. reduced premium dividend option.
B. cash dividend option.
C. one-year dividend option.
D. paid-up option.
Correct Answer: B
Feedback: The cash dividend option pays policy dividends directly to the
policyowner by check. This is a taxable option since the dividends are paid in cash.
QUESTION 12
An individual who is NOT acceptable by an insurer at standard rates because of health,
habits, or occupation is called a:
A. rating risk.
B. standard risk.
C. preferred risk.
D. substandard risk.
Correct Answer: D
Feedback: A substandard risk (also called impaired risk) is an applicant who does not
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