Texas
LIFE INSURANCE
Exam Elaborations Questions &
Answers
2026
,A policyowner misses a premium payment but submits it within the allowed timeframe. Which
provision keeps the policy in force?
A. Reinstatement clause
B. Grace period provision
C. Waiver of premium rider
D. Incontestability clause
Answer: B
Rationale: The grace period (typically 30–31 days) allows continued coverage.
True/False: In Texas, twisting is considered an unfair trade practice.
Answer: True
Rationale: Twisting involves misleading clients to replace policies for the agent’s benefit.
Fill in the blank: The agency responsible for regulating insurance in Texas is the ________.
Answer: Texas Department of Insurance
Rationale: It oversees licensing and compliance.
A client wants permanent coverage with flexible premiums and adjustable death benefits. Which
policy is most suitable?
A. Term life
B. Whole life
C. Universal life
D. Credit life
Answer: C
Rationale: Universal life allows flexible premiums and adjustable coverage.
True/False: Insurable interest must exist at the time of policy application.
Answer: True
Rationale: Required to prevent wagering contracts.
Fill in the blank: The option that allows a policyowner to use cash value to maintain coverage for a
limited time is ________.
Answer: Extended term insurance
Rationale: Converts cash value into term coverage.
An insurer discovers material misrepresentation within the contestability period. What action may
be taken?
A. Increase premiums only
B. Rescind the policy
C. Pay claim automatically
D. Ignore the issue
Answer: B
Rationale: Insurers may rescind policies for misrepresentation within the contestability period.
True/False: Variable life insurance requires both an insurance license and securities registration.
Answer: True
Rationale: Due to investment risk components.
Fill in the blank: The phase of an annuity during which payments are made is called the ________
2
, phase.
Answer: Distribution (annuitization)
Rationale: Funds are paid out to the annuitant.
A policyowner selects a settlement option that guarantees payments for life with a minimum
number of years. Which option is this?
A. Fixed period
B. Life income with period certain
C. Lump sum
D. Fixed amount
Answer: B
Rationale: Ensures lifetime payments with a guaranteed minimum duration.
True/False: Policy loans are taxable as long as the policy remains active.
Answer: False
Rationale: Loans are generally not taxable unless the policy lapses.
Fill in the blank: The clause stating that the policy and application constitute the entire agreement
is the ________ clause.
Answer: Entire contract
Rationale: Prevents external agreements from altering terms.
A producer offers a rebate to induce a client to purchase a policy. Under Texas law, this is:
A. Legal
B. Encouraged
C. Prohibited
D. Required
Answer: C
Rationale: Rebating is an unfair trade practice.
True/False: Joint and survivor annuities continue payments after one annuitant dies.
Answer: True
Rationale: Payments continue to the surviving annuitant.
Fill in the blank: A tax-free exchange of life insurance policies is allowed under Section ________
of the IRS Code.
Answer: 1035
Rationale: Enables replacement without immediate tax liability.
A client wants guaranteed premiums and lifelong coverage with cash value accumulation. Which
policy is best?
A. Term life
B. Whole life
C. Universal life
D. Variable life
Answer: B
Rationale: Whole life provides guaranteed premiums and benefits.
True/False: The policyowner must always be the insured.
Answer: False
3
LIFE INSURANCE
Exam Elaborations Questions &
Answers
2026
,A policyowner misses a premium payment but submits it within the allowed timeframe. Which
provision keeps the policy in force?
A. Reinstatement clause
B. Grace period provision
C. Waiver of premium rider
D. Incontestability clause
Answer: B
Rationale: The grace period (typically 30–31 days) allows continued coverage.
True/False: In Texas, twisting is considered an unfair trade practice.
Answer: True
Rationale: Twisting involves misleading clients to replace policies for the agent’s benefit.
Fill in the blank: The agency responsible for regulating insurance in Texas is the ________.
Answer: Texas Department of Insurance
Rationale: It oversees licensing and compliance.
A client wants permanent coverage with flexible premiums and adjustable death benefits. Which
policy is most suitable?
A. Term life
B. Whole life
C. Universal life
D. Credit life
Answer: C
Rationale: Universal life allows flexible premiums and adjustable coverage.
True/False: Insurable interest must exist at the time of policy application.
Answer: True
Rationale: Required to prevent wagering contracts.
Fill in the blank: The option that allows a policyowner to use cash value to maintain coverage for a
limited time is ________.
Answer: Extended term insurance
Rationale: Converts cash value into term coverage.
An insurer discovers material misrepresentation within the contestability period. What action may
be taken?
A. Increase premiums only
B. Rescind the policy
C. Pay claim automatically
D. Ignore the issue
Answer: B
Rationale: Insurers may rescind policies for misrepresentation within the contestability period.
True/False: Variable life insurance requires both an insurance license and securities registration.
Answer: True
Rationale: Due to investment risk components.
Fill in the blank: The phase of an annuity during which payments are made is called the ________
2
, phase.
Answer: Distribution (annuitization)
Rationale: Funds are paid out to the annuitant.
A policyowner selects a settlement option that guarantees payments for life with a minimum
number of years. Which option is this?
A. Fixed period
B. Life income with period certain
C. Lump sum
D. Fixed amount
Answer: B
Rationale: Ensures lifetime payments with a guaranteed minimum duration.
True/False: Policy loans are taxable as long as the policy remains active.
Answer: False
Rationale: Loans are generally not taxable unless the policy lapses.
Fill in the blank: The clause stating that the policy and application constitute the entire agreement
is the ________ clause.
Answer: Entire contract
Rationale: Prevents external agreements from altering terms.
A producer offers a rebate to induce a client to purchase a policy. Under Texas law, this is:
A. Legal
B. Encouraged
C. Prohibited
D. Required
Answer: C
Rationale: Rebating is an unfair trade practice.
True/False: Joint and survivor annuities continue payments after one annuitant dies.
Answer: True
Rationale: Payments continue to the surviving annuitant.
Fill in the blank: A tax-free exchange of life insurance policies is allowed under Section ________
of the IRS Code.
Answer: 1035
Rationale: Enables replacement without immediate tax liability.
A client wants guaranteed premiums and lifelong coverage with cash value accumulation. Which
policy is best?
A. Term life
B. Whole life
C. Universal life
D. Variable life
Answer: B
Rationale: Whole life provides guaranteed premiums and benefits.
True/False: The policyowner must always be the insured.
Answer: False
3
