FLORIDA 240 LICENSE EXAM
(2025/2026) LATEST |COMPLETE
QUESTIONS AND VERIFIED
ANSWERS (GRADED A+)
DETAILED ANSWERS!!
1. The stated amount or percent of liquid assets that an insurer must have on hand to satisfy
future obligations to its policyholders is called:
A. Capital
B. Premium
C. Reserves ✅
D. Surplus
Rationale: Reserves are funds set aside to meet future policyholder claims.
2. An insurance applicant must be informed of an investigation regarding his/her reputation and
character according to the:
A. McCarran-Ferguson Act
B. Fair Credit Reporting Act ✅
C. NAIC Guidelines
D. Insurance Code
Rationale: The Fair Credit Reporting Act ensures applicants are notified about background
investigations.
3. A nonprofit incorporated society that does not have capital stock and operates solely for the
benefit of its members is known as:
A. Mutual insurance company
B. Fraternal benefit society ✅
C. Risk retention group
D. Stock company
Rationale: Fraternal societies operate for the benefit of members without capital stock.
4. Who elects the governing body of a mutual insurance company?
A. Board of directors
B. Policyholders ✅
C. Stockholders
D. Insurance commissioner
Rationale: Mutual companies are owned by policyholders, who elect the board.
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,5. A group-owned insurance company formed to assume and spread liability risks of its members
is known as a:
A. Mutual company
B. Risk retention group ✅
C. Stock company
D. Fraternal society
Rationale: Risk retention groups share liability risks among member organizations.
6. What type of reinsurance contract involves two companies automatically sharing their risk
exposure?
A. Facultative
B. Treaty ✅
C. Excess
D. Quota
Rationale: Treaty reinsurance covers all policies meeting the agreement’s criteria automatically.
7. What year was the McCarran-Ferguson Act enacted?
A. 1935
B. 1945 ✅
C. 1955
D. 1965
Rationale: The McCarran-Ferguson Act (1945) gave states authority to regulate insurance.
8. A participating life insurance policy:
A. Has fixed premiums only
B. Policyowners are entitled to receive dividends ✅
C. Cannot be canceled
D. Requires insurable interest at death
Rationale: Participating policies share profits with policyowners through dividends.
9. At what point must a life insurance applicant be informed of rights under the Fair Credit
Reporting Act?
A. Before the first premium
B. Upon completion of the application ✅
C. After policy approval
D. When making a claim
Rationale: Notification must occur before the company collects consumer information.
10. All of the following describe typical characteristics of an insurance contract, EXCEPT:
A. Aleatory
B. Unilateral
C. Bilateral ✅
D. Conditional
Rationale: Insurance contracts are unilateral, conditional, and aleatory, not bilateral.
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, 11. Statements on an insurance application believed to be true to the best of the applicant's
knowledge are called:
A. Warranty
B. Representation ✅
C. Consideration
D. Endorsement
Rationale: Representations are statements of fact that may not be guaranteed as absolutely true.
12. Q purchases a $500,000 life insurance policy and pays $900 in premiums over six months. Q
dies suddenly, and the beneficiary is paid $500,000. This exchange reflects which insurance
contract feature?
A. Adhesion
B. Aleatory ✅
C. Unilateral
D. Conditional
Rationale: Aleatory contracts involve unequal exchange of value contingent on future events.
13. When must insurable interest be present for a life insurance policy to be valid?
A. Upon death
B. When application is made ✅
C. When premiums are first paid
D. Upon claim
Rationale: Insurable interest must exist at the inception of the contract.
14. An arrangement that circumvents insurable interest statutes is called:
A. Participating policy
B. Investor-Originated Life Insurance (STOLI) ✅
C. Universal life
D. Endowment
Rationale: STOLI arrangements violate insurable interest requirements.
15. Who makes legally enforceable promises in a unilateral insurance contract?
A. Policyholder
B. Insurance company ✅
C. Beneficiary
D. Agent
Rationale: Only the insurer promises to pay claims; the policyholder is not obligated to act.
16. A policy of adhesion can only be modified by:
A. Policyholder
B. Insurance company ✅
C. Beneficiary
D. Agent
Rationale: Adhesion contracts are offered on a "take it or leave it" basis and cannot be changed
by the insured.
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(2025/2026) LATEST |COMPLETE
QUESTIONS AND VERIFIED
ANSWERS (GRADED A+)
DETAILED ANSWERS!!
1. The stated amount or percent of liquid assets that an insurer must have on hand to satisfy
future obligations to its policyholders is called:
A. Capital
B. Premium
C. Reserves ✅
D. Surplus
Rationale: Reserves are funds set aside to meet future policyholder claims.
2. An insurance applicant must be informed of an investigation regarding his/her reputation and
character according to the:
A. McCarran-Ferguson Act
B. Fair Credit Reporting Act ✅
C. NAIC Guidelines
D. Insurance Code
Rationale: The Fair Credit Reporting Act ensures applicants are notified about background
investigations.
3. A nonprofit incorporated society that does not have capital stock and operates solely for the
benefit of its members is known as:
A. Mutual insurance company
B. Fraternal benefit society ✅
C. Risk retention group
D. Stock company
Rationale: Fraternal societies operate for the benefit of members without capital stock.
4. Who elects the governing body of a mutual insurance company?
A. Board of directors
B. Policyholders ✅
C. Stockholders
D. Insurance commissioner
Rationale: Mutual companies are owned by policyholders, who elect the board.
1
,5. A group-owned insurance company formed to assume and spread liability risks of its members
is known as a:
A. Mutual company
B. Risk retention group ✅
C. Stock company
D. Fraternal society
Rationale: Risk retention groups share liability risks among member organizations.
6. What type of reinsurance contract involves two companies automatically sharing their risk
exposure?
A. Facultative
B. Treaty ✅
C. Excess
D. Quota
Rationale: Treaty reinsurance covers all policies meeting the agreement’s criteria automatically.
7. What year was the McCarran-Ferguson Act enacted?
A. 1935
B. 1945 ✅
C. 1955
D. 1965
Rationale: The McCarran-Ferguson Act (1945) gave states authority to regulate insurance.
8. A participating life insurance policy:
A. Has fixed premiums only
B. Policyowners are entitled to receive dividends ✅
C. Cannot be canceled
D. Requires insurable interest at death
Rationale: Participating policies share profits with policyowners through dividends.
9. At what point must a life insurance applicant be informed of rights under the Fair Credit
Reporting Act?
A. Before the first premium
B. Upon completion of the application ✅
C. After policy approval
D. When making a claim
Rationale: Notification must occur before the company collects consumer information.
10. All of the following describe typical characteristics of an insurance contract, EXCEPT:
A. Aleatory
B. Unilateral
C. Bilateral ✅
D. Conditional
Rationale: Insurance contracts are unilateral, conditional, and aleatory, not bilateral.
2
, 11. Statements on an insurance application believed to be true to the best of the applicant's
knowledge are called:
A. Warranty
B. Representation ✅
C. Consideration
D. Endorsement
Rationale: Representations are statements of fact that may not be guaranteed as absolutely true.
12. Q purchases a $500,000 life insurance policy and pays $900 in premiums over six months. Q
dies suddenly, and the beneficiary is paid $500,000. This exchange reflects which insurance
contract feature?
A. Adhesion
B. Aleatory ✅
C. Unilateral
D. Conditional
Rationale: Aleatory contracts involve unequal exchange of value contingent on future events.
13. When must insurable interest be present for a life insurance policy to be valid?
A. Upon death
B. When application is made ✅
C. When premiums are first paid
D. Upon claim
Rationale: Insurable interest must exist at the inception of the contract.
14. An arrangement that circumvents insurable interest statutes is called:
A. Participating policy
B. Investor-Originated Life Insurance (STOLI) ✅
C. Universal life
D. Endowment
Rationale: STOLI arrangements violate insurable interest requirements.
15. Who makes legally enforceable promises in a unilateral insurance contract?
A. Policyholder
B. Insurance company ✅
C. Beneficiary
D. Agent
Rationale: Only the insurer promises to pay claims; the policyholder is not obligated to act.
16. A policy of adhesion can only be modified by:
A. Policyholder
B. Insurance company ✅
C. Beneficiary
D. Agent
Rationale: Adhesion contracts are offered on a "take it or leave it" basis and cannot be changed
by the insured.
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