17 Free Alabama Life Insurance Exam Practice Questions (2026)
How to Use This Life Insurance Question Set
Life Insurance is Part II of Alabama's content outline, worth 55 of the 150 questions on the combined Life & Health exam — the single heaviest-weighted part of the four. Candidates who take Life as its own standalone exam face 125 questions in 150 minutes for $50, needing 87 correct to pass, which Alabama states as a flat percentage rather than a scaled score.
These 17 questions come from Chapters 3 through 5 of LanePrep's Alabama Life & Health quiz bank, none of them repeated from the free 25-question sample across the whole exam: 6 on life insurance policy types (Chapter 3), 6 on policy provisions, riders and loans (Chapter 4), and 5 on annuities, retirement plans and group/business life (Chapter 5). Each question shows its chapter, so a miss tells you exactly which audio lesson to replay.
Work them before you read the answer. Every question has the explanation folded underneath it. Guessing and then reading is worth more than reading and then agreeing.
Practice Questions 1-6: Policy Types for Estate Planning and Investment-Linked Life
Chapter 3 moves through the shapes permanent and market-linked life insurance can take: the survivorship design built for estate-tax liquidity, the separate account that carries a variable policy's market risk, the convertible feature that waives new proof of insurability, the cap rate that limits an indexed universal life policy's credited gain, and what it means for a policy to endow.
Question 1 (Chapter 3)
A married couple in Mobile, Alabama, wants to purchase a life insurance policy that will pay a death benefit only upon the death of the last surviving insured. They are primarily concerned with covering estate taxes and other final expenses after both have passed away. Which type of policy should their producer recommend?
- A) Joint Life (First-to-die)
- B) Individual Whole Life for each spouse
- C) Decreasing Term Life
- D) Survivorship Life (Second-to-die)
Show answer & explanation
Answer: D
Survivorship Life, also known as Second-to-Die insurance, is specifically designed to pay out the death benefit only after the second insured person dies. This makes it ideal for estate planning purposes, such as covering estate taxes, which typically become due after the death of the surviving spouse. Joint Life (First-to-die) would pay upon the first death, which is not their primary concern. Individual Whole Life policies would be more expensive for the same total coverage, and Decreasing Term is for temporary debt protection.
Question 2 (Chapter 3)
Which of the following accurately describes the 'separate account' in the context of variable life insurance products?
- A) It is a general account of the insurer that guarantees a fixed interest rate.
- B) It is a savings account for policy premiums before they are applied to the policy.
- C) It is used exclusively for traditional whole life policies to manage guaranteed cash values.
- D) It is an investment account that is separate from the insurer's general assets and is subject to market fluctuations.
Show answer & explanation
Answer: D
The 'separate account' is a distinct investment account used for variable life insurance and variable annuities. Its assets are segregated from the insurer's general account, and their value fluctuates based on the performance of the underlying investments (e.g., stocks, bonds, money market funds). This means the cash value and death benefit (for variable universal life) are not guaranteed and bear market risk, unlike products tied to the general account.
Question 3 (Chapter 3)
Mr. and Mrs. Lee, both in their late 50s and residing in Tuscaloosa, Alabama, are planning for their future and want a life insurance policy that offers guaranteed cash value growth they can access later for potential long-term care expenses or supplemental retirement income. They also want a guaranteed death benefit for their beneficiaries. Which policy type is generally best suited for these combined goals?
- A) Decreasing Term Life
- B) Annually Renewable Term
- C) Universal Life Option B
- D) Whole Life
Show answer & explanation
Answer: D
Whole Life insurance provides guaranteed cash value growth and a guaranteed death benefit, making it suitable for long-term planning where access to cash value for future needs (like long-term care or retirement income) is desired, along with permanent death benefit protection. Term policies (Decreasing Term, Annually Renewable Term) do not build cash value. Universal Life Option B provides flexible premiums and an increasing death benefit, but its cash value growth is not as strictly guaranteed as traditional whole life and can fluctuate.
Question 4 (Chapter 3)
Mr. Chen, an Alabama resident, purchased a 10-year convertible term life insurance policy. As the term approaches its end, he decides he wants permanent coverage and wishes to convert his term policy to a Whole Life policy. What is a key advantage of exercising the convertible feature of his term policy?
- A) He can convert to a Whole Life policy at a lower premium based on his original age when he first purchased the term policy.
- B) He can convert the policy to permanent coverage without having to provide evidence of insurability.
- C) The cash value accumulated in his term policy will transfer to the new Whole Life policy.
- D) The new Whole Life policy will automatically include a waiver of premium rider.
Show answer & explanation
Answer: B
A key advantage of the convertible feature in a term life policy is that it allows the policyholder to convert to a permanent policy (like Whole Life) without having to prove insurability again. This is crucial if the insured's health has deteriorated since the original term policy was issued. Option A describes an 'original-age' conversion, which is a specific type of conversion, but the primary advantage of convertibility itself is the waiver of insurability. Option C is incorrect because term policies do not accumulate cash value. Option D is incorrect; riders are typically optional and not automatically included upon conversion.
Question 5 (Chapter 3)
A client in Birmingham, Alabama, is considering an Indexed Universal Life (IUL) policy. They are attracted to the potential for cash value growth tied to a market index but are also informed about a 'cap rate.' What does the cap rate in an IUL policy represent?
- A) The minimum interest rate the policy will earn, regardless of index performance.
- B) The maximum percentage of index growth that will be credited to the policy's cash value.
- C) The percentage of the index's positive movement that is applied to the cash value.
- D) The annual administrative fee charged to the policy's cash value.
Show answer & explanation
Answer: B
In an Indexed Universal Life (IUL) policy, the cap rate is the maximum percentage of index growth that will be credited to the policy's cash value, even if the underlying index performs higher than that cap. It limits the upside potential but is often paired with a 'floor' (minimum interest rate) to protect against losses. Option A describes the floor. Option C describes the participation rate. Option D describes administrative fees, which are separate charges.
Question 6 (Chapter 3)
A producer in Alabama is explaining the concept of 'endowment' in the context of life insurance. Which of the following statements accurately describes what happens when a life insurance policy 'endows'?
- A) The policy's cash value is forfeited to the insurer.
- B) The policy's death benefit is paid to the beneficiaries.
- C) The policy's cash value equals the face amount, and this amount is paid to the policyowner.
- D) The policy automatically converts to a paid-up term policy.
Show answer & explanation
Answer: C
When a life insurance policy 'endows,' it means the policy's cash value has grown to equal the face amount (death benefit). At this point, the face amount is paid out to the policyowner as a 'living benefit,' and the policy terminates. This typically happens at age 100 or 121 for whole life policies, or at a specified earlier date for endowment contracts. The death benefit is paid to beneficiaries only if the insured dies before endowment (B). Cash value is not forfeited (A), nor does it convert to term (D).
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Practice Questions 7-12: Beneficiaries, Riders and Policy Loans
Chapter 4 covers what happens around the death benefit itself: contingent beneficiaries stepping in when a primary beneficiary is gone, the accelerated death benefit rider's terminal-illness trigger, a cost-of-living rider's effect on premium, a fixed-amount settlement option, and how an outstanding policy loan plus its accrued interest reduces what a beneficiary actually receives.
Question 7 (Chapter 4)
A policyowner has named his wife as the primary beneficiary and his two children as contingent beneficiaries. If the wife dies before the policyowner, who will receive the death benefit upon the policyowner's death?
- A) The children (contingent beneficiaries)
- B) The wife's estate
- C) The policyowner's estate
- D) The Alabama Life and Disability Insurance Guaranty Association
Show answer & explanation
Answer: A
Contingent (secondary) beneficiaries receive the proceeds only if the primary beneficiary predeceases the insured.
Question 8 (Chapter 4)
Under the Accelerated Death Benefit rider, what is the typical requirement for the insured to receive a portion of the death benefit while still living?
- A) Diagnosis of a terminal illness with a life expectancy of 24 months or less
- B) Total disability for at least 2 years
- C) Unemployment for more than 6 months
- D) Reaching age 65
Show answer & explanation
Answer: A
Accelerated Death Benefits (Living Needs Riders) allow a terminally ill insured to access a portion of the death benefit to pay for medical or living expenses.
Question 9 (Chapter 4)
An Alabama whole life policyowner has a policy with a $150,000 death benefit and $40,000 cash value. The policyowner takes a $10,000 policy loan at 5% interest. Six months later, the insured dies. The loan has not been repaid. How much will the beneficiary receive?
- A) $150,000
- B) $140,000
- C) $140,250
- D) $139,750
Show answer & explanation
Answer: D
The death benefit is reduced by the outstanding loan balance plus any accrued interest. $10,000 loan at 5% for 6 months = $250 interest. Total deduction = $10,250. $150,000 - $10,250 = $139,750. Option A ignores the loan. Option B ignores the accrued interest. Option C incorrectly adds interest.
Question 10 (Chapter 4)
An Alabama policyowner has a participating whole life policy with a cash value of $50,000 and a death benefit of $250,000. The policyowner takes a $20,000 policy loan at 6% annual interest. Two years later, the insured dies and the loan has not been repaid. Assuming no additional loans or payments were made, approximately how much will the beneficiary receive?
- A) $227,600
- B) $230,000
- C) $210,000
- D) $250,000
Show answer & explanation
Answer: A
The correct answer is A ($227,600). When a policy loan is outstanding at death, the insurer deducts the loan principal plus accrued interest from the death benefit. The loan principal is $20,000. After two years at 6% simple interest (standard for policy loans unless compound interest is specified), interest = $20,000 × 0.06 × 2 = $2,400. Total deduction = $22,400. Death benefit paid = $250,000 - $22,400 = $227,600. Option B ($230,000) incorrectly deducts only the principal. Option C ($210,000) appears to deduct the cash value or miscalculate interest. Option D ($250,000) ignores the loan entirely.
Question 11 (Chapter 4)
An Alabama policyowner has a whole life policy with a Cost of Living Rider (COLA) that increases the face amount annually based on the Consumer Price Index (CPI). The policyowner does not want to pay additional premium for the increased coverage. What typically happens to the premium?
- A) The premium remains level for the life of the policy.
- B) The premium increases each year to correspond with the increased face amount.
- C) The premium decreases each year as the cash value grows.
- D) The insurer absorbs the cost and the premium is unchanged.
Show answer & explanation
Answer: B
A Cost of Living Rider increases the death benefit (and usually cash value) to keep pace with inflation. This additional coverage requires additional premium, which increases each year as the face amount increases. The premium is typically based on the insured's attained age at each increase. Option A is incorrect because the premium cannot remain level if the death benefit increases. Option C is incorrect; premiums do not decrease. Option D is incorrect; the insurer does not absorb the cost.
Question 12 (Chapter 4)
An Alabama beneficiary receives a $200,000 life insurance death benefit and selects the 'Fixed Amount' settlement option of $2,000 per month. How long will the payments last (ignoring interest)?
- A) 200 months
- B) 100 months
- C) 10 years
- D) Life of the beneficiary
Show answer & explanation
Answer: B
Fixed Amount (or Fixed Installment) pays a specified dollar amount each month until the principal and interest are exhausted. Ignoring interest, $200,000 / $2,000 per month = 100 months. With interest, it would last slightly longer. Option A is incorrect math. Option C (10 years = 120 months) is close but not exact without interest. Option D describes Life Income.
Practice Questions 13-17: Annuities, Retirement Plans and Group Life
Chapter 5 closes the Life section with annuities and retirement plans: the tax-free Section 1035 exchange, a joint-and-full-survivor annuity payout after the first annuitant dies, the Social Security disability waiting period, dependent coverage under a group life plan, and the SIMPLE IRA built for a small employer.
Question 13 (Chapter 5)
An individual wants to move their funds from one annuity to another to take advantage of better interest rates without triggering a current tax liability. Under the Internal Revenue Code, this is known as a:
- A) Rollover
- B) Direct Transfer
- C) Section 1035 Exchange
- D) Constructive Receipt
Show answer & explanation
Answer: C
A Section 1035 Exchange allows for the tax-free transfer of funds between like-kind insurance products (Life to Life, Life to Annuity, or Annuity to Annuity).
Question 14 (Chapter 5)
A retired couple in Huntsville purchases an annuity with a 'Joint and Full Survivor' payout option. They receive $2,000 per month. If the primary annuitant dies first, what will happen to the payments for the surviving spouse?
- A) The payments will stop immediately.
- B) The payments will be reduced by 50% immediately.
- C) The remaining balance will be paid as a lump sum to the estate.
- D) The payments will continue at $2,000 per month until the second spouse dies.
Show answer & explanation
Answer: D
Under a 'Joint and Full Survivor' option, the payment amount remains the same until the death of the last surviving annuitant. This differs from 'Joint and 2/3 Survivor' or 'Joint and 1/2 Survivor' options where the benefit is reduced upon the first death.
Question 15 (Chapter 5)
A worker in Gadsden becomes totally disabled. To qualify for Social Security Disability Income (SSDI) benefits, the worker must meet the definition of disability and satisfy a waiting period of how many months?
- A) 5 months
- B) 1 month
- C) 3 months
- D) 12 months
Show answer & explanation
Answer: A
Social Security disability benefits have a 5-month elimination (waiting) period. Benefits begin in the 6th full month of disability.
Question 16 (Chapter 5)
An Alabama employer provides group life insurance. One employee wants to add coverage for his spouse and children. Which of the following is typically TRUE regarding dependent coverage in a group plan?
- A) Dependents must undergo a full medical exam.
- B) Dependent coverage amounts are usually limited to a percentage of the employee's coverage.
- C) The employer must pay 100% of the dependent premium.
- D) Children are only covered until age 18, regardless of student status.
Show answer & explanation
Answer: B
Dependent coverage in a group plan is usually a smaller amount than the employee's coverage (e.g., 50%). It is typically offered without individual evidence of insurability if the dependent is enrolled when first eligible.
Question 17 (Chapter 5)
A local hardware store in Prattville has 15 employees and wants to establish a retirement plan where employees can contribute via salary reduction and the employer provides a matching contribution. Which plan is specifically designed for this size of business?
- A) SIMPLE IRA
- B) 403(b) TSA
- C) Defined Benefit Plan
- D) ESOP
Show answer & explanation
Answer: A
The SIMPLE IRA (Savings Incentive Match Plan for Employees) is designed for small businesses with 100 or fewer employees who do not maintain another retirement plan.
The Mistakes That Cost Marks
Mixing up joint life and survivorship life. A joint (first-to-die) policy pays on the first of two insureds to die; a survivorship (second-to-die) policy pays only after both have died. They sit at opposite ends of a two-life policy design, tested here in an estate-tax context where only survivorship life fits.
Treating a cap rate, a floor and a participation rate as the same lever. On an indexed universal life policy, the cap limits how much index gain gets credited, the floor is the guaranteed minimum, and the participation rate is a separate percentage applied to the index's move. The exam swaps these three terms into each other's definitions.
Dropping accrued interest from a policy loan payoff. When an outstanding loan is deducted from a death benefit, the payoff is principal plus accrued interest, not principal alone. This set has two separate questions built around exactly this arithmetic.
Assuming a Cost of Living rider is free coverage. A COLA rider increases the face amount to track inflation, and the premium increases right along with it; the insurer does not absorb the added cost.
Confusing a Section 1035 exchange with a rollover or a direct transfer. A 1035 exchange is the tax-free swap between like-kind insurance or annuity contracts; a rollover and a direct transfer are retirement-plan mechanics with their own withholding rules.
Your Next Step
How did you score?
13 or more correct: You're clearing most of Part II, the heaviest-weighted part of the outline. Move to the Health insurance exam set next, then read how to pass the Alabama Life & Health exam on the first try for the full study plan.
9-12 correct: You're in reasonable shape but not comfortable. Note which chapter your misses fell in and replay that chapter's audio lesson before retesting.
Under 9 correct: Start with Chapter 3 of the LanePrep Alabama Life & Health course and work forward through Chapter 5 rather than testing yourself again right away. A free preview is available at /al/l-and-h/preview, no signup required.
For a 25-question sample across the whole exam, see the free practice set.
Content outline weights from the Alabama Producer Examination Content Outline for Life and Health Examinations ('2023 LH 11 Public.xlsx'), Industry Advisory Committee review 8/8/2023. Read October 2026.
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