17 Free Utah Life Insurance Exam Practice Questions (2026)

Answer: C

The suicide clause in a life insurance policy states that if the insured dies by suicide within a specified period (usually one or two years) from the policy's issue date, the insurer's liability is limited to the return of premiums paid, and the death benefit is not payable. This is a standard provision designed to prevent anti-selection by individuals who might purchase insurance with the intent of suicide. The incontestability clause (A) limits the insurer's ability to contest the policy after a certain period (usually two years). The grace period provision (B) allows time to pay premiums after the due date. The misstatement of age provision (D) adjusts the benefit or premium if the insured's age was incorrect. The beneficiary designation clause (E) governs how beneficiaries are named and changed.

Answer: C

Utah Code § 31A-21-104 explicitly states that insurable interest in life insurance must exist 'at the time the life insurance contract is entered into,' which is interpreted as the time of policy issue. It is not required to exist at the time of application (though it typically does), at the time of death, or continuously throughout the term. The requirement is solely at policy inception. Option A is incorrect because interest need not exist at death (e.g., a former business partner may have had insurable interest when the policy was issued but the relationship ended before death). Option B is incorrect as application timing is not the legal standard. Option D is incorrect as continuous interest is not required.

Answer: B

Estate creation refers to using life insurance to provide an inheritance or legacy to heirs when the insured has few other assets to pass on. This matches the scenario of creating a financial legacy for children with minimal savings. Survivor protection (A) focuses on replacing lost income for dependents. Cash accumulation (C) emphasizes the policy's cash value as a savings vehicle. Liquidity (D) concerns providing cash to pay estate taxes, debts, or expenses. Estate conservation (E) aims to preserve the value of an existing estate by using insurance to cover taxes or other costs, preventing asset liquidation.

Answer: C

Key person life insurance (also called key employee insurance) is specifically designed to protect a business from the financial loss resulting from the death of a key employee whose skills, knowledge, or leadership are critical to the company's success. The business owns the policy, pays the premiums, and is the beneficiary, using the proceeds to cover costs like hiring a replacement, lost profits, or debt repayment. While an executive bonus plan (D) uses life insurance, it is primarily a compensation tool where the employer pays premiums on a policy owned by the executive. Split-dollar (A) involves sharing costs and benefits between employer and employee but is not focused solely on business risk mitigation. Group term life (B) provides minimal coverage to all employees, not targeted protection. Business loan protection (E) is for covering specific loan balances, not general key person risk.

Answer: B

Limited payment whole life insurance allows the policy to be paid up after a specified number of years (e.g., 20 payments or payment to age 65), after which no further premiums are required but coverage continues for life. Ordinary whole life (straight life) requires premiums to be paid for the entire life of the insured. Single premium whole life is funded with one upfront payment. Interest-sensitive whole life adjusts cash value based on current interest rates but does not specify a limited payment period.

Answer: D

In a universal life policy, decreasing the death benefit typically requires the policyholder to submit a written request and may require evidence of insurability, especially if the decrease is significant. Increasing the death benefit usually requires evidence of insurability, but decreasing it may also require underwriting approval to prevent adverse selection. Option A is incorrect because unrestricted changes are not permitted. Option B is incorrect because death benefit adjustments are allowed. Option C is incorrect because premium payments are not directly tied to death benefit amount in this way; premiums can be adjusted independently within policy limits.

Answer: D

The 'life income with period certain' settlement option guarantees income payments for the beneficiary's lifetime, but if the beneficiary dies before the end of a specified period certain (e.g., 10 or 20 years), payments continue to a contingent beneficiary for the remainder of that period. This combines lifetime income with a guarantee that payments will be made for at least the period certain. Option A describes a lump sum option. Option B describes a fixed amount option. Option C describes an interest-only option.

Answer: D

A waiver of premium rider waives the policy premiums if the insured becomes totally and continuously disabled, as defined in the rider, and remains disabled for the specified waiting period (commonly 3 or 6 months). It is not triggered by terminal illness (that is an accelerated benefit rider), retirement age, or sufficient cash value (which relates to automatic premium loan or nonforfeiture options).

Answer: A

A cost-of-living rider increases the death benefit (and sometimes the cash value) periodically based on an inflation index, helping the death benefit keep pace with inflation. A guaranteed insurability rider allows the purchase of additional coverage at specified times without evidence of insurability but does not automatically increase the benefit. A return-of-premium rider refunds premiums if the insured outlives the term. An accidental death benefit rider provides an additional benefit if death results from an accident.

Answer: A

Annual renewable term (ART) life insurance provides level death benefit coverage for one-year terms that can be renewed annually. The premium increases each year upon renewal as the insured ages, reflecting the increased risk of death. It does not build cash value (that is a feature of permanent insurance), and there is no inherent maximum term limit (though practical limits may apply due to cost or insurability). Option B describes decreasing term. Option C is incorrect because term insurance does not build cash value. Option D is incorrect as ART can be renewed beyond 5 years, though it becomes expensive.

Answer: B

Under a life-only (pure life) annuity payout option, payments are guaranteed only for the lifetime of the annuitant and cease upon death, with no further benefits payable to a beneficiary. There is no refund of premium or guaranteed period unless specifically added as a rider. Options A, C, and D describe features not inherent to a life-only SPIA: A suggests a cash refund (not automatic), C describes a refund annuity feature, and D describes a period certain option, which was not selected.

Answer: B

While still employed, access to 401(k) funds for rollover to an IRA is generally restricted. Most plans permit in-service withdrawals or rollovers only after reaching age 59½, or upon specific events like separation from service, disability, or plan termination. The one-rollover-per-12-months rule (Option C) applies only to IRA-to-IRA rollovers, not to rollovers from qualified plans like 401(k)s. Option A is incorrect due to age and service restrictions. Option D is incorrect because Section 1035 exchanges apply only to insurance contracts (life insurance, annuities, endowments), not to qualified plan-to-IRA rollovers, which are governed by IRS rollover rules under Sections 402(c) and 408(d)(3).

Answer: C

A bail-out provision in an annuity contract allows the owner to surrender or withdraw funds without incurring surrender charges if the insurance company's declared interest rate falls below a specified minimum rate (the 'bail-out' rate) guaranteed in the contract. This protects the owner from being locked into a low-yielding contract when market rates drop. Option A describes a death benefit trigger, not a bail-out. Option B describes an age-related withdrawal, which may avoid the 10% IRS penalty but not surrender charges. Option D describes a scenario where an MVA might increase value, but a positive MVA does not trigger bail-out; bail-out is tied to interest rate declines, not MVA calculations.

Answer: D

To be a qualified plan (e.g., 401(k), profit-sharing plan), the plan must meet specific requirements under the Internal Revenue Code, including nondiscrimination rules. These rules ensure that the plan does not disproportionately benefit highly compensated employees (HCEs) in terms of contributions, benefits, or accruals. Options A, B, and C are incorrect: qualified plans do not require equal benefits for all (benefits can be based on compensation and service under rules like average benefit test), can be funded by employer contributions, employee deferrals, or both, and vesting schedules (e.g., cliff or graded) are permitted and do not require immediate vesting.

Answer: D

D is correct. Contributions to a traditional 401(k) are made before tax and the earnings grow tax-deferred, so every distribution is ordinary income in the year received; after 59½ no penalty applies. A describes a qualified Roth 401(k) distribution, which is a different plan type. B is wrong because qualified-plan distributions are never capital gain. C is wrong because the 10% penalty applies only before 59½.

Answer: D

For a Roth IRA distribution to be qualified (and thus tax-free), two conditions must be met: the account must have been open for at least 5 years, and the distribution must be made after age 59½, due to disability, death, or for a first-time home purchase (up to $10,000). In this case, the account is only 4 years old (failing the 5-year rule) and the owner is under 59½. Therefore, the distribution of earnings is subject to ordinary income tax. Additionally, because the distribution is non-qualified and the owner is under 59½, the 10% early withdrawal penalty applies to the taxable portion (earnings). Option A is incorrect because the 5-year rule is not met. Option B is incorrect because the penalty does apply. Option C is false because Roth IRA earnings can be taxable if the distribution is non-qualified.

Answer: A

A SEP (Simplified Employee Pension) plan is funded solely by employer contributions. Employees do not make elective deferrals or contributions to their SEP-IRAs. The employer contributes a uniform percentage of each eligible employee's compensation (up to IRS limits) directly to the employee's SEP-IRA. Option B is incorrect because employee salary deferrals are not permitted in SEP plans (they are a feature of 401(k) and SIMPLE plans). Option C is incorrect because SEP plans are exempt from the annual nondiscrimination testing required for plans like 401(k)s. Option D is incorrect because a SEP allows a much larger employer contribution than a SIMPLE IRA's salary-deferral limit.