17 Free Maryland Life & Health Practice Questions: Life Insurance Basics (2026)
How to Use This Life Insurance Basics Set
Life Insurance Basics is section 3.0 of the Maryland Life outline. It carries 18% of the Life exam (14 of 80 scored items) and 9% of the Combo (12 of 130). It is the first block that tests what life insurance is for and how an application becomes a policy.
This set covers personal and business uses of life insurance, how the amount of coverage is worked out, representations and misrepresentation on the application, underwriting and risk classification, policy delivery and the viatical settlement questions. These 17 questions are drawn from that material, and each has an answer and an explanation.
Practice Questions 1-6: Uses of Life Insurance and the Application
The first six questions ask what a need is and what a statement on the application is called. Match the scenario to its use, then separate a representation from a warranty.
Question 1 (Chapter 2)
The Rodriguez family consists of two working parents, Elena and Carlos, and two young children. They are concerned about maintaining their current standard of living and ensuring their children's education if one parent were to die prematurely. They decide to purchase life insurance policies to address this specific concern. Which personal use of life insurance are the Rodriguezes primarily addressing?
- A) Survivor protection
- B) Cash accumulation
- C) Estate conservation
- D) Liquidity
Show answer & explanation
Answer: A
Survivor protection is the most fundamental use of life insurance, providing immediate funds to a family when a wage earner dies, allowing them to maintain their lifestyle and cover future expenses like education. Cash accumulation (B) is a feature of permanent policies, but not the primary goal here. Estate conservation (C) and liquidity (D) relate more to preserving an estate or accessing cash value, which are secondary to the immediate need of income replacement for survivors.
Question 2 (Chapter 2)
Three partners, Alex, Brenda, and Chris, own a successful consulting firm in Maryland. They want to ensure that if one partner dies, the surviving partners will have the necessary funds to purchase the deceased partner's share of the business from their heirs, preventing outside ownership and maintaining business continuity. What business use of life insurance would best suit their needs?
- A) Key person insurance
- B) Buy-sell funding
- C) Executive bonus plan
- D) Deferred compensation
Show answer & explanation
Answer: B
Buy-sell funding (also known as a buy-sell agreement) uses life insurance to provide the capital for surviving business owners to purchase a deceased owner's interest from their estate, ensuring smooth transfer of ownership and business continuity. Key person insurance (A) protects the business from the financial loss due to the death of a vital employee, but not specifically for buying out their ownership share. Executive bonus plans (C) and deferred compensation (D) are employee benefit strategies, not ownership transfer mechanisms.
Question 3 (Chapter 2)
A Maryland life insurance producer is assisting a client with the purchase of a new life insurance policy. During the application process, the client makes a statement that they declare to be absolutely true to the best of their knowledge. This statement, if untrue, could void the policy. What is this type of statement called?
- A) A representation
- B) A declaration
- C) A warranty
- D) An affirmation
Show answer & explanation
Answer: A
A representation is a statement made by the applicant that is believed to be true to the best of their knowledge and belief. While not guaranteed to be absolutely true, a material misrepresentation (a false statement that would have affected the insurer's decision) can lead to the voiding of the policy. A warranty (C) is a statement guaranteed to be absolutely true, and if untrue, it automatically voids the policy, regardless of materiality. Insurance applications typically involve representations, not warranties, to avoid overly strict conditions for the insured.
Question 4 (Chapter 2)
A Maryland producer is completing a life insurance application with a client. The client informs the producer that they recently had a minor surgical procedure, but the producer, wanting to expedite the application, advises the client that it's 'not important enough to mention' and omits it from the application. If the client were to die from complications related to this procedure, what could be the consequence for the policy?
- A) The policy would be paid in full, as the producer's advice absolves the client of responsibility.
- B) The insurer would be required to pay the claim but could sue the producer for damages.
- C) The policy would automatically be converted to a term policy with a reduced death benefit.
- D) The insurer could deny the claim based on material misrepresentation or concealment, even if the producer advised it.
Show answer & explanation
Answer: D
Information about a recent surgical procedure is material to an insurer's underwriting decision. Omitting it, even if advised by the producer, constitutes material misrepresentation or concealment by the applicant, as the applicant is responsible for the accuracy of the information on the application. The insurer could deny the claim and void the policy if it discovers such a material misrepresentation within the contestability period. While the producer may also face disciplinary action, the primary consequence for the policy is potential denial of the claim (D), not guaranteed payout (A) or conversion (C). The insurer's right to deny the claim is based on the applicant's duty to disclose, regardless of the producer's advice (B).
Question 5 (Chapter 2)
A Maryland life insurance producer is preparing an illustration for a prospective client considering a universal life insurance policy. Which of the following disclosures must accompany the illustration at the point of sale?
- A) A buyer's guide and policy summary.
- B) A statement that the policy is guaranteed to never lapse if premiums are paid.
- C) A guarantee that the cash value will earn a minimum of 5% interest annually.
- D) A disclosure that the policy is FDIC-insured.
Show answer & explanation
Answer: A
Maryland regulations, in line with NAIC model rules, require that a life insurance illustration be accompanied by a buyer's guide and a policy summary at the point of sale. These documents help consumers understand the policy features and the illustration's limitations. Options B and C are incorrect because universal life policies do not guarantee against lapse or a specific interest rate. Option D is incorrect because life insurance policies are not FDIC-insured; that protection applies to bank deposits.
Question 6 (Chapter 2)
A Maryland life insurance producer is discussing policy options with a client who wants coverage that builds cash value and allows flexible premium payments and death benefit amounts. Which type of policy best meets these criteria?
- A) Universal life insurance
- B) Term life insurance
- C) Whole life insurance
- D) Endowment insurance
Show answer & explanation
Answer: A
Universal life insurance is a type of permanent life insurance that offers flexible premium payments, adjustable death benefits, and a cash value component that earns interest. Term life insurance (B) does not build cash value. Whole life insurance (C) has fixed premiums and a guaranteed death benefit, lacking the flexibility described. Endowment insurance (D) is designed to pay out a lump sum after a specific period or at death, but does not typically offer the same flexibility in premiums and death benefits as universal life.
Get the 25-question sample set by email
Want a full-exam practice set to study offline? Drop your email — we'll send 25 questions across every content area, each with the answer and explanation.
No spam. Just the questions and one optional follow-up.
Practice Questions 7-12: Insurable Interest, Participating Policies and Underwriting
These questions test who may insure whom, how participating policies differ from nonparticipating ones, what the MIB report is for, and how an applicant is classified. Read for the single feature each option turns on.
Question 7 (Chapter 2)
A Maryland producer is explaining the concept of insurable interest to a client who wants to purchase a $500,000 life insurance policy on their elderly neighbor, with whom they have a close friendship but no financial relationship. The client argues that their emotional bond creates sufficient insurable interest. Which statement is correct regarding this situation under Maryland law?
- A) Insurable interest requires a pecuniary interest, so the friendship alone does not satisfy the requirement.
- B) The policy is valid because close friendships establish insurable interest for life insurance purposes.
- C) The policy can be issued if the client signs an affidavit stating their emotional dependence on the neighbor.
- D) Insurable interest is not required for life insurance policies on individuals over age 65.
Show answer & explanation
Answer: A
Under Maryland law, insurable interest requires a legitimate financial or pecuniary stake in the continued life of the insured, not merely an emotional relationship. Close friendship without financial dependency does not constitute insurable interest. Options B, C, and D are incorrect: emotional bonds alone are insufficient, affidavits cannot override the pecuniary requirement, and age does not exempt the insurable interest requirement.
Question 8 (Chapter 2)
A Maryland resident is comparing a participating whole life policy and a nonparticipating whole life policy. Which statement accurately describes a difference between the two?
- A) The participating policy guarantees a fixed death benefit, while the nonparticipating policy's death benefit varies with investment performance.
- B) The nonparticipating policy pays dividends that can reduce premiums, while the participating policy does not.
- C) The participating policy may pay dividends based on the insurer's surplus, while the nonparticipating policy does not.
- D) Both policies have identical premiums, but the participating policy offers a higher guaranteed cash value.
Show answer & explanation
Answer: C
Participating policies may pay dividends from the insurer's divisible surplus, which nonparticipating policies do not offer. Option A incorrectly attributes variable death benefits to nonparticipating policies (they have fixed benefits). Option B reverses the dividend feature. Option D is false—participating policies often have higher premiums due to dividend expectation, and cash values are not guaranteed to be higher.
Question 9 (Chapter 2)
A Maryland resident applies for a $1,000,000 life insurance policy. As part of underwriting, the insurer orders an Attending Physician Statement (APS) and requests permission to access the applicant's records from the Medical Information Bureau (MIB). What is the primary purpose of obtaining the MIB report?
- A) To detect potential misrepresentations or fraud in the application by checking for prior insurance activity
- B) To verify the applicant's income and financial status for underwriting classification
- C) To replace the need for an Attending Physician Statement by providing comprehensive medical history
- D) To determine the applicant's eligibility for accelerated death benefits due to chronic illness
Show answer & explanation
Answer: A
The MIB maintains a database of insurance application information to help insurers identify inconsistencies, misrepresentations, or fraud across prior applications. It does not verify income (B), replace the APS (C)—which provides attending physician details—or assess accelerated benefit eligibility (D). Its core function is fraud and misrepresentation detection via historical insurance data.
Question 10 (Chapter 2)
During the underwriting process for a Maryland life insurance applicant, the insurer reviews the application, producer's report, and Attending Physician Statement. The applicant has a well-controlled chronic condition that does not significantly impair longevity. After evaluation, the insurer offers coverage at a premium slightly above standard. How would this applicant most likely be classified?
- A) Preferred risk
- B) Standard risk
- C) Substandard risk
- D) Declined
Show answer & explanation
Answer: C
An applicant with a moderate risk increase due to a controlled health condition, resulting in a premium loading, is classified as substandard. Preferred (A) and standard (B) risks receive standard or better rates, while declined (D) applies to uninsurable risks. The described premium adjustment aligns with substandard classification.
Question 11 (Chapter 2)
Under the Maryland Fraudulent Viatical Settlement Act, which of the following acts is explicitly prohibited for a viatical settlement broker?
- A) Charging a fee to the viator for brokerage services.
- B) Providing the viator with a disclosure document outlining the settlement's tax implications.
- C) Representing both the viator and the settlement provider in the same transaction.
- D) Verifying the viator's medical records with their attending physician.
Show answer & explanation
Answer: C
Maryland law prohibits a viatical settlement broker from acting as a dual agent, representing both the viator (policyowner) and the settlement provider or purchaser in the same transaction. This creates an inherent conflict of interest. Brokers may charge fees to the viator, must provide disclosures (including tax implications), and are expected to verify medical information as part of due diligence. Dual representation is strictly forbidden to protect the viator's interests.
Question 12 (Chapter 2)
Which of the following best describes the concept of 'liquidity' as a personal use of life insurance?
- A) The ability to access the policy's cash value through loans or withdrawals to meet unexpected financial needs.
- B) The death benefit providing funds to pay off a business loan upon the owner's death.
- C) The policy providing income to replace a deceased wage earner's salary.
- D) The policy providing funds to pay estate taxes without selling assets.
Show answer & explanation
Answer: A
Liquidity in life insurance refers to how easily the policy's cash value can be converted into cash. Permanent life insurance policies build cash value that can be accessed via policy loans or withdrawals, providing a source of liquid funds for emergencies, opportunities, or supplemental income during the insured's lifetime. Options B, C, and D describe other personal uses: B is debt protection (though business-oriented, not personal mortgage), C is survivor protection, and D is estate conservation. Only A correctly defines liquidity as access to cash value.
Practice Questions 13-17: Risk Classes, Needs Analysis and Delivery
The last five questions cover risk classification, the needs approach, and what the producer does at policy delivery and when coverage takes effect.
Question 13 (Chapter 2)
Which of the following statements is true regarding the classification of risks in Maryland life insurance underwriting?
- A) Applicants with a history of domestic violence can be charged higher premiums based solely on that history.
- B) Applicants are classified as preferred, standard, substandard, or declined based on their assessed risk level.
- C) All applicants must be classified as either standard or substandard; there is no preferred category.
- D) An applicant who is declined coverage can still be issued a policy if they pay an additional premium.
Show answer & explanation
Answer: B
In life insurance underwriting, applicants are classified into risk categories based on their overall risk profile: preferred (lowest risk, best rates), standard (average risk), substandard (higher than average risk, rated policies), and declined (uninsurable). Maryland law prohibits unfair discrimination, including using status as a victim of domestic violence to increase premiums or deny coverage. A declined applicant cannot be issued a policy by paying more; declination means the risk is deemed unacceptable. Preferred risk is a recognized and common classification for low-risk applicants.
Question 14 (Chapter 2)
Which of the following best describes the 'needs approach' to determining the amount of life insurance required for personal protection?
- A) Calculating the present value of the insured's future earnings minus personal expenses and taxes.
- B) Summing all financial obligations and subtracting existing assets and income sources to determine the lump-sum needed to meet those obligations.
- C) Multiplying the insured's annual income by a factor of 7 to 10 times.
- D) Using the insured's current net worth as the basis for the death benefit amount.
Show answer & explanation
Answer: B
The needs approach involves calculating all current and future financial obligations (such as mortgage, debts, education costs, and income needs for dependents) and then subtracting existing assets and other income sources (like Social Security benefits, savings, or existing life insurance) to determine the appropriate death benefit. Option A describes the human life value approach. Option C is a rough rule of thumb, not a formal method. Option D is incorrect as net worth is not the basis for determining life insurance needs under standard methods.
Question 15 (Chapter 2)
A Maryland life insurance producer is explaining the delivery requirements for a new life insurance policy. Which statement is accurate regarding the producer's duties at the time of delivery?
- A) The producer must collect the first premium and issue a receipt only if the client requests it.
- B) The producer must review the policy with the client, obtain a statement of good health, and deliver the policy.
- C) The producer's responsibilities end once the application is submitted; delivery is handled solely by the insurer via mail.
- D) The producer is only required to deliver the policy if the death benefit exceeds $100,000.
Show answer & explanation
Answer: B
At the time of policy delivery, the producer has several responsibilities: reviewing the policy with the client to ensure understanding, obtaining a statement of good health (confirming the insured's health has not materially changed since application), and delivering the policy. Collecting the initial premium and issuing a receipt is also required, but it is not conditional on client request (making A false). The producer is responsible for delivery, not just the insurer (making C false). There is no death benefit threshold for producer delivery responsibilities (making D false).
Question 16 (Chapter 2)
In the context of viatical settlements in Maryland, which of the following individuals would NOT qualify as a 'viator' under the Fraudulent Viatical Settlement Act?
- A) An individual diagnosed with a terminal illness and a life expectancy of 6 months.
- B) An individual diagnosed with a chronic illness that is expected to significantly shorten their life expectancy.
- C) An individual who is healthy and has no diagnosed illness but wishes to sell their life insurance policy for immediate cash.
- D) An individual diagnosed with a chronic illness that requires ongoing treatment but does not significantly impair longevity.
Show answer & explanation
Answer: C
Under the Maryland Fraudulent Viatical Settlement Act, a 'viator' is defined as the owner of a life insurance policy who is either chronically ill or terminally ill. A healthy individual with no diagnosed illness does not meet either criterion and therefore cannot qualify as a viator. Options A and B describe individuals who are terminally or chronically ill, respectively, and would qualify. Option D describes someone with a chronic illness; while the description notes it does not significantly impair longevity, the Act defines 'chronically ill' based on the diagnosis and need for ongoing treatment, not solely on longevity impact, so this individual would still qualify as a viator.
Question 17 (Chapter 2)
A Maryland life insurance producer is explaining policy delivery requirements to a new client. Which statement accurately describes the producer's duty regarding the effective date of coverage?
- A) The effective date of coverage is always the date the application is signed.
- B) The effective date of coverage is always the date the first premium is paid.
- C) The producer must inform the client of the effective date of coverage, which is specified in the policy and may be the application date, exam date, or another date as determined by the insurer.
- D) The effective date of coverage is always the date the policy is delivered.
Show answer & explanation
Answer: C
The effective date of coverage is not automatically tied to a single event like application signing, premium payment, or delivery. It is specified in the policy contract and can vary based on the insurer's underwriting process (e.g., it might be the application date if approved as-is, or a later date if medical exams are required). The producer has a duty to inform the client of the effective date as stated in the policy. Options A, B, and D are incorrect because they state absolute rules that do not always apply; the effective date depends on the policy terms and underwriting outcome.
The Mistakes That Cost Marks
Mixing up representation and warranty. An application statement is a representation: true to the best of the applicant's knowledge. A warranty is guaranteed absolutely true. Insurance applications use representations.
Thinking the producer's advice protects the applicant. If a producer tells an applicant a health issue is not worth mentioning, the omission is still the applicant's, and the insurer can still act on a material misrepresentation or concealment.
Reversing human life value and needs approach. The needs approach adds up obligations and subtracts assets and income sources. Present value of future earnings is the other method.
Confusing the personal uses. Survivor protection replaces income, liquidity is access to cash value, and estate conservation pays estate costs without selling assets. Buy-sell funding and key person coverage are business uses, and they are not the same thing.
Treating the effective date as one fixed event. Coverage takes effect as the policy specifies, which depends on the underwriting outcome, not always on signing, payment or delivery.
Your Next Step
Missed questions point to the outline section to revisit. When you are ready, preview the Maryland Life & Health course for the audio lessons and the full question bank, or go back to the free Maryland practice question hub for the other topic sets.
Free: 25 Maryland L&H practice questions
Liked this article? Get 25 exam-style questions emailed to you — with full answer explanations, no credit card. Closest thing to studying offline.
No spam. Just the questions and one optional follow-up.
Study this topic with LanePrep
Listen to these audio chapters on your commute — no screen required.
Related Articles
How to Pass the Maryland Life & Health Exam on the First Try (2026)
8 min read
$116 With the Combined Exam: Maryland Life & Health License Cost 2026
6 min read
25 Free Maryland Life & Health Exam Practice Questions (2026)
25 min read
17 Free Maryland Life & Health Practice Questions: Annuities, Federal Tax and Qualified Plans (2026)
12 min read
17 Free Maryland Life & Health Practice Questions: Maryland Insurance Regulation (2026)
12 min read