17 Free Arizona Life & Health Practice Questions: Life Insurance Policy Provisions, Options and Riders (2026)
How to Use This Life Insurance Policy Provisions, Options and Riders Set
Life Insurance Policy Provisions, Options, and Riders is 15% of the Arizona combined exam outline, the second-largest block. It is detail-heavy: what a policy loan does to the death benefit, what the grace period allows, how dividends and settlement options work, and what each rider adds.
The questions below repeat the waiver of premium rider several times from different angles, which tells you how much the exam likes it. Read every option, because the distractors are usually another rider's job.
Practice Questions 1-6: Loans, Grace, Free Look and Dividends
A loan outstanding at death, a death during the grace period, the minimum free look, the automatic premium loan, an accelerated benefit and the paid-up additions dividend option.
Question 1 (Chapter 5)
A policyholder takes out a policy loan against the cash value of their whole life insurance policy. If the policyholder dies with an outstanding loan balance, how does the insurer typically handle the death benefit?
- A) The death benefit is increased by the amount of the outstanding loan to compensate the beneficiary.
- B) The outstanding loan balance and any accrued interest are subtracted from the death benefit before payment to the beneficiary.
- C) The policy loan is forgiven upon the insured's death, and the full face amount is paid to the beneficiary.
- D) The beneficiary must choose between receiving the cash value or the death benefit, but not both.
Show answer & explanation
Answer: B
When a policy loan is outstanding at the time of the insured's death, the insurer deducts the loan principal and any accrued interest from the death benefit before paying the remainder to the beneficiary. This is a standard feature of policy loans. Option A is incorrect because the death benefit is reduced, not increased. Option C is incorrect because loans are not forgiven at death. Option D describes a feature of some annuity contracts, not standard life insurance policy loans.
Question 2 (Chapter 5)
An insured dies during the grace period after failing to pay the quarterly premium. The insurer will most likely:
- A) Deny the claim because the policy lapsed the day after the premium due date.
- B) Subtract the overdue premium from the death benefit before payment.
- C) Pay the full face amount of the policy to the beneficiary.
- D) Require the beneficiary to pay the overdue premium before releasing any death benefit.
Show answer & explanation
Answer: B
During the grace period (typically 31 days for life insurance), the policy remains in force. If the insured dies during this period, the insurer is entitled to deduct the overdue premium from the death benefit before paying the beneficiary. Option A is incorrect because the policy does not lapse until after the grace period ends. Option C is incorrect because the overdue premium is deducted. Option D is incorrect because the insurer deducts the amount directly; the beneficiary is not required to pay it out of pocket.
Question 3 (Chapter 5)
Under Arizona law, what is the minimum free look period that must be provided for a life insurance policy after delivery to the policyowner?
- A) 5 days
- B) 20 days
- C) 30 days
- D) 10 days
Show answer & explanation
Answer: D
Arizona law requires a minimum free look period of at least 10 days for life insurance policies. During this time, the policyowner may return the policy for a full refund of premiums paid. This is a standard provision outlined in the Arizona Insurance Code and confirmed in the PSI content outline for the Life, Accident and Health or Sickness Insurance Producer exam.
Question 4 (Chapter 5)
A policyowner takes an automatic premium loan when a premium is due and insufficient cash value exists to cover it. What is the primary purpose of this feature?
- A) To allow the policyowner to skip premium payments indefinitely without consequence.
- B) To increase the death benefit by the amount of the loan.
- C) To waive the need for evidence of insurability if the policy lapses and is later reinstated.
- D) To prevent the policy from lapsing due to nonpayment of premium by using the policy's cash value to fund a loan.
Show answer & explanation
Answer: D
An automatic premium loan provision automatically uses the policy's cash value to cover an overdue premium by creating a policy loan, thereby preventing the policy from lapsing due to nonpayment. Option A is incorrect because loans must be repaid with interest and can lead to lapse if the cash value is exhausted. Option B is incorrect because loans do not increase the death benefit; they reduce it if outstanding at death. Option C describes a feature related to reinstatement, not automatic premium loans.
Question 5 (Chapter 5)
A policyowner wants to add a rider that will pay a portion of the death benefit early if the insured is diagnosed with a terminal illness. Which rider best meets this need?
- A) Accelerated (living) benefit rider
- B) Waiver of premium rider
- C) Cost of living rider
- D) Disability income benefit rider
Show answer & explanation
Answer: A
An accelerated (living) benefit rider allows the insured to receive a portion of the death benefit while still alive if they meet certain criteria, such as a terminal illness, long-term care confinement, or specified medical condition. Option B waives premiums if disabled but does not provide early access to the death benefit. Option C increases the death benefit over time to offset inflation. Option D provides income if disabled but does not accelerate the death benefit.
Question 6 (Chapter 5)
An Arizona resident purchases a participating whole life policy and elects to have dividends used to purchase paid-up additions. Over time, what is the effect of this dividend option on the policy?
- A) The death benefit and cash value both increase.
- B) The premium is reduced each year by the dividend amount.
- C) The dividends are left on deposit with interest.
- D) The policy term is extended if the insured becomes disabled.
Show answer & explanation
Answer: A
Using dividends to purchase paid-up additions increases both the death benefit and the cash value of the policy, as paid-up additions are mini policies that add to both. This does not reduce premiums (that's the reduction of premium option), accumulate dividends at interest, or relate to disability. Arizona recognizes this standard dividend option for participating policies.
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: Settlement Options and Riders
Fixed-period and life income settlement options, the waiver of premium rider, the cost of living rider, the return of premium rider and the effect of waiver on cash value.
Question 7 (Chapter 5)
Under the fixed-period settlement option in an Arizona life insurance policy, the beneficiary receives:
- A) Equal installments for a specified period of time until the principal is exhausted.
- B) A lump sum payment of the entire death benefit.
- C) Payments for life, with a guaranteed minimum number of years.
- D) Only the interest earned on the death benefit, with the principal remaining intact.
Show answer & explanation
Answer: A
The fixed-period settlement option pays the death benefit in equal installments over a selected time period (e.g., 10 or 20 years), ensuring the principal and interest are fully distributed by the end of the period. It does not pay a lump sum, lifetime payments (that's life income), or interest only. Arizona recognizes this standard settlement option as outlined in the PSI content outline.
Question 8 (Chapter 5)
An Arizona life insurance policy includes a waiver of premium rider. The insured becomes totally disabled and unable to work. What is the effect of this rider?
- A) The insured receives a monthly disability income benefit.
- B) The death benefit is doubled if the disability results from an accident.
- C) The policy automatically pays out the cash value to the policyowner.
- D) Future premiums are waived for as long as the disability continues.
Show answer & explanation
Answer: D
A waiver of premium rider waives future premiums if the insured becomes totally disabled, keeping the policy in force without requiring premium payments. It does not provide income (that's a disability income benefit rider), double the death benefit for accidental disability, or pay out the cash value. Arizona recognizes this standard disability-related rider.
Question 9 (Chapter 5)
An Arizona policyowner has a whole life policy with a cost of living rider attached. The rider is designed to increase the death benefit and cash value annually based on changes in the Consumer Price Index (CPI). If the CPI increases by 3% in a given year, what is the most likely effect of this rider?
- A) The premium will decrease by 3% to offset the increase in benefits.
- B) The policy will automatically convert to a term life policy.
- C) The cash value will increase by 3%, but the death benefit remains unchanged.
- D) The death benefit and cash value will increase by 3% that year.
Show answer & explanation
Answer: D
A cost of living rider (COLA) increases both the death benefit and the cash value of the policy annually by a percentage tied to an inflation index like the CPI. It does not reduce premiums, convert the policy type, or affect only the cash value. The increase is meant to help the benefits keep pace with inflation.
Question 10 (Chapter 5)
Under the life income settlement option in an Arizona life insurance policy, the beneficiary receives:
- A) A lump sum payment of the entire death benefit.
- B) Equal installments over a fixed period, such as 10 years.
- C) A guaranteed income for the remainder of the beneficiary's life.
- D) Payments that continue for the lives of two or more designated beneficiaries.
Show answer & explanation
Answer: C
The life income settlement option provides the beneficiary with a guaranteed income stream for the remainder of their life. The amount is based on the death benefit and the beneficiary's life expectancy. It is not a lump sum (A), not a fixed-period amount (B), and not a joint or last survivor option (which would cover two or more lives, as in D).
Question 11 (Chapter 5)
An Arizona life insurance policy includes a return of premium rider. If the insured is still living at the end of the term period, what happens?
- A) The death benefit is paid to the beneficiary.
- B) The policy converts to a permanent life insurance policy.
- C) The policyowner receives a refund of all premiums paid, tax-free.
- D) The policyowner receives a refund of the premiums paid, minus any claims paid.
Show answer & explanation
Answer: C
A return of premium rider, typically attached to a term life policy, refunds the premiums paid if the insured is still living at the end of the term. This refund is generally considered a return of the policyowner's own money and is not taxable as income. It does not pay a death benefit (since the insured is alive), does not convert the policy, and does not subtract claims (as no death claim would have been paid).
Question 12 (Chapter 5)
An Arizona policyowner has a whole life policy with a disability waiver of premium rider. The insured becomes totally disabled and unable to work. After satisfying the rider's waiting period, the insurer waives premiums. Which statement accurately describes the effect on the policy's cash value?
- A) Cash value accumulation stops because no premiums are being paid.
- B) The cash value is used to pay the waived premiums, causing it to decrease over time.
- C) Cash value continues to accumulate based on the original premium amount as if premiums were still being paid.
- D) Cash value accumulation is frozen at the level it reached when disability began.
Show answer & explanation
Answer: C
C is correct because a waiver of premium rider ensures the policy remains in force as if premiums were being paid, so cash value continues to accumulate based on the original premium schedule. A is incorrect because cash value does not stop accumulating. B is incorrect because the insurer, not the policy's cash value, pays the waived premiums. D is incorrect because cash value is not frozen; it continues to grow.
Practice Questions 13-17: Disability Riders and Add-On Coverage
What the waiver of premium rider does once the waiting period is met, how a disability income rider is paid, guaranteed insurability, payor benefit and spouse riders.
Question 13 (Chapter 5)
An Arizona life insurance policy includes a waiver of premium rider. The insured becomes totally disabled and unable to work. After satisfying the rider's waiting period, what is the effect of this rider?
- A) The insurer begins paying a monthly disability income to the insured.
- B) The insurer waives future premiums, and the policy remains in force as if premiums were being paid.
- C) The policy automatically pays the full death benefit to the beneficiary.
- D) The insured must continue paying premiums to keep the policy active.
Show answer & explanation
Answer: B
B is correct because a waiver of premium rider waives the policy premiums during disability, keeping the policy in force as if premiums were being paid. A is incorrect because it describes a disability income benefit rider, not a waiver of premium rider. C is incorrect because the rider does not trigger an early death benefit payment. D is incorrect because the insured does not need to pay premiums; they are waived by the insurer.
Question 14 (Chapter 5)
An Arizona life insurance policy includes a disability income benefit rider. The insured becomes totally disabled and satisfies the waiting period. How is the monthly benefit from this rider typically funded?
- A) By reducing the policy's cash value dollar-for-dollar.
- B) As a loan against the policy that must be repaid with interest.
- C) From the insurer's general assets, not affecting the policy's cash value or death benefit.
- D) By accelerating the death benefit, which is paid monthly instead of as a lump sum.
Show answer & explanation
Answer: C
The disability income benefit rider provides a monthly income if the insured is totally disabled. This benefit is paid from the insurer's general assets and does not involve loans, cash value reductions, or acceleration of the death benefit. It is a separate contractual benefit funded by the insurer.
Question 15 (Chapter 5)
An Arizona policyowner has a whole life policy with a guaranteed insurability rider. The insured exercises the rider to purchase additional coverage. Which of the following is true regarding this transaction?
- A) The insured must provide evidence of insurability, but no additional premium is required.
- B) The insured can purchase additional coverage without providing evidence of insurability, but must pay the premium for the new coverage.
- C) The additional coverage is provided free of charge as a benefit of the rider.
- D) The rider allows the insured to increase the death benefit, but not the cash value, of the policy.
Show answer & explanation
Answer: B
A guaranteed insurability rider allows the policyowner to purchase additional coverage at specified times without providing evidence of insurability. However, the policyowner must pay the premium for the additional coverage based on their attained age and the plan selected.
Question 16 (Chapter 5)
An Arizona policyowner wants to add a rider that will waive future premiums if they become totally disabled and are unable to work, while also ensuring the policy continues to build cash value as if premiums were being paid. Which rider best meets this need?
- A) Waiver of premium rider
- B) Disability income benefit rider
- C) Payor benefit rider
- D) Return of premium rider
Show answer & explanation
Answer: A
The waiver of premium rider waives future premiums upon total disability and allows the policy to remain in force, continuing to accumulate cash value and death benefit as if premiums were paid. The disability income benefit rider provides income but does not waive premiums. The payor benefit rider applies when the payor (not the insured) is disabled. The return of premium rider returns premiums if the insured survives the term. The accidental death benefit rider pays an extra benefit for accidental death only.
Question 17 (Chapter 5)
An Arizona policyowner has a whole life policy with a spouse rider attached. Five years later, the spouse dies. What is the typical outcome for the spouse rider and the base policy?
- A) The base policy's death benefit increases by the amount of the spouse rider's coverage
- B) The spouse rider terminates, and the base policy continues with no change to its death benefit or premiums
- C) The spouse rider converts to an individual policy on the surviving spouse
- D) The base policy is surrendered for its cash value, and the spouse rider pays out as a death claim
Show answer & explanation
Answer: B
A spouse rider provides term life insurance coverage on the spouse of the primary insured. If the spouse dies, the rider pays a death benefit (if applicable) and then terminates. The base policy on the primary insured remains in force unchanged—its death benefit, premiums, and cash value accumulation are not affected by the termination of the rider.
The Mistakes That Cost Marks
Forgetting that loans reduce the death benefit. An outstanding loan plus interest comes off the proceeds (Question 1), and an overdue premium comes off during the grace period (Question 2).
Mixing up the disability riders. Waiver of premium pays the premiums, the disability income rider pays the insured a monthly income, and the payor benefit rider applies when the payor is disabled (Questions 8, 13, 14 and 16).
Confusing dividend options. Paid-up additions increase both death benefit and cash value, while reduction of premium and accumulation at interest do something else (Question 6).
Mixing up settlement options. Fixed period is installments over a set time, life income is for the beneficiary's lifetime, and interest only leaves the principal intact (Questions 7 and 10).
Assuming guaranteed insurability means free coverage. You skip evidence of insurability at the option dates, but you still pay for the new coverage (Question 15).
Thinking waiver stops cash value. With the rider, the policy continues as if premiums were being paid (Question 12).
Your Next Step
Practice by topic until you are comfortably above 70% on mixed questions, then move to the next block. Preview the Arizona Life & Health course to hear how the audio lessons cover this section, and use the Arizona Life & Health practice question hub to find the other topic sets.
Free: 25 Arizona 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 Arizona Life & Health Exam on the First Try (2026)
9 min read
$209.69 All-In: Arizona Life & Health License Cost 2026
7 min read
25 Free Arizona Life, Accident & Health Exam Practice Questions (2026)
25 min read
Is the Arizona Life & Health Exam Hard? Pass Rates and Difficulty (2026)
5 min read
17 Free Arizona Life & Health Practice Questions: Types of Life Insurance Policies (2026)
12 min read
17 Free Arizona Life & Health Practice Questions: Annuities; Federal Tax Considerations (2026)
12 min read