17 Free Nevada Life & Health Practice Questions: Life Underwriting, Applications and Retirement Concepts (2026)
How to Use This Underwriting and Retirement Set
This set covers the last two topics of the Life-General section of the Nevada Life and Health exam: completing the application, underwriting and delivering the policies (12 scored items) and retirement and other insurance concepts (8). Together that is 20 of the 50 Life-General scored items.
These 17 questions come from LanePrep's Nevada Life & Health quiz bank (chapter 4). They follow a policy from the application to delivery and then move on to buy-sell agreements, retirement plans, MEC taxation and privacy notices.
Follow the money and the paperwork. Most questions turn on who owns the policy, who pays the premium, what has to be signed or delivered, and how the proceeds are taxed.
Practice Questions 1-6: Applications, Risk Classes, Delivery, the 7-Pay Test, Ownership and the Free Look
These questions follow a policy through the application: an incomplete application that was issued anyway, how an underwriter classifies an impaired risk, what a producer must collect at delivery, the test that turns a policy into a modified endowment contract, a grandparent as policyowner and the Nevada free-look period for a replacement.
Question 1 (Chapter 4)
An insurer in Reno receives an application that is missing the applicant's occupation. However, the insurer issues the policy anyway. Six months later, the insured is injured in a high-risk job. Can the insurer deny the claim based on the missing information?
- A) Yes, because the application was technically incomplete.
- B) Yes, because the occupation is a material fact.
- C) No, because occupation only matters for disability insurance, not life insurance.
- D) No, because by issuing the policy, the insurer waived its right to the information.
Show answer & explanation
Answer: D
Under the legal doctrine of waiver, if an insurer receives an incomplete application and issues the policy anyway, they have waived their right to that information and cannot later use the omission to void the contract or deny a claim.
Question 2 (Chapter 4)
After a medical exam, an underwriter determines that an applicant's health is significantly below average due to chronic illness but is still insurable. How will this risk likely be classified?
- A) Standard
- B) Preferred
- C) Declined
- D) Substandard
Show answer & explanation
Answer: D
Applicants who pose a higher-than-average risk due to physical condition, occupation, or habits are classified as Substandard (or 'Rated'). They are usually issued policies with higher premiums.
Question 3 (Chapter 4)
An applicant submitted an application without the initial premium. The policy is later issued and the producer goes to deliver it. What must the producer collect at the time of delivery?
- A) The initial premium only.
- B) A signed Statement of Good Health only.
- C) Nothing; the policy is already in force.
- D) The initial premium and a signed Statement of Good Health.
Show answer & explanation
Answer: D
If the premium was not paid with the application, coverage is not yet in effect. Upon delivery, the producer must collect the premium and a Statement of Good Health signed by the insured to verify their health has not changed since the application.
Question 4 (Chapter 4)
A life insurance policy that fails the '7-pay test' is classified by the IRS as a:
- A) Variable Life Policy
- B) Flexible Premium Annuity
- C) Term Life Policy
- D) Modified Endowment Contract (MEC)
Show answer & explanation
Answer: D
If a policy is funded too heavily in the first seven years (failing the 7-pay test), it becomes a MEC. This results in less favorable tax treatment for loans and withdrawals (LIFO instead of FIFO).
Question 5 (Chapter 4)
A grandmother purchases a life insurance policy on her grandson and retains all ownership rights. This is an example of:
- A) Third-party ownership
- B) Group insurance
- C) Adverse selection
- D) A Viatical settlement
Show answer & explanation
Answer: A
Third-party ownership occurs when the policyowner is someone other than the insured. This is common in juvenile insurance, business insurance, and estate planning.
Question 6 (Chapter 4)
A life insurance policy is issued to a Reno resident as a replacement for an existing policy. According to NRS 688A.165, what is the required 'free-look' period for this specific transaction?
- A) 30 days
- B) 10 days
- C) 20 days
- D) 45 days
Show answer & explanation
Answer: A
While the standard free-look period in Nevada is 10 days, NRS 688A.165(2) mandates a 30-day free-look period for replacement policies.
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Practice Questions 7-12: Delivery Again, Privacy, Adhesion, Executive Bonus Plans and Buy-Sell Agreements
Delivery gets a second look from a different angle, followed by the federal privacy notice, why ambiguity in a policy is read against the insurer, an executive bonus plan, and how many policies an entity-purchase buy-sell agreement needs and who owns them.
Question 7 (Chapter 4)
A producer delivers a policy to an applicant who did not pay the initial premium at the time of application. Before leaving the policy, the producer must collect the premium and a signed:
- A) Statement of Good Health
- B) Waiver of Premium rider
- C) Binding Receipt
- D) Attending Physician's Statement
Show answer & explanation
Answer: A
If the premium was not paid with the application, the policy is not yet in force. Upon delivery, the producer must ensure the applicant's health has not changed by collecting a signed Statement of Good Health along with the premium.
Question 8 (Chapter 4)
A business with four partners wants to enter into an 'Entity Purchase' Buy-Sell agreement. How many life insurance policies must the business purchase?
- A) 8
- B) 12
- C) 4
- D) 16
Show answer & explanation
Answer: C
In an Entity Purchase plan, the business itself buys one policy on each partner. Since there are four partners, four policies are needed. (In a Cross-Purchase plan, each partner buys a policy on every other partner, which would require 12 policies).
Question 9 (Chapter 4)
An applicant in Las Vegas is completing a life insurance application. The producer provides a notice explaining that the insurer may collect nonpublic personal information from third parties and that the applicant has the right to opt-out of certain disclosures. This disclosure is required by which federal law?
- A) The Fair Credit Reporting Act (FCRA)
- B) The USA PATRIOT Act
- C) The Gramm-Leach-Bliley Act (GLBA)
- D) The Freedom of Information Act
Show answer & explanation
Answer: C
The Gramm-Leach-Bliley Act (GLBA) requires financial institutions, including insurance companies, to provide customers with a privacy notice and the opportunity to opt-out of sharing their nonpublic personal information with non-affiliated third parties. FCRA (A) deals with credit reports, while the USA PATRIOT Act (B) focuses on anti-money laundering.
Question 10 (Chapter 4)
If a life insurance policy contains ambiguous language that could be interpreted in multiple ways, a Nevada court will generally rule in favor of the insured. This is because the contract is a:
- A) Contract of Aleatory
- B) Contract of Utmost Good Faith
- C) Contract of Adhesion
- D) Contract of Indemnity
Show answer & explanation
Answer: C
Insurance is a contract of adhesion because the insurer drafts the policy and the applicant can only accept it as written or reject it, so it is the applicant who 'adheres' to the insurer's language. Since the applicant has no power to negotiate the terms, any ambiguity is legally construed against the drafter (the insurer).
Question 11 (Chapter 4)
A Nevada corporation wants to provide an extra retirement benefit only to its top three executives. They set up a plan where the corporation pays the premiums on life insurance policies owned by the executives. This is known as a(n):
- A) Executive Bonus Plan
- B) 403(b) Tax-Sheltered Annuity
- C) Keogh Plan (HR-10)
- D) Simplified Employee Pension (SEP)
Show answer & explanation
Answer: A
An Executive Bonus Plan is a non-qualified plan where the employer pays the premiums on a life insurance policy for a selected employee. The premium is considered taxable income to the employee, but the plan does not have to follow the non-discrimination rules of qualified plans.
Question 12 (Chapter 4)
Two partners in a business worth $1,000,000 want to ensure the business continues if one dies. They enter into an Entity Purchase Buy-Sell agreement. Who is the owner of the life insurance policies?
- A) The business entity owns a policy on each partner
- B) Each partner owns a policy on the other partner
- C) The partners' spouses own the policies
- D) The Nevada Division of Insurance acts as the trustee owner
Show answer & explanation
Answer: A
In an Entity Purchase (or Stock Redemption) plan, the business itself is the owner, premium payer, and beneficiary of policies on the lives of the owners/partners.
Practice Questions 13-17: Retirement Plans, Group Conversion, MEC Withdrawals and Privacy Notices
The last five questions cover matching a retirement plan to the employer, what premium applies when group coverage converts to an individual policy, how a withdrawal from a MEC is taxed, and when a consumer who is not yet a customer must receive a privacy notice.
Question 13 (Chapter 4)
A teacher working for a public school district in Carson City wants to contribute to a retirement plan. Which of the following plans is specifically designed for employees of public schools and non-profits?
- A) 401(k) Plan
- B) Keogh Plan
- C) 403(b) Tax-Sheltered Annuity (TSA)
- D) Section 529 Plan
Show answer & explanation
Answer: C
403(b) plans, or Tax-Sheltered Annuities, are qualified retirement plans available to employees of public school systems and certain 501(c)(3) non-profit organizations.
Question 14 (Chapter 4)
A state employee working for the Nevada Department of Transportation wishes to contribute to a tax-deferred retirement plan specifically designed for employees of state and local governments. Which plan applies?
- A) 401(k) Plan
- B) Section 457 Deferred Compensation Plan
- C) 403(b) Plan
- D) HR-10 Keogh Plan
Show answer & explanation
Answer: B
Section 457 plans are deferred compensation plans for employees of state and local governments and certain non-profit organizations. 403(b) plans (Option C) are for public schools and 501(c)(3) charities.
Question 15 (Chapter 4)
An employee in Sparks leaves their job and decides to convert their group life insurance to an individual permanent policy. Which of the following is TRUE regarding the premium for the new individual policy?
- A) It will be the same as the group rate.
- B) It will be based on the employee's attained age at the time of conversion.
- C) It will be based on the employee's age when they first joined the group plan.
- D) The employer must continue to pay 50% of the premium for the first year.
Show answer & explanation
Answer: B
When converting from group to individual coverage, the new policy's premium is based on the insured's attained (current) age. It is typically a permanent policy (like Whole Life) and is much more expensive than the group term rate.
Question 16 (Chapter 4)
An individual has a Modified Endowment Contract (MEC) with a cost basis of $20,000 and a cash value of $30,000. If they take a $5,000 withdrawal, how is this amount taxed?
- A) The entire $5,000 is tax-free as a return of premium.
- B) The entire $5,000 is taxable as ordinary income.
- C) Only 10% of the withdrawal is taxable.
- D) The $5,000 is taxed as a capital gain.
Show answer & explanation
Answer: B
MECs are taxed on a LIFO (Last-In, First-Out) basis. This means any withdrawals are considered to come from interest/earnings first. Since there is $10,000 of gain in the policy, the entire $5,000 withdrawal is taxable as ordinary income.
Question 17 (Chapter 4)
Under the Gramm-Leach-Bliley Act (GLBA), when must an insurer provide a privacy notice to a 'consumer' (someone who has not yet become a customer)?
- A) Every time the consumer visits the insurer's website.
- B) Only if the insurer intends to disclose nonpublic personal information to a nonaffiliated third party.
- C) Within 90 days of the first contact.
- D) Only if the consumer specifically requests one in writing.
Show answer & explanation
Answer: B
For consumers, a privacy notice is only required if the financial institution intends to share their nonpublic personal information with nonaffiliated third parties. For 'customers' (those with an ongoing relationship), a notice is required at the time the relationship is established and annually thereafter.
The Mistakes That Cost Marks
Assuming coverage starts when the application is signed. If the initial premium did not accompany the application, the policy is not in force when it is issued. At delivery the producer collects the premium and a signed statement of good health to confirm nothing has changed (questions 3 and 7).
Forgetting what an incomplete application means. An insurer that issues a policy on an application with a missing answer generally waives the right to rely on that omission later (question 1).
Miscounting buy-sell policies. In an entity purchase the business owns one policy on each owner, so four partners mean four policies. In a cross-purchase each owner buys a policy on every other owner, so four partners mean twelve (questions 8 and 12).
Getting MEC taxation backwards. A policy that fails the 7-pay test becomes a modified endowment contract, and withdrawals are taxed last in, first out: gain comes out first and is taxed as ordinary income (questions 4 and 16).
Matching the wrong retirement plan. A 403(b) fits public school employees and 501(c)(3) organizations, a 457 plan fits state and local government employees, and an executive bonus plan is a non-qualified arrangement for selected employees (questions 11, 13 and 14).
Mixing up privacy rules. The Gramm-Leach-Bliley Act requires privacy notices and gives the right to opt out of certain disclosures. A consumer who is not yet a customer gets a notice only if the insurer intends to share nonpublic personal information with a nonaffiliated third party, while a customer gets one when the relationship begins and annually after that (questions 9 and 17).
Getting the free look backwards. A Nevada life policy has a 10-day free look, but a replacement policy gets a longer one: 30 days (NRS 688A.165; question 6).
Forgetting who drafts the contract. Insurance is a contract of adhesion, so ambiguity is read against the insurer that wrote it (question 10). Group coverage converted to an individual policy is priced at attained age (question 15).
Your Next Step
Mark the ones you missed, then turn to the health side with health and disability insurance products, or to the state-law block with Nevada life insurance law. For the rest of the course, start from the free Nevada Life & Health practice questions page, and you can open the free course preview to hear the material instead of reading it.
Item counts and weights come from Pearson VUE's Nevada Insurance Content Outlines. Read October 2026.
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