17 Free Arizona Life & Health Practice Questions: Types of Life Insurance Policies (2026)

Answer: B

In decreasing term life insurance, the death benefit decreases at a predetermined rate, often to match a declining obligation like a mortgage. Starting at $100,000 and decreasing by $5,000 per year, after 10 years the benefit is $100,000 - (10 × $5,000) = $50,000. Since the insured died at that point, the beneficiary receives $50,000. Options A, C, D do not reflect the correct calculation or nature of decreasing term.

Answer: B

In a limited payment whole life policy (such as 20-pay life), premiums are paid for a specified period (here, 20 years), after which the policy is considered paid up. No further premiums are required, but the death benefit coverage continues for the insured's entire life. Options A, C, D are incorrect: coverage does not end, the death benefit does not automatically double, it does not convert to term, and no increased payments are needed.

Answer: C

Indexed universal life insurance credits interest to the cash value based on the performance of a specified equity index (like the S&P 500), subject to a participation rate, cap, or spread, and includes a guaranteed minimum return to protect against market downturns. It does not use mutual sub-accounts (that is variable life), a fixed declared rate (that is universal life), direct bond investment, or general portfolio performance.

Answer: B

A key characteristic of group life insurance is the conversion privilege: upon termination of employment, employees can typically convert their group term coverage to an individual permanent life insurance policy without providing evidence of insurability, though they must apply and pay premiums within a limited time. Options A, C, D are incorrect: individual underwriting is not required (that's the point of group), coverage is not automatically portable (conversion requires action), and benefits are usually salary-based rather than a flat amount.

Answer: C

When an accelerated death benefit rider is exercised, the amount paid reduces the death benefit payable upon death. The insured received 50% of $400,000 = $200,000 while living, leaving $200,000 to be paid to the beneficiary upon death. Options A, B, and D are incorrect because the death benefit is not zero, the full amount, or increased due to the rider payment.

Answer: D

Variable universal life (VUL) insurance combines the investment flexibility of variable life (investing in sub-accounts) with the premium and death benefit adjustability of universal life. Variable life (A) lacks premium and death benefit flexibility, universal life (B) does not offer direct investment in sub-accounts (it uses a declared interest rate), and indexed universal life (C) ties returns to an index, not direct sub-account investments. Therefore, D is the correct choice.

Answer: D

Limited payment whole life insurance (e.g., 10-pay, 20-pay) provides lifelong coverage with a guaranteed death benefit, but premiums are required only for a specified period (e.g., 15 years). After that period, the policy is paid-up and remains in force with no further premium payments. Option A (level term) only covers a specific term, not lifelong. Option B (single premium) requires one lump sum, not payments over a limited number of years. Option C (annual renewable term) is yearly renewable term, not lifelong and not limited payment.

Answer: A

Joint life insurance (also called first-to-die) pays the death benefit upon the death of the first insured person. After the death benefit is paid, the policy terminates. The beneficiary (often the surviving spouse) receives the proceeds. Option A correctly states this outcome. Option B is incorrect because the policy does not continue after the first death. Option C is incorrect because the beneficiary is typically the surviving spouse, not the estate (unless named as such), but the key point is the benefit is paid and the policy ends. Option D is not a feature of joint life insurance.

Answer: D

Indexed universal life (IUL) insurance credits interest to the cash value based on the performance of a specified stock market index (e.g., S&P 500), but includes a guaranteed minimum interest rate (often 0% to 2%), protecting against market downturns. This provides potential for index-linked gains without direct market investment risk. Option A is incorrect because the cash value is not directly invested in the stock market—returns are index-linked only. Option B is false; IUL offers flexible premiums within policy limits. Option C is incorrect; the death benefit does not decrease based on index performance and can be level or increasing.

Answer: D

A waiver of premium rider, if included in a life insurance policy, excuses the policyowner from paying premiums if they become totally disabled (as defined in the policy) for a specified period (often 6 months). Once approved, the insurance company waives all future premiums, and the policy remains in force for the remainder of the term or until the insured's death. Option A is incorrect because the rider specifically eliminates the premium payment requirement during disability. Option B is not a standard feature of the waiver of premium rider. Option C is incorrect; the rider does not trigger conversion to another policy type—it only affects premium payments.

Answer: A

In a whole life insurance policy, the cash value is guaranteed to grow at a minimum interest rate (often called the guaranteed interest rate) as specified in the policy contract. This growth is predictable and not subject to market fluctuations. Option B is incorrect because whole life cash value is not invested in the stock market—it is held in the insurer's general account. Option C is incorrect because cash value withdrawals may be subject to income tax if they exceed the policy's basis (total premiums paid), and loans accrue interest. Option D is false; cash value begins to accumulate from the first premium payment, although it grows slowly in the early years due to expenses.

Answer: D

Universal life insurance provides lifelong coverage, offers a guaranteed minimum death benefit (if premiums are sufficient to keep the policy in force), and allows flexible premium payments—policyowners can pay more or less than the target premium within limits, as long as the policy has sufficient cash value to cover costs. Option A is incorrect because term life only provides coverage for a specific term and does not offer lifelong coverage or cash value. Option B is incorrect because whole life requires fixed premium payments; it does not offer flexible premium payments. Option C is incorrect because variable life requires fixed premiums and does not offer premium flexibility; its cash value grows based on investment performance, not a guaranteed minimum return.

Answer: A

Increasing term life insurance features a death benefit that rises over the policy term, typically to offset inflation or increasing financial responsibilities. Level term (B) has a fixed death benefit. Decreasing term (C) has a declining death benefit, suited for mortgage protection. Annual renewable term (D) is a yearly renewable term with level death benefit but increasing premiums; it does not inherently increase the death benefit.

Answer: B

Increasing the death benefit on an adjustable life policy typically requires evidence of insurability due to the increased risk to the insurer. Options A and C are incorrect because changes are not automatic or without underwriting. Option D describes a premium adjustment mechanism but omits the underwriting requirement.

Answer: C

Joint life insurance pays the death benefit when the first insured dies. Survivorship life (second-to-die) pays only when the second insured dies, making it useful for estate planning. Options A, B, and D incorrectly describe the payout mechanics of these policies.

Answer: C

Universal life insurance cash value grows based on a declared interest rate credited by the insurer, which can change over time but is subject to a contractual minimum. It does not involve direct equity investments (like variable life) or index tracking (like IUL) as its primary growth mechanism, and returns are not guaranteed to match CD rates.

Answer: C

Limited payment whole life insurance requires premiums for a specified period (e.g., 10, 20, or life paid up at 65), after which no further premiums are needed, but coverage continues for the insured's whole life. Level term (A) only covers a specific term and does not build cash value or provide lifelong coverage. Continuous premium whole life (B) requires payments for life. Annual renewable term (D) is yearly renewable term with increasing premiums and no cash value.