Life-Producer Insurance Licensing Maryland Life Producer Exam (Series 20-27) Free Practice Exam Questions (2026 Updated)

A rollover IRA is used to defer taxes on qualifying distributions.

Proceeds from a life insurance policy (A) are generally not eligible for tax-deferred treatment.

Refunds from a refund life annuity (B) are considered taxable income and not eligible for rollover.

Amounts paid to a spouse under a tax-sheltered annuity (C) qualify for rollover treatment because they meet IRS rollover rules for deferred taxation.

IRAs inherited from parents (D) follow different tax rules and cannot be directly rolled over into a new IRA.

Understanding life insurance replacement.

Policy replacement occurs when an existing policy is lapsed, surrendered, or exchanged for a new policy.

Maryland strictly regulates replacements to protect consumers from unnecessary financial harm.

Evaluate each option.

A. Capital gains taxation

Life insurance generally does not produce capital gains tax upon replacement.

B. Small business taxation

Not relevant to individual policy replacement.

C. An illegal transaction

Replacement is legal when properly disclosed and documented.

D. Surrender costs

Correct. Surrender charges may apply if the old policy is terminated early.

Maryland consumer protection context.

Maryland replacement regulations require producers to explain surrender charges, loss of benefits, and new contestability periods to ensure good-faith conduct.

Conclusion.

Policy replacement may result in surrender costs, making option D correct.

Purpose of the needs approach.

The needs approach calculates the amount of life insurance needed to meet specific financial obligations upon the insured’s death.

Apply the concept.

It considers income replacement, debts, education costs, and final expenses.

Evaluate each option.

A. Types of individuals

Prospecting issue, not a needs analysis.

B. Amount of life insurance

Correct. This is the primary use of the needs approach.

C. Best companies

Product selection issue, not needs-based.

D. Prospecting method

Sales strategy, not needs-based.

Maryland suitability relevance.

Maryland requires producers to make suitable recommendations, and the needs approach supports suitability and good faith.

Conclusion.

The needs approach is used to determine how much insurance to recommend.

Purpose of underwriting selection criteria.

Underwriting evaluates risk factors that affect life expectancy and mortality.

Evaluate each option.

A. Age

A fundamental actuarial factor.

B. National origin

Prohibited. Maryland and federal law prohibit discrimination based on national origin.

C. Health status

A core underwriting factor.

D. Smoking habits

A valid mortality-related risk factor.

Maryland anti-discrimination rules.

Maryland law prohibits unfair discrimination unrelated to actuarial risk.

Conclusion.

National origin may not be used as an underwriting selection criterion.

Purpose of key person life insurance.

Key person (key employee) life insurance is designed to protect a business against financial losses resulting from the death of an individual who is critical to the company’s success.

Evaluate each option.

A. Loss of leadership

A valid reason; leadership loss can disrupt operations and strategy.

B. Reduction of profits

A valid reason; key individuals often generate revenue or manage profit centers.

C. Loss of new business

A valid reason; sales executives or innovators often drive growth.

D. Increased pension liability

Not a valid reason; pension obligations are unrelated to the purpose of key person insurance.

Maryland insurance context.

Maryland recognizes key person insurance as a legitimate business risk management tool, but its purpose is income and continuity protection, not funding employee benefits.

Conclusion.

Increased pension liability is unrelated to key person coverage, making option D correct.

Role of federal securities regulation.

Securities laws regulate investments such as:

Stocks

Bonds

Variable life insurance

Variable annuities

Authority of the SEC.

The Securities and Exchange Commission (SEC) is the federal agency created by Congress to:

Enforce federal securities laws

Regulate securities markets

Protect investors

Relevance to insurance producers.

Maryland producers selling variable products must:

Hold an insurance license, and

Be registered with FINRA and regulated by the SEC.

Why the other options are incorrect.

The other agencies listed do not exist under federal law.

Conclusion.

The SEC enforces securities laws enacted by Congress.

Definition of single premium whole life insurance.

A single premium whole life policy is funded with one lump-sum premium payment at issue.

No additional premiums are ever required.

What the single premium accomplishes.

That one payment is actuarially calculated to:

Provide lifetime coverage, and

Build immediate cash value sufficient to support the policy for life.

Why other time periods are incorrect.

One month / one year: These describe term or annually renewable policies, not whole life.

To age 65: This describes limited-pay whole life, not single premium.

Maryland consumer protection relevance.

Maryland requires disclosure that single premium policies may trigger tax consequences and MEC status, reinforcing that the payment funds the entire policy duration.

Conclusion.

One premium payment covers the full life of the policy.