Life-Producer Insurance Licensing Maryland Life Producer Exam (Series 20-27) Free Practice Exam Questions (2025 Updated)

Comprehensive and Detailed Step by Step Explanation:

Underwriting involves evaluating risk factors that could influence the likelihood of claims and ensuring compliance with anti-discrimination laws.

Ethnic heritage (A):Incorrect. Using ethnic heritage as an underwriting factor violates anti-discrimination laws, including Maryland Insurance Article §27-501.

Amount of insurance applied for (B):Correct. Insurers consider coverage amounts to assess risk and pricing.

Driving record (C):Correct. Poor driving history, particularly DUI incidents, increases risk.

Family health history (D):Correct. Inherited conditions and family medical history help predict potential health risks.

Comprehensive and Detailed Step by Step Explanation:

Maryland law requires that insurance advertisements be honest, transparent, and not misleading.

Truthful (D):Correct. Ads must provide accurate information about insurance products and benefits without omitting material facts.

Approved by the Insurance Commissioner (A):Some materials may require regulatory review, but general ads do not need pre-approval.

Clear only by implication (B):Misleading and prohibited.

Clear only by familiarity with insurance terminology (C):Ads must be understandable to the general public, not just industry professionals.

Comprehensive and Detailed Step by Step Explanation:

To be legally enforceable, a contract must meet the following requirements:

Offer and acceptance (A):One party must propose terms, and the other must agree to them.

Competent parties (B):Individuals must have the legal capacity to enter a contract (e.g., not minors or mentally incapacitated).

Consideration (C):Each party must provide something of value (e.g., money, services, or promises).

Written evidence (D)is not required for all contracts, as some verbal agreements are enforceable depending on the type of contract (except for specific cases like real estate).

Comprehensive and Detailed Step by Step Explanation:

Cash values in whole life insurance are a key feature, and they:

Accumulate as a result of thelevel premium concept (A), where excess premiums in the early years of the policy build the cash value.

Are guaranteedin whole life policies, contrary to option B.

Do not equal the face value at age 65 (C) unless specifically structured for that purpose.

Continue to grow beyond age 65 as long as the policy remains active, invalidating option D.

Comprehensive and Detailed Step by Step Explanation:

Aflexible premium fixed annuityis designed to allow policyholders flexibility in premium payments while providing guaranteed growth.

Flexible deposits:Policyholders can make variable contributions based on their financial situation.

Deferred taxation:Earnings grow tax-deferred until withdrawal.

Guaranteed minimum interest rate:Fixed annuities offer this feature to protect against market downturns.

Death proceeds equal to cash value:Upon death, beneficiaries typically receive the accumulated cash value.

Other Options:

Adjustable whole life policy (A):Features adjustable premiums but lacks deferred taxation and guaranteed rates.

Deferred annuity (B):Generic and does not specify the features of fixed annuities.

Universal life (D):Provides more flexibility but differs in guaranteed returns.

Comprehensive and Detailed Step by Step Explanation:

Qualified retirement plans are subject to federal rules governing contribution limits:

Contributionscannot exceed IRS limits (C), which are adjusted annually.

Employers may adjust amounts annually, invalidating (A).

Contributions vary by employee and do not require identical dollar amounts, making (B) incorrect.

Contributions are typically unrelated to work performance, invalidating (D).

Comprehensive and Detailed Step by Step Explanation:

Group life insurance policies in Maryland typically include a conversion privilege allowing former employees to convert group coverage to an individual policy within a 31-day period after termination, regardless of premium payment status.

$50,000 under the group plan (A):Correct. During the 31-day conversion period, the original group coverage remains in effect. If the insured dies during this time, the death benefit is paid under the group plan.

$50,000 under the new policy (B and C):Incorrect, as the conversion policy does not become effective until the first premium is paid.

Nothing at all (D):Incorrect, as coverage is still active during the conversion period.

Comprehensive and Detailed Step by Step Explanation:

Insurance producers using an assumed or fictitious name for their business must file the name with the Maryland Insurance Administration (MIA).

File the name with the Insurance Administration (A):This ensures transparency and compliance with regulatory standards.

Apply for an additional license (B):Not required; the existing license covers the producer.

Apply for an additional appointment (C):Applies when a producer represents multiple insurers, not for fictitious names.

Post a $10,000 bond (D):Irrelevant to this context.

Comprehensive and Detailed Step by Step Explanation:

An agent’s license can be revoked for serious infractions that violate Maryland’s insurance laws:

Rebating (B):Prohibited under Maryland’s Unfair Trade Practices Act.

Felony conviction (C):Grounds for revocation as it questions the agent’s moral character.

Violating insurance statutes or regulations (D):Includes infractions such as fraud, misrepresentation, or failure to meet ethical standards.

Having no insurer appointment for ten days (A):Incorrect. A lack of appointment does not constitute a violation; it only affects the ability to conduct business temporarily.

Comprehensive and Detailed Step by Step Explanation:

Theneeds approachassesses financial requirements to determine the appropriate amount of life insurance.

Covering unexpected expenses (B):Emergency reserve funds help beneficiaries handle unforeseen costs, such as urgent repairs, medical emergencies, or temporary loss of income.

College tuition and books (A):This falls under education funding needs, not emergency reserves.

Paying off mortgages (C):This is categorized as debt repayment, separate from the reserve fund.

Providing retirement income (D):This is a long-term goal that requires separate planning, not immediate financial reserves.

Comprehensive and Detailed Step by Step Explanation:

For life insurance, an insurable interest exists when there is a legitimate interest in the continued life of another person:

Marriage partners (C) inherently have insurable interest due to emotional and legal ties.

Competitors (A) and traveling companions (D) do not usually meet the legal threshold.

Business associates (B) may have insurable interest, but only in specific agreements (e.g., buy-sell agreements).

Comprehensive and Detailed Step by Step Explanation:

Defamationin the context of insurance involves publishing false or malicious statements intended to harm an insurer’s reputation.

Defamation (A):Includes false claims about an insurer’s financial stability, products, or business practices, prohibited under Maryland law.

Intimidation (B):Refers to coercing individuals into specific actions, unrelated to false publications.

Extortion (C):Involves obtaining something of value through threats, unrelated to false statements.

Coercion (D):Focuses on forcing compliance, not publishing falsehoods.

Comprehensive and Detailed Step by Step Explanation:

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.

Comprehensive and Detailed Step by Step Explanation:

Paying an applicant’s premium is considered arebate, which is generally prohibited in Maryland unless explicitly permitted by law.

Rebates (B)involve offering inducements not specified in the policy, which can undermine fairness and market stability.

Gifts (A)andloans (C)imply separate intentions and are distinct from policy-related payments.

Cost of doing business (D)does not apply, as paying premiums on behalf of clients violates anti-rebating laws.

Comprehensive and Detailed Step by Step Explanation:

When a death claim is filed on a life insurance policy with an outstanding loan:

Deducted from the face amount (A):The death benefit is reduced by the loan balance plus any accrued interest, ensuring the insurer recovers the outstanding debt.

Beneficiary obligation (B):Incorrect. The beneficiary receives the adjusted benefit without personal liability for the loan.

Claim against the estate (C):Incorrect. The loan is tied to the policy, not the estate.

Canceled without adjustment (D):Incorrect, as insurers must recoup the loan amount from the death benefit.

Comprehensive and Detailed Step by Step Explanation:

In an annuity, theannuitant (D)is the individual entitled to receive benefits during the liquidation phase.

Theowner (A)controls the contract but may not be the recipient.

Thebeneficiary (B)receives funds only after the annuitant’s death.

Nominator (C)is not a term used in annuities.

Comprehensive and Detailed Step by Step Explanation:

Theinsurer’s expensesare a critical factor in premium calculations. Insurers must cover operational costs, claims payouts, reserves, and regulatory compliance while ensuring profitability.

Insurer (B):Correct. Expenses such as underwriting, administrative costs, and agent commissions are incorporated into the premium.

Producer (A):Costs are included indirectly through commissions but are not a direct factor.

Policy beneficiary (C):Plays no role in premium determination.

Policy owner (D):Pays the premium but does not influence expense considerations.

Comprehensive and Detailed Step by Step Explanation:

Ethical responsibilities and state laws mandate that insurance producers act in good faith when handling applications.

Reporting material facts to the insurer (D):Producers must disclose any information that could impact underwriting decisions. Transparency ensures that policies are accurately priced and legally enforceable.

Denying knowledge (A):Violates ethical and legal obligations.

Acknowledging facts only if asked (B):Demonstrates bad faith and can lead to legal penalties.

Advising applicants to amend (C):While this helps, it does not fulfill the producer’s duty to inform the insurer.

Comprehensive and Detailed Step by Step Explanation:

During the liquidation (or payout) phase of an annuity, the annuitant receives periodic payments:

The annuitant (D) is the individual designated to receive the payments, as they are the insured party in the contract.

The owner (A) is often the annuitant but may differ; the owner controls the contract but does not necessarily receive payments.

The beneficiary (B) receives the death benefit if the annuitant passes away, not the periodic payments.

"Nominator" (C) is not relevant terminology in annuities.