CLU Individual Life Insurance Underwriting Practice Questions
Question 1
A surgeon is considering a disability contract with a 90-day elimination period, residual benefits, and an own-occupation definition. The surgeon sometimes can work reduced hours during recovery. Which provision most directly addresses partial earnings loss?
- A. The incontestability clause, which limits the insurer's ability to contest the policy after it has been in force for a stated period.
- B. The accidental-death rider, which pays an additional benefit when the surgeon's reduced earnings result from an injury.
- C. The free-look provision, which lets the surgeon return the policy for a refund of premium during the initial review period.
- D. The residual or partial disability benefit, subject to its earnings-loss tests.
Show answer and explanation
Correct answer: D. The residual or partial disability benefit, subject to its earnings-loss tests.
A residual (partial) disability benefit pays a proportion of the full benefit when income falls after a disability, even though the insured works part time. It is separate from the own-occupation definition and the elimination period.
- A. Incontestability limits the insurer's right to challenge the policy and does not pay for lost earnings.
- B. An accidental-death rider pays on death, not for partial earnings loss.
- C. The free-look provision is a cancellation right after delivery and does not address earnings loss.
- D. The residual benefit pays when partial work reduces income, subject to earnings-loss tests.
Question 2
An applicant pays the first premium and receives a conditional receipt giving coverage, up to $500,000, from the later of the application or exam date if she is insurable as applied for. She applies for $400,000, completes the exam, and dies in an accident ten days later before underwriting ends. The file shows she would have been approved at the standard class applied for. What is the result?
- A. The insurer must refund the premium, because coverage cannot begin until an underwriter formally approves the risk and issues the policy
- B. The insurer owes the $400,000 death benefit, because she met the insurability standard when the receipt's coverage began
- C. No benefit is due, because a policy must be delivered and in force before a death benefit exists
- D. The insurer owes 50% of the face amount, a standard split when death occurs during underwriting
Show answer and explanation
Correct answer: B. The insurer owes the $400,000 death benefit, because she met the insurability standard when the receipt's coverage began
Under an insurability-type conditional receipt, interim coverage begins when the stated conditions are met and depends on whether the applicant was in fact insurable as applied for, not on whether the underwriter had acted. She was insurable, and $400,000 is within the receipt's limit.
- A. A conditional receipt provides interim coverage from the stated date if the applicant is insurable, so coverage does not wait for formal approval or policy issue.
- B. Correct. Insurability, not completed approval, is the test under this receipt.
- C. Interim coverage under a conditional receipt can pay before delivery, which is its purpose.
- D. No standard 50% split exists for deaths during underwriting.
Question 3
Two 45-year-old nonsmoking male applicants apply for the same insurer's best available underwriting class. Applicant 1 has normal blood pressure and cholesterol, no chronic conditions, and no adverse family history. Applicant 2 has well-controlled hypertension managed with a single daily medication and is otherwise healthy. Which applicant is most likely to qualify for the insurer's Preferred risk class rather than Standard?
- A. Applicant 1, because Preferred criteria generally require the absence of chronic conditions and risk factors, even well-controlled ones
- B. Applicant 2, because well-controlled hypertension always qualifies for Preferred
- C. Both applicants equally, since both are insurable at standard rates
- D. Neither applicant, since any medication use automatically results in a substandard rating
Show answer and explanation
Correct answer: A. Applicant 1, because Preferred criteria generally require the absence of chronic conditions and risk factors, even well-controlled ones
Preferred risk classes require better-than-average health with no significant risk factors (normal vitals, no chronic conditions, favorable personal/family history). Applicant 1 fits that profile; Applicant 2's medicated hypertension, even if well controlled, typically places them in Standard (or a better Standard subclass) rather than Preferred, since Preferred criteria are stricter than merely 'insurable.'
- A. Preferred underwriting classes typically require the absence of chronic conditions and significant risk factors, even ones that are well managed, so Applicant 1's clean profile is more likely to qualify for Preferred than Applicant 2's controlled hypertension.
- B. Well-controlled hypertension does not automatically qualify for Preferred; it's commonly a disqualifying factor for the top underwriting tier even when managed with medication.
- C. The two applicants aren't equally likely to reach Preferred; Applicant 1's absence of any risk factors puts him in a stronger position for that top tier.
- D. Medication use alone doesn't automatically produce a substandard rating; Applicant 2 may still be insurable at Standard rates, just not at Preferred.
Considering a career as an advisor?
Explore careers at ParsonexQuestion 4
The standard incontestability clause found in most life insurance policies limits the insurer's right to contest the validity of the policy based on statements in the application to a period of how long after the policy is issued?
- A. 1 year
- B. 2 years
- C. 3 years
- D. 5 years
Show answer and explanation
Correct answer: B. 2 years
The near-universal standard incontestability period is two years from the policy's date of issue (while the insured is living). After this period elapses, the insurer generally cannot rescind or deny a claim based on misstatements made in the application, subject to limited exceptions such as fraud in some states or nonpayment of premium.
- A. Incorrect — one year is not the standard contestable period used in most jurisdictions/policies.
- B. Correct — two years is the standard incontestability period.
- C. Incorrect — three years is not the standard period (though it appears in other contexts, like the IRC Section 2035 three-year rule for estate tax).
- D. Incorrect — five years is not used for standard incontestability.