CLU Life Insurance Law Practice Questions

Correct answer: C. $200,000, the face amount the premium actually paid would have purchased at the correct age

The misstatement of age (and/or sex) provision doesn't void the policy or ignore the error — it adjusts the death benefit to the amount the premiums actually paid would have purchased at the insured's correct age and rate: $250,000 x ($8.00 / $10.00) = $200,000. This provision exists specifically so that an honest clerical or unintentional age error results in a fair benefit adjustment rather than a denied claim.

• A. Incorrect — misstatement of age (even if unintentional) does adjust the benefit; the policy isn't left unaffected.
• B. Incorrect — this grosses the benefit up in the wrong direction; a misstated (understated) age that resulted in underpayment of premium reduces the benefit, it doesn't increase it.
• C. Correct. The death benefit is adjusted to what the premium actually paid ($8/$1,000) would have purchased at the correct age's rate ($10/$1,000): $250,000 × (8/10) = $200,000.
• D. Incorrect — misstatement of age is not treated as fraud or grounds to void the policy; it's addressed by adjusting the death benefit proportionally.

Correct answer: D. The bank receives $90,000, the current outstanding debt, and the remaining $310,000 goes to the named beneficiary

A collateral assignment gives the assignee (the bank) rights limited strictly to its current interest — the outstanding loan balance at the time of the claim, here $90,000 — with any remainder of the death benefit paid to the named beneficiary. This differs from an absolute assignment, which would transfer full ownership and all rights to the assignee.

• A. The bank's collateral interest is limited to satisfying the outstanding debt, not the full face amount of the policy.
• B. A collateral assignment doesn't freeze proceeds pending estate settlement; it simply directs the bank's specified share to the lender with the rest paid out per the beneficiary designation.
• C. The bank's claim tracks the current outstanding balance, not the original loan amount, since $60,000 has already been repaid.
• D. Correct. Under a collateral assignment, the bank receives only enough to cover the current outstanding balance ($90,000), and the remainder ($310,000) goes to the named beneficiary.

Correct answer: B. The applicant receives a notice regarding replacement, and the replacing insurer notifies the existing insurer of the proposed replacement

Replacement regulations require disclosure so the applicant can compare policies. The agent must provide a notice regarding replacement, and the replacing insurer must notify the existing insurer so it can respond or conserve the business.

• A. The existing insurer receives notice but has no power to approve or block the replacement.
• B. Correct. Notice to the applicant and notice to the existing insurer are the core replacement requirements.
• C. There is no mandatory waiting period before a replacement policy takes effect; the free-look period protects the owner afterward.
• D. Individual replacements are not submitted to the state department for pre-approval; the regulation relies on notices and disclosures to the applicant and the existing insurer.

Correct answer: A. Must be literally and exactly true, and its breach can void the contract regardless of the misstatement's materiality, whereas a representation need only be substantially true

Historically, a warranty is a statement that becomes part of the contract and must be exactly true; any breach, even an immaterial one, could void the policy. A representation, by contrast, need only be substantially true, and materiality of any misstatement matters for it to affect the contract. Most modern statutes have converted application statements into representations to protect policyholders, but the conceptual distinction remains tested material.

• A. Correct — this fully and correctly states the classic warranty/representation distinction.
• B. Incorrect — reverses the relative strictness; a warranty is more binding than a representation, since its exact truth is required whether or not the misstatement was material.
• C. Incorrect — the warranty/representation distinction is general contract law applicable across insurance lines, including life insurance, and is not limited to P&C or absent from state insurance codes.
• D. Incorrect — a warranty is a statement by the applicant that is made part of the contract and must be exactly true; it is not a promise by the insurer.