Free Tennessee Life & Health Insurance License Exam Practice Test

Sample TN L&H practice questions

Try a few representative questions below. Each includes the correct answer and a short explanation — the same style you'll see in the full practice test.

1. Question 1Life Insurance Taxation

   A client in Tennessee is purchasing a $250,000 life insurance policy. The annual premium is $3,000. If the client dies after 5 years, and the policy has a cash value of $12,000 at that time, what is the taxable gain for the beneficiary if the policy was a Modified Endowment Contract (MEC)?

   • A.$3,000, representing the total premiums paid
   • B.$12,000, representing the cash value at the time of death
   • C.$15,000, representing the cash value plus premiums paid
   • D.$0, as death benefits are generally tax-free(Correct)

   Explanation

   Death benefits from life insurance policies are generally income tax-free to the beneficiary under Section 101(a) of the Internal Revenue Code. While the cash value accumulation in a MEC is subject to taxation on gains upon withdrawal during life, the death benefit itself remains tax-free.

2. Question 2Long-Term Care Insurance

   In Tennessee, an agent is discussing long-term care insurance with a prospective client who is 65 years old. The client is concerned about the potential for inflation eroding the purchasing power of the policy's benefits. Which of the following policy features would best address this concern?

   • A.A 30-day free look period
   • B.A nonforfeiture benefit
   • C.A daily benefit amount with an inflation rider(Correct)
   • D.A guaranteed renewable provision

   Explanation

   An inflation rider, often linked to the daily benefit amount, is specifically designed to increase the policy's benefits over time, typically at an annual rate (e.g., 5%). This helps ensure that the benefit amount keeps pace with the rising cost of long-term care services.

3. Question 3Disability Income Insurance

   A Tennessee resident holds a disability income policy with a monthly benefit of $2,000. The policy has an 'own-occupation' definition of disability for the first two years and an 'any-occupation' definition thereafter. If the insured suffers a severe back injury that prevents them from performing their job as a surgeon but they are still capable of performing sedentary office work, how would their claim likely be handled after the initial two-year period?

   • A.The claim would continue to be paid based on the 'own-occupation' definition.
   • B.The claim would be denied because the insured can perform some form of work.
   • C.The claim would be evaluated based on the 'any-occupation' definition, potentially leading to denial if sedentary work is available.(Correct)
   • D.The claim would be paid for a limited duration until the insured retrains for a new occupation.

   Explanation

   After the initial two-year 'own-occupation' period, the definition of disability typically shifts to 'any-occupation.' Under this definition, the insured must be unable to perform not only their own occupation but also any occupation for which they are reasonably suited by education, training, or experience. If sedentary office work is deemed suitable, the claim may be denied.

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