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Life Application, Underwriting and Policy Delivery: Practice Questions

20 free practice questions with explanations. Pick an answer for each, then check your score.

Exam weight: 12 of 100 scored questions on the Life and Health general knowledge exam. Updated 2026-11-04.

Quick study guide

This section follows a sale from the application to the delivered policy. Expect questions on who signs, what happens to the first premium, which disclosures and federal privacy rules apply, how insurers judge risk, and the legal features of an insurance contract.

The application

The agent, the applicant and the proposed insured sign; if someone else buys coverage on an adult's life, the insured generally must consent in writing. Errors are crossed out, corrected and initialed by the applicant, never erased. An incomplete application is sent back, which delays coverage. The applicant's answers are representations (true to the best of their knowledge, and only a material misstatement matters), not warranties (guaranteed literally true).

If the first premium comes with the application, the agent gives a receipt. A conditional receipt starts coverage on the application or exam date if the applicant qualifies as applied for. With no premium paid, coverage starts at delivery, when the premium is collected and the insured usually signs a statement of good health. On a replacement, the NAIC model rule many states use requires a signed replacement notice left with the applicant, notice from the new insurer to the old one, and a 30-day free look.

Disclosures and federal rules

Rule	What it means at the point of sale
HIPAA authorization	Doctors and hospitals need the applicant's signed authorization before releasing records to the insurer
HIV testing consent	Written consent before an HIV test; Texas prescribes a separate consent form
Fair Credit Reporting Act	Notice within three days of ordering an investigative report; notice naming the reporting agency after an adverse decision
Gramm-Leach-Bliley Act	Privacy notice when the relationship starts and yearly; a chance to opt out before personal data goes to unaffiliated companies
USA PATRIOT Act / AML	Insurers selling cash-value life and annuities run anti-money-laundering programs that include their agents

Underwriting

Insurable interest must exist when the policy is issued, not at death. Close family members have it through love and affection; others need a real financial stake, such as a business partner or employer. Everyone has an unlimited insurable interest in their own life. Underwriters use the application, medical exams and records, MIB reports and consumer reports, then classify the risk as preferred, standard, substandard (rated) or declined. Stranger-originated life insurance (STOLI) is coverage bought at an investor's urging so the investor can own the policy, which defeats insurable interest rules.

Contract law

A valid contract needs offer and acceptance, consideration (the applicant's premium and statements; the insurer's promise to pay), competent parties and a legal purpose. Insurance is also aleatory (unequal exchange that depends on chance), adhesion (written by the insurer, so ambiguities favor the insured), unilateral (only the insurer makes an enforceable promise) and conditional (the insurer pays only if conditions such as premium payment and proof of loss are met).

Practice questions

A woman applies for a policy on her adult son's life and names herself owner and beneficiary. Besides the agent, who generally must sign the application?
1. A.Both the mother, as owner, and the son, as the proposed insured.
2. B.The mother and a notary public who witnesses her signature.
3. C.Only the mother, because she will own the policy and pay the premiums.
4. D.Only the son, because his life is the one being insured.
Show answer
Answer: A. The owner signs because she is entering the contract, and an adult insured generally must apply for or consent in writing to coverage that someone else buys on his life. New York's insurance law, for example, requires that written consent, with limited exceptions such as one spouse insuring the other, and Texas law lets an adult give that consent in a written document. Paying the premium doesn't remove the need for the insured's consent.
Source: Texas content outline III.A.1; New York Insurance Law § 3205 (insurable interest; consent required); Texas Insurance Code § 1103.056 (purchase by third party)
Before a paper application is submitted, the applicant notices that one of his answers is wrong. What is the proper way to correct it?
1. A.Have the agent fix the answer after the applicant leaves, then tell the insurer.
2. B.Cross out the wrong answer, write in the correct one, and have the applicant initial the change.
3. C.Leave the error and explain it to the underwriter later in a phone call.
4. D.Cover the wrong answer with correction fluid and write over it.
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Answer: B. The applicant's initials show that he made or agreed to the change, and the original entry stays readable. Erasing or covering answers, or an agent changing answers without the applicant, can make the application unreliable and raise fraud concerns. Starting a fresh application is also acceptable.
Source: Texas content outline III.A.2
In life insurance, the answers an applicant gives on the application are generally treated as:
1. A.Opinions: statements that have no legal effect on the insurance contract.
2. B.Warranties: guaranteed literally true, so any error at all can void the policy.
3. C.Representations: true to the applicant's best knowledge, voiding coverage only if material.
4. D.Conditions: facts the insurer must prove before it can collect any premium.
Show answer
Answer: C. Texas law, like other states, requires life policies to say that, absent fraud, the insured's statements are representations, not warranties. A misrepresentation defeats recovery only if it concerns a material fact and affects the risk the insurer took on. A warranty is a statement guaranteed to be true, where even an immaterial error could matter.
Source: Texas content outline III.A.4; Texas Insurance Code § 1101.007 (statements are representations); Texas Insurance Code § 705.051 (material misrepresentation)
An applicant pays the first premium with her application and gets a conditional receipt. She has her medical exam, then dies in an accident before the policy is issued. Underwriting later finds she qualified as applied for. What typically happens?
1. A.The insurer pays, because coverage began on the application or exam date.
2. B.Nothing is paid, because the policy was never issued or delivered to her.
3. C.The insurer pays half the face amount as a compromise settlement.
4. D.The insurer refunds her premium to the estate but pays no death benefit.
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Answer: A. A conditional receipt makes coverage effective from the application date or the exam date, whichever is later, if the applicant would have been approved as applied for. If she had not qualified, there would be no coverage and the premium would be refunded. Delivery matters only when no premium was paid with the application.
Source: Texas content outline III.A.5 and III.C.1
An applicant tells the agent she plans to drop her current life policy once the new one is issued. Under the NAIC replacement model regulation that many states have adopted, the agent must:
1. A.Refuse to take the application until her old policy has fully lapsed.
2. B.Contact her current insurer and cancel the old policy on her behalf.
3. C.Have both of them sign a replacement notice listing the policies, and leave it with her.
4. D.Get the state insurance department's approval before submitting it.
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Answer: C. The model requires a statement, signed by applicant and producer, about existing coverage. If replacement is involved, the producer presents and reads the replacement notice, both sign it, it lists each policy being replaced, and it is left with the applicant along with copies of the sales material. The agent doesn't cancel the old policy; the replacing insurer notifies the existing insurer.
Source: Texas content outline III.A.6; NAIC Life Insurance and Annuities Replacement Model Regulation (#613), § 3
Under the NAIC replacement model regulation, when a new policy replaces existing coverage, the replacing insurer must:
1. A.Pay any surrender charges the owner owes on the policy being replaced.
2. B.Issue the new policy with no contestable or suicide period at all.
3. C.Get the existing insurer's written consent before issuing the policy.
4. D.Notify the existing insurer and give the owner a 30-day full-refund right.
Show answer
Answer: D. The model requires the replacing insurer to notify any existing insurer within five business days of receiving the application and to give the owner a 30-day right to return the policy for an unconditional full refund. The new policy normally starts a new two-year contestable period, which the Texas Department of Insurance lists as one reason replacement can hurt the buyer. The old insurer's consent isn't required.
Source: Texas content outline III.A.6; NAIC Life Insurance and Annuities Replacement Model Regulation (#613), § 5; Texas Department of Insurance: Life insurance guide
In Texas, before an insurer tests a life insurance applicant for HIV, it must:
1. A.Notify the state health department before ordering the test.
2. B.Include the test in routine blood work without mentioning it.
3. C.Get permission from the applicant's personal physician first.
4. D.Disclose the test and get written consent on a separate state form.
Show answer
Answer: D. Texas rules require the insurer to reveal the use of an HIV-related test and obtain written authorization on a separate page with the department's Notice and Consent for HIV-Related Testing language. Testing must be applied the same way to everyone in the same class, and a positive result must be confirmed by further tests before coverage is denied or rated. Other states have their own written-consent rules.
Source: Texas content outline III.A.7; 28 Tex. Admin. Code § 21.704 (HIV test consent); 28 Tex. Admin. Code § 21.705 (nondiscriminatory HIV testing)
A life application includes a signed form letting the insurer get the applicant's medical records. Why is that form needed under the HIPAA Privacy Rule?
1. A.Providers generally can't release health records for underwriting without it.
2. B.It lets the insurer sell the medical records to marketing firms.
3. C.HIPAA requires life insurers to pull every applicant's credit report.
4. D.Without it, the agent isn't allowed to accept the first premium.
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Answer: A. Under the HIPAA Privacy Rule, a covered entity such as a doctor or hospital may not use or disclose protected health information without a valid authorization, except as the rule otherwise permits, and releasing records for an insurer's underwriting needs the patient's authorization. HIPAA has nothing to do with credit reports, which fall under the Fair Credit Reporting Act.
Source: Texas content outline III.A.7; 45 CFR § 164.508 (authorization required)
Which product falls under FinCEN's anti-money-laundering program rule for insurance companies?
1. A.An individual single-premium deferred annuity
2. B.A group life policy provided by an employer
3. C.A 20-year level term life policy
4. D.An individual health insurance policy
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Answer: A. The rule covers permanent life insurance and annuities other than group contracts, plus other products with cash value or investment features, because those can be used to move money. Term, group, and health insurance are excluded. Agents don't need their own programs, but insurers must build their agents and brokers into their program, and insurers must report suspicious transactions involving $5,000 or more.
Source: Texas content outline III.A.8; FinCEN: AML program and SAR requirements for insurance companies (FAQ); 31 CFR § 1025.320 (suspicious activity reports by insurers)
Under the Gramm-Leach-Bliley Act, before an insurer shares a customer's nonpublic personal information with an unaffiliated company that wants to market its own products, the insurer generally must:
1. A.Get advance approval from the Federal Trade Commission.
2. B.Get the customer's notarized written consent for each disclosure.
3. C.Do nothing, because insurance companies are exempt from the law.
4. D.Give a privacy notice and a chance to opt out before sharing.
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Answer: D. GLBA bars sharing nonpublic personal information with nonaffiliated third parties unless the customer is told and given a chance, before the first disclosure, to say no, plus an explanation of how to do so. Financial institutions, insurers included, must also give a privacy notice when the customer relationship begins and, with limited exceptions, every year. Sharing with a company that performs services for the insurer itself is treated differently.
Source: Texas content outline III.A.9; 15 U.S.C. § 6802 (opt-out); 15 U.S.C. § 6803 (privacy notices)
For life insurance, when must an insurable interest exist?
1. A.Both when the policy is issued and when the insured dies.
2. B.When the policy is issued; not necessarily at the insured's death.
3. C.Only at the insured's death, when the claim is filed.
4. D.Only when the policy is later assigned to another person.
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Answer: B. Life insurance tests insurable interest when the contract is made. New York's law, for example, requires the beneficiary of a policy bought on another person to have an insurable interest at the time the contract is made. So a policy stays valid if, say, a couple later divorces. Property insurance is the contrast: there the interest must exist at the time of loss.
Source: Texas content outline III.B.1; New York Insurance Law § 3205 (insurable interest)
Which of these would generally NOT have an insurable interest in the insured's life?
1. A.The insured's spouse of twenty years
2. B.A company that relies on the insured as a key officer
3. C.A neighbor with no financial ties to the insured
4. D.The insured's business partner in a two-person firm
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Answer: C. Close relatives have an insurable interest through love and affection, and others need a lawful, substantial financial interest in the insured staying alive. Texas law expressly lets a corporation be beneficiary on an officer or stockholder and a partnership or partner on a partner. A neighbor with no financial stake would profit only from the death. People can insure their own lives and name anyone as beneficiary.
Source: Texas content outline III.B.1; New York Insurance Law § 3205 (insurable interest); Texas Insurance Code §§ 1103.003–1103.004
An investor offers a 75-year-old free premiums and a cash payment if he buys a large life policy on himself and transfers it to the investor after it is issued. This arrangement is:
1. A.A viatical settlement of an existing policy
2. B.A legitimate key person policy
3. C.Stranger-originated life insurance (STOLI)
4. D.A survivorship life arrangement
Show answer
Answer: C. In STOLI, the policy is taken out from the start for an investor who has no insurable interest in the insured. Texas bars issuing, soliciting or marketing a policy for the purpose of settling it and lets insurers ask on the application about premium financing that uses the policy as collateral. A legitimate life or viatical settlement is the later sale of a policy bought for a real insurance need.
Source: Texas content outline III.B.5; Texas Insurance Code ch. 1111A, §§ 1111A.013 and 1111A.017; Texas Department of Insurance: Life insurance guide (selling your policy)
An insurer orders an investigative consumer report, in which the reporting agency interviews an applicant's neighbors and associates about his character and lifestyle. Under the Fair Credit Reporting Act, the insurer generally must:
1. A.Wait until after the policy is issued to request it.
2. B.Notify him in writing within three days of requesting it.
3. C.Get a court order before requesting the report.
4. D.Keep the report's existence secret from him.
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Answer: B. An investigative consumer report gathers information on character, reputation, personal characteristics or way of living through interviews. The FCRA requires a written disclosure to the consumer no later than three days after the report is first requested, including the right to ask for more information about its nature and scope. Underwriting insurance is a permissible purpose, so no court order is needed.
Source: Texas content outline III.B.2–3; 15 U.S.C. § 1681d (investigative consumer reports); 15 U.S.C. § 1681a (definitions); 15 U.S.C. § 1681b (underwriting is a permissible purpose)
Because of information in a consumer report, an insurer offers an applicant coverage only at a higher premium. Under the Fair Credit Reporting Act, the insurer must:
1. A.Report her to the state insurance department.
2. B.Send an adverse action notice naming the reporting agency used.
3. C.Get her written permission before raising the premium.
4. D.Keep the source of the report confidential from her.
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Answer: B. The FCRA counts a higher charge for insurance applied for as an adverse action. The insurer must give notice, identify the reporting agency, and state that the agency didn't make the decision. The same rules cover specialty reporting agencies such as MIB, which holds medical and personal information reported by its member insurers and gives consumers a free copy of their file after an adverse underwriting decision.
Source: Texas content outline III.B.3; 15 U.S.C. § 1681m (adverse action notices); 15 U.S.C. § 1681a(k) (adverse action includes higher insurance charges); MIB: Request your MIB consumer file
An applicant in good health who skydives regularly is offered a policy at a higher than normal premium. She has been classified as:
1. A.An uninsurable (declined) risk
2. B.A standard risk
3. C.A preferred risk
4. D.A substandard (rated) risk
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Answer: D. Underwriters place applicants in classes: preferred (better than average risk), standard (average), substandard or rated (higher risk accepted at an extra premium or with limits), or declined. The Texas Department of Insurance notes that companies can charge more for health conditions, smoking, or risky hobbies like skydiving. Being offered coverage at a higher premium means she was not declined.
Source: Texas content outline III.B.4; Texas Department of Insurance: Life insurance guide
An applicant paid no premium with the application. The policy is approved and the agent brings it to her. When does coverage generally begin?
1. A.When the free-look period ends after delivery.
2. B.On the date the underwriter approved the policy.
3. C.On the date she signed and dated the application.
4. D.When the first premium is paid, usually with a health statement.
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Answer: D. Without an initial premium, the issued policy is the insurer's offer, and she accepts by paying the premium at delivery. The statement of good health confirms her insurability hasn't changed since she applied. The free-look period lets her cancel for a refund; it doesn't postpone coverage.
Source: Texas content outline III.C.1 and III.D.1.b
Texas lets a minor who is at least 14 buy a life insurance policy, but only if:
1. A.The face amount is under $1,000 and no exam is needed.
2. B.An eligible adult, such as a parent, approves it in writing.
3. C.A probate court approves the purchase in advance.
4. D.The minor has a full-time job and pays the premiums.
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Answer: B. Competent parties is one of the elements of a valid contract, and minors generally lack full legal capacity, so states set specific rules. Texas lets a minor 14 or older contract for life insurance with written approval from a parent, grandparent, adult sibling, or another eligible adult, and the minor can't later cancel the contract just for being a minor. Ages and rules differ by state.
Source: Texas content outline III.D.1.c; Texas Insurance Code §§ 1104.003–1104.005 (minors)
Life insurance is called an aleatory contract because:
1. A.The values exchanged are unequal and depend on chance.
2. B.Only the insurer makes a legally enforceable promise.
3. C.The insurer writes it and the applicant can only accept or reject it.
4. D.The insurer pays only if conditions like proof of loss are met.
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Answer: A. An insured might pay one premium and die, producing a large claim, or pay for decades and outlive a term policy. That unequal, chance-based exchange makes insurance aleatory. Only the insurer promising describes a unilateral contract, take-it-or-leave-it wording describes adhesion, and payment depending on conditions describes a conditional contract.
Source: Texas content outline III.D.2
A court finds a provision in a life policy ambiguous. Because insurance is a contract of adhesion, the court will usually:
1. A.Let the agent who sold the policy decide what it means.
2. B.Interpret it in favor of the insurer, which wrote the policy.
3. C.Interpret the ambiguity in favor of the policyowner or beneficiary.
4. D.Void the entire policy and return the premiums.
Show answer
Answer: C. In a contract of adhesion one party, the insurer, drafts all the terms, and the other can only accept or reject them. Because the insurer chose the wording, courts generally resolve unclear language against it and in favor of the insured or beneficiary. Courts don't void a whole policy because of one unclear clause, and the agent has no authority to interpret it.
Source: Texas content outline III.D.2.c

Where these questions come from: Texas content outline (Pearson VUE #124401, effective 1 Sep 2026), Life and Health general knowledge, section III: Completing the Application, Underwriting, and Delivering the Policies — 12 of 100 scored questions. See how we write questions.