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Pennsylvania Life Insurance and Annuity Law: Practice Questions

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

Exam weight: Pennsylvania rules in the life and annuity sections on the Pennsylvania Life, Accident and Health producer exam (16-03). Updated 2026-11-04.

Quick study guide

The 16-03 outline tags Pennsylvania sections onto its life and annuity items. Most questions turn on a day count, a year count, or who may insure whom.

Insurable interest (40 P.S. § 512)

Anyone may insure his or her own life for anyone's benefit. To insure someone else, the beneficiary needs an insurable interest: love and affection for relatives by blood or law, otherwise a lawful economic interest in the insured's life continuing. An employer may insure officers and employees without their personal application only after written notice and their prior written consent. A properly issued policy may later be transferred to someone with no insurable interest.

Required provisions (§ 510) and banned ones (§ 511)

Provision	Pennsylvania rule
Grace period	30 days or one month for premiums after the first year; interest up to 8% a year allowed
Incontestability	2 years in force during the insured's lifetime; only nonpayment must be excepted
Entire contract	The policy, plus the application only if a copy is attached
Misstated age	Benefit is what the premium would have bought at the correct age
Policy loans	Loan value after 3 full years' premiums (not term); loans may be deferred up to 6 months, except loans to pay premiums
Nonforfeiture	Option elected within 60 days of the missed due date, or the policy's stated paid-up benefit applies (§ 510.1)
Reinstatement	Within 3 years of default, with evidence of insurability and overdue premiums plus interest up to 8%

Section 511 bans forfeiture for an unpaid loan while the debt is below the cash value, any limit on lawsuits shorter than two years, dating a policy more than six months before the original application, and a settlement at maturity worth less than the face amount plus dividend additions, less debt.

Free look and other life rules

Free look on an individual life policy is at least 10 days from delivery; a replacement gets 45 days if from the same insurer group, 20 if from another (§ 510C, fixed and variable alike). Group conversion: without notice at least 15 days before the period ends, the member gets until 15 days after notice, never more than 60 days past the period (§ 532.7). Accelerated benefits (31 Pa. Code Ch. 90f) use a 6-to-12-month life-expectancy trigger and may not exclude preexisting conditions. Variable life must allow reinstatement for 2 years, not 3 (Ch. 82).

Annuities

Annuity free look mirrors life: 10 days, or 45/20 on replacements (§ 510D). Separate-account assets belong to the insurer, which may not act as trustee, and their results are kept apart from the company's other business (§ 506.2; 31 Pa. Code § 85.23). The Insurance Commissioner has sole state authority over variable contracts. Variable annuity owners get a statement at least yearly after the first contract year (§ 85.27). Replacement, illustrations, disclosure, suitability and the guaranty association are a separate topic.

Practice questions

Under 40 P.S. § 512, which of the following is an insurable interest for a person who is NOT related to the insured by blood or law?
1. A.A written promise from the insured to name that person beneficiary
2. B.Any interest in receiving money when the insured dies
3. C.Having shared a household with the insured for at least a year
4. D.A lawful economic interest in having the insured's life continue
Show answer
Answer: D. Section 512 defines insurable interest as an interest engendered by love and affection for persons related by blood or law and, for anyone else, a lawful economic interest in having the insured's life continue, as distinguished from an interest that would arise only by the insured's death. An interest that pays off only on death is exactly what the definition excludes. The statute says nothing about promises of beneficiary status or shared households.
Source: Pennsylvania 16-03 outline 3.0: Insurable interest (40 P.S. § 512); 40 P.S. § 512
A Pennsylvania company wants to buy life insurance on several of its officers, naming itself beneficiary, without each officer signing a personal application. What does 40 P.S. § 512 require first?
1. A.Separate approval from the Insurance Commissioner for each policy
2. B.A medical exam of each officer and the written consent of each officer's spouse
3. C.Nothing, because a company automatically has an insurable interest in its officers
4. D.Written notice of its intent to buy the insurance and each officer's prior written consent
Show answer
Answer: D. Section 512 generally bars delivering a life policy except on the application of the person insured. Persons, partnerships, associations, corporations and certain employee-benefit trusts may insure officers, directors, partners and employees without a personal application, but only after notifying them in writing of the intent to buy and obtaining their prior written consent. The section requires no commissioner approval of each policy and no spousal consent, and an economic interest alone does not remove the consent requirement.
Source: Pennsylvania 16-03 outline 3.0: Insurable interest (40 P.S. § 512); 40 P.S. § 512
Roy bought a policy on his own life in Pennsylvania and named his wife beneficiary. Years later he sells the policy to an investor with no insurable interest in him, and the investor pays the premiums from then on. Under 40 P.S. § 512, the transfer is:
1. A.Void, because the new owner has no insurable interest in Roy
2. B.Valid, because the policy was properly issued in the first place
3. C.Valid only if the investor is a 501(c)(3) charitable organization
4. D.Void unless Roy's wife consents in writing as the original beneficiary
Show answer
Answer: B. Section 512 provides that if a policy was issued in conformity with the section, no transfer of it or any interest in it is invalid because the transferee lacks an insurable interest in the insured or pays the premiums afterward. Any person may insure his own life for the benefit of anyone, so Roy's policy was validly issued. The 501(c)(3) provision lets a charity own or buy insurance on a consenting insured; it does not limit who else may take a transfer.
Source: Pennsylvania 16-03 outline 3.0: Insurable interest (40 P.S. § 512); 40 P.S. § 512
The annual premium for the fourth year of a Pennsylvania whole life policy was due on 1 May and has not been paid. The insured dies on 20 May. Under 40 P.S. § 510(b), what does the beneficiary receive?
1. A.Only the policy's cash surrender value as of 1 May
2. B.The death benefit, less the unpaid premium and any interest the policy charges on it
3. C.Nothing, because the premium was not paid by its due date
4. D.The full death benefit, with the unpaid premium waived
Show answer
Answer: B. Section 510(b) requires a grace period of 30 days or one month for any premium after the first year, during which the policy stays in full force. If the policy becomes a claim during the grace period, the overdue premium (with interest, which the company may charge at up to 8 percent a year) may be deducted from the settlement. The premium is not waived, and the policy has not lapsed, so neither nothing nor the cash value is the right answer.
Source: Pennsylvania 16-03 outline 5.0: Standard provisions, grace period (40 P.S. § 510(b)); 40 P.S. § 510
A Pennsylvania life policy has been in force for three years during the insured's lifetime when the insured dies. Which of the following may the insurer still do?
1. A.Deny the claim under a coverage exclusion written into the policy
2. B.Rescind the policy for a material misstatement in the application
3. C.Require proof that the insured was in good health on the date of death
4. D.Void the policy because the insured took up a hazardous hobby after issue
Show answer
Answer: A. Section 510(c) makes a life policy incontestable after it has been in force during the insured's lifetime for two years from its date of issue, except for nonpayment of premiums (disability and accidental death provisions may also be excepted). Section 510 adds that an incontestable clause bars only a contest of the policy's validity, not defenses based on provisions that exclude or restrict coverage. Rescinding for a misstatement is a contest of validity and is barred, and nothing lets the insurer void the policy for a later change in hobbies or demand proof of good health.
Source: Pennsylvania 16-03 outline 5.0: Standard provisions, incontestability (40 P.S. § 510(c)); 40 P.S. § 510
An applicant understated his age by three years on a Pennsylvania life insurance application. The error is discovered when he dies 10 years later. Under 40 P.S. § 510(e), the insurer will:
1. A.Pay the amount the premiums paid would have bought at his correct age
2. B.Refund the premiums paid, with interest, instead of paying a death benefit
3. C.Deny the claim, because the misstatement voids the policy
4. D.Pay the full face amount with no adjustment
Show answer
Answer: A. Section 510(e) requires every life policy to provide that if the age of the insured, or of anyone else whose age is used to set the premium, has been misstated, the amount payable is what the premium would have purchased at the correct age. The policy is not voided and the claim is not replaced by a premium refund; the benefit is simply adjusted. Section 510(e) speaks of age only.
Source: Pennsylvania 16-03 outline 5.0: Standard provisions, misstatement of age (40 P.S. § 510(e)); 40 P.S. § 510
A Pennsylvania whole life policy lapsed for nonpayment 26 months ago. It was not surrendered for cash and the extended term period has not run out. May the owner reinstate it under 40 P.S. § 510(k)?
1. A.No, because a lapsed policy can only be replaced with a new one
2. B.No, because the reinstatement period ends two years after default
3. C.Yes, on written application with evidence of insurability and overdue premiums plus interest of no more than 8% a year
4. D.Yes, without evidence of insurability, because it is still within three years
Show answer
Answer: C. Section 510(k) entitles the policyholder to reinstate on written application at any time within three years from the date of default, unless the policy was surrendered or the extension period expired. The owner must give evidence of insurability satisfactory to the company and pay all overdue premiums with interest at a rate stated in the policy but not over 8 percent a year, plus any other indebtedness with interest. Two years is the minimum for scheduled-premium variable life policies under 31 Pa. Code § 82.24(3), not for fixed-dollar policies.
Source: Pennsylvania 16-03 outline 5.0: Standard provisions, reinstatement (40 P.S. § 510(k)); 40 P.S. § 510
An agent delivers a new individual fixed-dollar life policy that does not replace any existing coverage. Under 40 P.S. § 510C(a)(1), the policy must carry a notice that the owner may return it for a premium refund within at least:
1. A.45 days of delivery
2. B.20 days of delivery
3. C.10 days of delivery
4. D.30 days of delivery
Show answer
Answer: C. Section 510C(a)(1) requires a notice, prominently printed on the first page or attached, that the policyholder may return the policy within at least 10 days of delivery and have the premium refunded if not satisfied for any reason. The longer periods apply only to replacements: at least 45 days when the policy replaces coverage with the same insurer or insurer group (510C(a)(2)) and at least 20 days when it replaces coverage with a different insurer (510C(a)(3)). Thirty days is not a period in this section.
Source: Pennsylvania 16-03 outline 5.0: Right to examine (40 P.S. § 510C(a)); 40 P.S. § 510C
To give a client the premium for a younger age, how far before the original application may a Pennsylvania life policy be dated?
1. A.No more than three months
2. B.No more than 30 days
3. C.No more than six months
4. D.No more than one year
Show answer
Answer: C. Section 511(c) bars delivering a life policy with any provision by which it purports to be issued or to take effect more than six months before the original application for the insurance was made. Dating back within six months is therefore allowed, and 30 days, three months and one year are not the statutory limit. The section does not apply to industrial policies with premiums payable monthly or more often.
Source: Pennsylvania 16-03 outline 5.0: Prohibited provisions including backdating (40 P.S. § 511); 40 P.S. § 511
Which of these clauses is prohibited in a life policy delivered in Pennsylvania under 40 P.S. § 511?
1. A.A clause giving the claimant only one year after a cause of action accrues to file a lawsuit
2. B.A clause letting the insurer defer paying a cash surrender value for up to six months
3. C.A clause adding unpaid loan interest to the loan principal
4. D.A clause charging interest of up to 8% a year on a premium paid during the grace period
Show answer
Answer: A. Section 511(b) bars any provision limiting the time to bring an action at law or equity to less than two years after the cause of action accrues, so a one-year limit is prohibited. The other clauses are permitted: section 510.1(a) has the insurer reserve the right to defer a cash surrender payment for six months, section 511(a) itself says unpaid loan interest is added to the principal, and section 510(b) allows grace-period interest of up to 8 percent a year.
Source: Pennsylvania 16-03 outline 5.0: Prohibited provisions (40 P.S. § 511); 40 P.S. § 511; 40 P.S. § 510.1
Lena's coverage under her employer's group life policy ends, and the policy gives her 31 days to convert without evidence of insurability. The notice of her conversion right is mailed to her 40 days after that 31-day period has ended. Under 40 P.S. § 532.7, until when may she convert?
1. A.Until 31 days after she was given the notice
2. B.Until 15 days after she was given the notice
3. C.Until 60 days after she was given the notice
4. D.She may not convert, because the 31-day period had already ended
Show answer
Answer: B. Section 532.7 says that if the insured person is not given notice of the conversion right at least 15 days before the policy's conversion period expires, she gets an additional period ending 15 days after the notice is given, but never more than 60 days after the original period expired. Notice 40 days late means the extra period ends 55 days after the original period, inside the 60-day cap. The section extends only the right to convert; it does not continue the group insurance itself beyond the policy's period.
Source: Pennsylvania 16-03 outline 4.0: Group life, conversion to individual policy (40 P.S. § 532.7); 40 P.S. § 532.7
An insurer files an accelerated death benefit rider in Pennsylvania that pays when a physician certifies the insured has a limited life expectancy. Which life-expectancy trigger falls within the range 31 Pa. Code § 90f.3 allows?
1. A.24 months or less
2. B.12 months or less
3. C.36 months or less
4. D.Five years or less
Show answer
Answer: B. Section 90f.3(a) allows life-expectancy triggers ranging from "6 months or less" to "12 months or less", and disability-based triggers of no longer than 12 months. The same section treats the benefit as meaningful only if it equals at least 25% of the death benefit affected, caps it at 100% of that death benefit, and bars age or duration requirements for first eligibility. Triggers of 24 months, 36 months or five years are outside the range.
Source: Pennsylvania 16-03 outline 5.0: Accelerated benefits, conditions for payment (31 Pa. Code § 90f.3); 31 Pa. Code § 90f.3
Which exclusion may an accelerated (imminent death) benefit rider filed in Pennsylvania NOT contain under 31 Pa. Code § 90f.4?
1. A.Preexisting conditions
2. B.War, declared or undeclared
3. C.Suicide or attempted suicide, whether sane or insane
4. D.Committing an assault or felony
Show answer
Answer: A. Section 90f.4(b) lists exclusions the form may not contain, including preexisting conditions, Alzheimer's disease or another disorder with a demonstrable organic origin, air travel in general, and a requirement that the form be in force for a set time before coverage applies. Suicide or attempted suicide, committing an assault or felony, and war are on the 90f.4(a) list of exclusions a form may use.
Source: Pennsylvania 16-03 outline 5.0: Accelerated benefits, exclusions and restrictions (31 Pa. Code § 90f.4); 31 Pa. Code § 90f.4
Under 31 Pa. Code § 82.24, a scheduled-premium variable life policy filed in Pennsylvania must allow the owner to reinstate it, with evidence of insurability, within what period after default?
1. A.2 years
2. B.5 years
3. C.31 days
4. D.3 years
Show answer
Answer: A. Section 82.24(3) requires scheduled-premium variable life policies to allow reinstatement at any time within 2 years from default, on written application with evidence of insurability including good health, unless the cash surrender value was paid or extended insurance expired. Fixed-dollar life policies must allow 3 years under 40 P.S. § 510(k), which is the common mix-up. Thirty-one days is the minimum grace period for scheduled-premium variable life (82.24(2)(i)), not the reinstatement period.
Source: Pennsylvania 16-03 outline 3.0: Regulation of variable life insurance (31 Pa. Code Ch. 82); 31 Pa. Code § 82.24; 40 P.S. § 510
A buyer in Pennsylvania purchases an individual fixed-dollar deferred annuity that does not replace any other contract. Under 40 P.S. § 510D, what must the contract tell her on its first page or in an attachment?
1. A.That surrender charges are waived for the first contract year
2. B.That she may return it within 30 days of the application date for a refund
3. C.That she may return it within at least 10 days of delivery and have her payment refunded
4. D.That she may cancel only within 3 business days of signing the application
Show answer
Answer: C. Section 510D(a)(1) bars entering into an individual fixed-dollar annuity or pure endowment contract unless a prominent notice states that the contract holder may return it within at least 10 days of delivery and have the stipulated payment or premium refunded if not satisfied for any reason. The period runs from delivery, not from the application or signing date. Longer periods (45 or 20 days) apply only to replacements under 510D(a)(2) and (3).
Source: Pennsylvania 16-03 outline 6.0: Annuities, right to examine (40 P.S. § 510D); 40 P.S. § 510D
A client replaces an existing annuity with a new individual fixed-dollar annuity issued by the same insurer group. Under 40 P.S. § 510D(a)(2), the new contract's free-look period must be at least:
1. A.30 days from delivery
2. B.20 days from delivery
3. C.10 days from delivery
4. D.45 days from delivery
Show answer
Answer: D. Section 510D(a)(2) requires a free look of at least 45 days from delivery when a fixed-dollar annuity replaces an existing annuity or life policy with the same insurer or insurer group. If the existing coverage was with a different insurer group, the minimum is 20 days (510D(a)(3)), and with no replacement it is 10 days (510D(a)(1)). The replacement regulation (31 Pa. Code § 81.6(d)) states a 20-day period, but the statute sets the longer minimum for same-insurer replacements.
Source: Pennsylvania 16-03 outline 6.0: Annuities, right to examine (40 P.S. § 510D); 40 P.S. § 510D; 31 Pa. Code § 81.6
Under 31 Pa. Code § 85.1, what makes a contract a variable annuity rather than a variable accumulation annuity?
1. A.Only its accumulation values vary, and they are used to buy a fixed annuity at rates stated in the contract
2. B.Its annuity payments, once they begin, vary with the investment experience of a separate account
3. C.Its value tracks a stock market index but can never fall below the premiums paid
4. D.It credits a fixed interest rate guaranteed for the life of the contract
Show answer
Answer: B. Section 85.1 defines a variable annuity contract as one whose deferred or immediate annuity payments, after they have commenced, vary according to the investment experience of a separate account. A variable accumulation annuity is one where only the amounts accumulated before payout vary with a separate account and are used to buy a fixed annuity (or a fixed and variable annuity) at rates at least as favorable as those in the contract. A guaranteed fixed rate describes a fixed annuity, and index-linking with a floor describes an indexed annuity.
Source: Pennsylvania 16-03 outline 6.0: Regulation of variable annuities (31 Pa. Code §§ 85.1–85.4); 31 Pa. Code § 85.1
Under Pennsylvania law, who has sole state authority to regulate the issuance and sale of variable life insurance and variable annuity contracts?
1. A.The Pennsylvania Treasury Department
2. B.The Pennsylvania Attorney General
3. C.The Insurance Commissioner
4. D.The Pennsylvania Securities Commission, under the Pennsylvania Securities Act of 1972
Show answer
Answer: C. Section 506.2(d) gives the Insurance Commissioner sole authority to regulate the issuance and sale of variable contracts, including approving contract provisions and annual statements and preventing excessive charges, and states that variable contracts and the people who sell them are not subject to the Pennsylvania Securities Act of 1972 or the Pennsylvania Securities Commission. This concerns state law only: variable annuities are still sold with a prospectus under the federal securities system. Neither the Attorney General nor the Treasury is given that role.
Source: Pennsylvania 16-03 outline 6.0: Regulation of variable annuities (SEC, FINRA and Pennsylvania); 40 P.S. § 506.2; Investor.gov: Variable annuities
Which statement about the separate account a Pennsylvania insurer uses to back its variable annuities is correct?
1. A.The account's gains and losses are pooled with the insurer's general account results
2. B.The account's assets must be valued at original cost once a year
3. C.The contract holders own the assets directly, as beneficiaries of a trust
4. D.The insurer owns the assets and may not hold itself out as a trustee of them
Show answer
Answer: D. Section 506.2(a)(5) says amounts allocated to a separate account are owned by the company, which shall not be or hold itself out to be a trustee, and that (if the contracts so provide) assets equal to the account's reserves are not chargeable with liabilities from the company's other business. Income, gains and losses are credited to or charged against the separate account without regard to the company's other income, gains or losses (506.2(a)(1); 31 Pa. Code § 85.23). Assets are valued at market value, or amortized cost if it approximates market (506.2(a)(3)).
Source: Pennsylvania 16-03 outline 6.0: Assets in a separate account (31 Pa. Code §§ 85.21–85.27); 40 P.S. § 506.2; 31 Pa. Code § 85.23
Under 31 Pa. Code § 85.27, how often must a company issuing individual variable annuity contracts mail each contract holder a statement of the investments held in the separate account?
1. A.Once, when annuity payments begin
2. B.Every month
3. C.At least once in each contract year after the first year
4. D.Only when the contract holder asks in writing
Show answer
Answer: C. Section 85.27(a) requires a statement mailed to the contract holder's last known address at least once in each contract year after the first, reporting the separate account's investments and, before payments start, either the number and value of accumulation units credited or the account value, as of a date no more than three months before mailing. Additional statements must be furnished on request within a reasonable time, and the company may make a reasonable charge for them (85.27(b), (c)). Monthly statements are not required.
Source: Pennsylvania 16-03 outline 6.0: Assets in a separate account (31 Pa. Code §§ 85.21–85.27); 31 Pa. Code § 85.27

Where these questions come from: Pennsylvania Life, Accident and Health producer exam outline (series 16-03, PSI, effective 1 Mar 2026), sections 3.0: Life, Accident, and Health Insurance Basics (14%), 4.0: Types of Life Insurance Policies (8%), 5.0: Life Insurance Policy Provisions, Options, and Riders (13%) and 6.0: Annuities (9%). See how we write questions.