Kansas Life Insurance Practice Exam Free - 2026

• A. 5 days
• B. 10 days
• C. 20 days
• D. 30 days

Correct answer: B. 10 days

Explanation: K.A.R. 40-2-15 requires every individual life policy and annuity contract issued in Kansas to carry a first-page notice, in at least 10-point bold type, that the purchaser may return the policy within at least 10 days of delivery and have the total premium refunded (variable products refund the separate-account value). Five days is the minimum notice an insurer must give to cancel an individual accident and sickness policy; 20 days is the unconditional refund period that applies only to replacement policies under K.A.R. 40-2-12; and 30 days is the life policy grace period, not the free-look period. See K.A.R. 40-2-15.

• A. 7 days
• B. 10 days
• C. Not less than 30 days
• D. 31 days

Correct answer: C. Not less than 30 days

Explanation: K.S.A. 40-420(1) requires every Kansas individual life policy to provide a grace period of not less than 30 days for payment of any premium after the first, during which the policy continues in full force; if death occurs in the grace period, the overdue premium may be deducted from the proceeds. Seven and 10 days are the grace periods for weekly- and monthly-premium accident and sickness policies under K.S.A. 40-2203, and 31 days is the group life grace period under K.S.A. 40-434, not the individual life rule. See K.S.A. 40-420.

• A. Within 3 working days
• B. Within 5 business days
• C. Within 10 days
• D. Within 20 days

Correct answer: A. Within 3 working days

Explanation: K.A.R. 40-2-12(f) requires the replacing insurer, when a replacement is involved, to notify each insurer whose insurance is being replaced within three working days, and to obtain the agent's list of policies being replaced, the sales proposals and the applicant's signed receipt of the replacement notice. Five business days and 10 days are not Kansas replacement deadlines, and 20 days is the period the replacing insurer must delay policy issuance after sending the notice (unless it grants a 20-day unconditional refund), not the notification deadline. See K.A.R. 40-2-12.

• A. 10 days
• B. 15 days
• C. 30 days
• D. 20 days

Correct answer: D. 20 days

Explanation: K.A.R. 40-2-12(f)(4) lets a replacing insurer issue immediately, instead of delaying issuance for 20 days after notifying the existing insurer, only if the policy or a separate written notice states that the applicant has a right to an unconditional refund of all premiums paid within 20 days after delivery, and the existing insurer is notified within three working days of issue. Ten days is the ordinary free-look period under K.A.R. 40-2-15, which is shorter than the replacement refund period; 15 and 30 days are not Kansas replacement figures. See K.A.R. 40-2-12.

• A. Taxable only if paid in cash
• B. A long-term capital gain
• C. A nontaxable return of excess premium
• D. Fully taxable ordinary income when received

Correct answer: C. A nontaxable return of excess premium

Explanation: Policy dividends are considered a refund of premium the policyowner overpaid, so they are not income when received, although they do reduce the owner's cost basis. Interest credited on dividends left to accumulate with the insurer is a separate item and is taxable. The tax result does not change based on whether the dividend is taken in cash or applied to another dividend option.

• A. The $15,000 gain is taxable as a long-term capital gain
• B. Nothing is taxable because life insurance proceeds are exempt
• C. The full $60,000 is taxable
• D. The $15,000 gain above basis is taxable as ordinary income

Correct answer: D. The $15,000 gain above basis is taxable as ordinary income

Explanation: On surrender, the owner recovers cost basis tax free and reports the excess of cash value over basis as ordinary income, here $15,000. Taxing the entire cash value ignores the return of the owner's own premium dollars. The income-tax exclusion applies to death benefits rather than living surrenders, and gain inside a life contract is ordinary income rather than capital gain.

• A. Sale of the policy to the insured or to a partner of the insured
• B. Sale of the policy to an unrelated investor for cash
• C. Sale of the policy to a competitor of the insured's employer
• D. Sale of the policy to a friend of the insured

Correct answer: A. Sale of the policy to the insured or to a partner of the insured

Explanation: The Code lists specific safe-harbor transferees, including the insured, a partner of the insured, a partnership in which the insured is a partner, and a corporation in which the insured is a shareholder or officer, and transfers to them keep the death benefit fully excludable. When a policy is sold for valuable consideration to anyone outside those exceptions, the beneficiary may exclude only the consideration paid plus subsequent premiums, and the balance becomes taxable. Investors, friends, and unrelated businesses do not fall within the exceptions.

• A. It is subject to self-employment tax
• B. It grows tax deferred and is not reported annually
• C. It is taxed each year as interest income
• D. It is taxed at capital gains rates each year

Correct answer: B. It grows tax deferred and is not reported annually

Explanation: Inside buildup in a life policy is not currently taxable, so the owner receives no annual tax reporting on the growth. Requiring annual reporting would eliminate one of the main advantages of permanent coverage. Capital gains rates never apply to life policy inside buildup, and self-employment tax applies to earned business income, not policy values.

• A. The full premium is taxable to the employee as additional wages
• B. The premium is excluded entirely because group coverage is a fringe benefit
• C. The cost of coverage above $50,000 is imputed income to the employee
• D. The employee may deduct the premium personally as an adjustment to income

Correct answer: C. The cost of coverage above $50,000 is imputed income to the employee

Explanation: Employer-paid group term life is excluded from the employee's income only up to $50,000 of coverage, and the cost of the excess amount, computed from a government table, is reported as imputed income. Taxing the entire premium ignores the statutory exclusion, and excluding all of it ignores the $50,000 ceiling. Employees cannot deduct life insurance premiums personally.

• A. Entirely as a tax-free return of principal
• B. As principal first, with earnings taxed only at annuitization
• C. At long-term capital gains rates
• D. As earnings first, which are taxed as ordinary income

Correct answer: D. As earnings first, which are taxed as ordinary income

Explanation: Nonqualified annuities follow a last-in, first-out rule during the accumulation phase, so withdrawals are deemed to come from taxable earnings before any basis is recovered, and a 10 percent penalty may apply before age 59 1/2. Principal-first treatment applies to non-MEC life insurance, not deferred annuities. Annuity gains are ordinary income and never receive capital gains rates.

• A. Increases each year by the amount of interest credited to the cash value
• B. Stays level, with the pure insurance element shrinking as cash value grows
• C. Equals the face amount plus the accumulated cash value at death
• D. Stays level, with the pure insurance element growing as cash value builds

Correct answer: B. Stays level, with the pure insurance element shrinking as cash value grows

Explanation: Option A keeps the total death benefit level, so as the cash value builds the insurer's net amount at risk declines, which helps hold down mortality charges. Adding cash value on top of the face amount describes Option B, the increasing death benefit design. Because the total benefit is fixed, the net amount at risk falls rather than rises as cash value builds, and interest credited increases the cash value rather than the death benefit; the total payable to the beneficiary remains constant subject to corridor requirements.

• A. Both a state life insurance license and a securities registration
• B. A state life insurance license, since the insurer holds the securities registration
• C. A federal securities registration, which preempts the state life license requirement
• D. A state life license and a state investment adviser registration

Correct answer: A. Both a state life insurance license and a securities registration

Explanation: A variable product is simultaneously an insurance contract and a security, so the producer needs the state life license plus FINRA registration through a broker-dealer. Holding only one credential leaves the producer unqualified for half the product; the securities registration belongs to the producer through a broker-dealer, not to the insurer, and federal registration does not preempt the state license. Investment adviser registration is a separate credential that does not authorize the sale of variable products.