Maine Life Insurance Practice Exam Free - 2026

• A. 10 days
• B. 60 days
• C. 30 days
• D. 31 days, during which death benefit coverage continues

Correct answer: D. 31 days, during which death benefit coverage continues

Explanation: 24-A M.R.S. § 2614 requires every group life policy to grant the policyholder a grace period of 31 days for payment of any premium after the first, with death benefit coverage continuing in force unless the policyholder gave advance written notice of discontinuance; the policyholder may be charged pro rata premium for the grace period. Thirty days is the individual life grace period under § 2505; 10 days is the monthly-premium individual health grace; 60 days is not a Maine grace period. See 24-A M.R.S. § 2614.

• A. Only for conditions that existed 6 months before the individual's effective date, with an actuarial justification filed and approved, and running no longer than the policy's incontestable period
• B. Never; any AIDS-related exclusion is unfair discrimination
• C. Whenever the insurer obtains the insured's HIV test history before issuing coverage
• D. For any AIDS-related death occurring within the first 5 policy years

Correct answer: A. Only for conditions that existed 6 months before the individual's effective date, with an actuarial justification filed and approved, and running no longer than the policy's incontestable period

Explanation: 24-A M.R.S. § 2159(4) allows a group life policy under chapter 31 to exclude or restrict death caused by AIDS, ARC or HIV-related disease that existed 6 months prior to the individual's effective date, if an actuarial justification is filed and approved by the superintendent, and the exclusion may run no longer than the incontestable period. B is wrong because subsection 4 expressly permits the limited exclusion; C is wrong because § 2159(6) forbids asking whether a person has taken an HIV test; D invents a 5-year period. See 24-A M.R.S. § 2159.

• A. Notify Northern Mutual within 30 days and give the owner a 10-day right to return
• B. Notify Northern Mutual within 5 business days and give the owner the right to return the policy within 30 days of delivery for an unconditional full refund
• C. Obtain Northern Mutual's written consent before issuing the policy
• D. Notify the superintendent within 15 days and give the owner a 20-day right to return

Correct answer: B. Notify Northern Mutual within 5 business days and give the owner the right to return the policy within 30 days of delivery for an unconditional full refund

Explanation: Rule 919 § 5 requires the replacing insurer to notify any existing insurer that may be affected within 5 business days of receiving a completed application indicating replacement, to keep the replacement notices for at least 5 years, and to give the owner notice of the right to return the policy within 30 days of delivery and receive an unconditional full refund. Thirty days and 15 days are not the notification periods and 10 or 20 days are not the replacement return period; the rule requires notice to the existing insurer, not its consent. See 02-031 C.M.R. ch. 919.

• A. Mail it to the applicant within 10 days after the application is submitted
• B. File it with the superintendent before the policy is issued
• C. Present and read it to the applicant not later than the time of taking the application, and have it signed by both the applicant and the producer
• D. Provide it only if the existing insurer requests a copy

Correct answer: C. Present and read it to the applicant not later than the time of taking the application, and have it signed by both the applicant and the producer

Explanation: Rule 919 § 3 requires a producer, when the applicant answers yes to having existing coverage, to present and read the notice regarding replacements not later than at the time of taking the application, signed by both applicant and producer, listing every policy to be replaced or used as financing, and to leave copies of all sales material. The notice goes to the applicant at application, not by later mail; it is submitted to the insurer, not filed with the superintendent; and it is required regardless of any request from the existing insurer. See 02-031 C.M.R. ch. 919.

• A. Negative 8 percent, mirroring the index decline
• B. 10 percent, because the cap applies in all years
• C. Negative 10 percent, the worst outcome the cap permits
• D. 0 percent, because the floor protects the account from index losses

Correct answer: D. 0 percent, because the floor protects the account from index losses

Explanation: An indexed policy's floor sets the minimum interest credited regardless of index performance, so with a 0 percent floor a down year credits zero rather than a loss; the cap matters only in up years, limiting the maximum credited (an 8 percent loss never triggers the 10 percent cap). Regulators' investor guidance on indexed products explains that a floor 'places a lower limit' on loss exposure while a cap limits upside participation. The cash value is not invested directly in the index, so it does not mirror the decline.

• A. Annual renewable term
• B. Continuous-premium (straight) whole life
• C. Universal life with the level death benefit option
• D. Variable universal life

Correct answer: B. Continuous-premium (straight) whole life

Explanation: Traditional whole life is the design in which 'both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy,' with cash values that grow on a guaranteed schedule (iii.org; California DOI life insurance guide). Annual renewable term premiums increase at each renewal, universal life premiums and values depend on non-guaranteed current interest and charges, and variable universal life shifts investment risk to the owner.

• A. Its annual premium is higher, its cash value grows faster, and no premiums are owed after 20 years, but the death benefit is the same $250,000
• B. Its annual premium is lower because the insurer collects premiums for a shorter time
• C. Its death benefit is larger to compensate for the shorter premium-paying period
• D. Its coverage ends at the close of the 20-year premium period unless it is converted

Correct answer: A. Its annual premium is higher, its cash value grows faster, and no premiums are owed after 20 years, but the death benefit is the same $250,000

Explanation: Limited-payment whole life compresses the same lifetime funding into a set number of premiums - the NAIC glossary defines it as whole life 'with a pre-defined number of premiums to be paid.' Squeezing the funding into 20 years makes each premium higher and builds cash value faster, but the policy stays in force for life with the same face amount once paid up. Coverage does not end when premiums end; that confusion belongs to term insurance.

• A. The policy builds no cash value until the seventh policy year
• B. The policy will pay dividends that are always received income tax free in unlimited amounts
• C. The policy has substantial immediate cash value but is a modified endowment contract, changing how lifetime distributions are taxed
• D. The policy avoids modified endowment status because only flexible-premium contracts can become MECs

Correct answer: C. The policy has substantial immediate cash value but is a modified endowment contract, changing how lifetime distributions are taxed

Explanation: A single-premium policy is fully funded at issue, so it has significant cash value immediately - but paying the entire premium at once necessarily exceeds the 7-pay limit of 26 U.S.C. 7702A, making the contract a modified endowment contract. MEC status changes the tax treatment of lifetime loans and withdrawals; the death benefit still qualifies as life insurance. Any premium pattern, fixed or flexible, that outruns seven net level annual premiums triggers MEC status.

• A. Single-premium whole life
• B. 20-pay whole life
• C. Current assumption universal life
• D. Modified premium whole life, with a lower premium in the early years and a higher level premium thereafter

Correct answer: D. Modified premium whole life, with a lower premium in the early years and a higher level premium thereafter

Explanation: Modified (and the similar graded) premium whole life redistributes the premium: the owner pays less than a standard whole life premium for the first few years, then a somewhat higher level premium for the rest of the policy's life, which suits buyers whose incomes are expected to grow. Single-premium and 20-pay designs demand more money sooner, not less, and universal life is a different product rather than a whole life premium schedule.

• A. $150,000, because policy loans are forgiven at death
• B. $125,000, the face amount reduced by the outstanding loan balance
• C. $150,000 now, with the estate required to repay the $25,000 separately
• D. Nothing until the loan is repaid by the beneficiary

Correct answer: B. $125,000, the face amount reduced by the outstanding loan balance

Explanation: A policy loan is an advance from the insurer secured by the cash value, and any balance still outstanding at death is deducted from the proceeds: $150,000 - $25,000 = $125,000. The California DOI guide notes cash value serves as 'loan collateral for borrowing funds at the interest rate specified in the policy.' Loans are never forgiven at death, and the beneficiary is not personally obligated to repay them.

• A. Surrender the policy for its net cash value
• B. Elect the extended term nonforfeiture option
• C. Elect the reduced paid-up nonforfeiture option
• D. Take a maximum policy loan and let the policy lapse

Correct answer: C. Elect the reduced paid-up nonforfeiture option

Explanation: The reduced paid-up option uses the existing cash value as a single premium to buy a smaller amount of fully paid permanent insurance, so some coverage continues for life with no further premiums - exactly Marcus's goal. Surrender ends the coverage in exchange for cash, extended term keeps the full face amount but only for a limited period, and borrowing then lapsing destroys the coverage. Nonforfeiture options exist so a policyowner who stops paying does not forfeit the value already built.

• A. A nonparticipating policy
• B. A participating policy
• C. An assessable mutual policy
• D. A variable whole life policy

Correct answer: A. A nonparticipating policy

Explanation: A nonparticipating policy pays no dividends; everything the owner will receive is fixed and guaranteed in the contract at issue. A participating policy, by contrast, shares in the insurer's divisible surplus through dividends - the NAIC glossary describes a dividend as 'a refund of a portion of the premium paid by the insured from insurer surplus.' Fixed guaranteed values with no surplus sharing is the defining mark of nonpar coverage.