Michigan Life Insurance Practice Exam Free - 2026

• A. Paying a policy dividend that is expressly provided for in the contract
• B. Explaining that a mutual insurer's participating policy may pay dividends
• C. Quoting a lower premium because the applicant qualifies for a filed nonsmoker classification
• D. Offering an annuity applicant shares of stock in a corporation as an inducement to purchase the contract

Correct answer: D. Offering an annuity applicant shares of stock in a corporation as an inducement to purchase the contract

Explanation: Michigan's anti-rebating statute prohibits giving, selling, purchasing, or offering stocks, bonds, or other securities, or anything of value not specified in the contract, as an inducement to insurance or an annuity. Dividends actually provided for in the contract, accurate descriptions of participating policies, and filed rating classifications are all specified in or supported by the contract and rates, so none of them is a rebate. See MCL 500.2024.

• A. Simple interest at 6% per annum, running from the date of the insured's death rather than from proof of loss
• B. Simple interest at 12% per annum, paid in addition to and at the time of payment of the claim
• C. Compound interest at 12% per annum, payable to the Director as a civil fine rather than to the claimant
• D. Simple interest at 12% per annum, owed once the claimant obtains a court judgment against the insurer

Correct answer: B. Simple interest at 12% per annum, paid in addition to and at the time of payment of the claim

Explanation: A claim supported by proof of loss is timely if paid within 60 days after the insurer receives the proof; an insurer that fails to pay on a timely basis owes the claimant 12% simple interest per annum as a penalty, paid in addition to and at the time the claim is paid. Interest is not owed if the insurer offered payment, the claimant rejected it, and the claimant did not later recover more than the amount offered. See MCL 500.2006(3) and (4).

• A. A 30-day period to return the policy for a refund of premium less a policy fee
• B. A period of not less than 10 days after receipt to return the policy and receive a prompt refund of all premium, including any policy fee, with the policy void from the beginning
• C. A 20-day period to return the policy, after which only the cash value is refundable
• D. No statutory right; free-look periods are set only by company practice

Correct answer: B. A period of not less than 10 days after receipt to return the policy and receive a prompt refund of all premium, including any policy fee, with the policy void from the beginning

Explanation: MCL 500.4015 requires every individual (non-group) life policy to carry a front-page notice that, for not less than 10 days after the policyholder receives the policy, the policyholder may cancel it and receive a prompt refund of any premium paid, including a policy fee or other charge; a returned policy is void from the beginning. A is wrong on both the period and the deduction of a fee. C invents a 20-day period and a cash-value limitation. D is wrong because the right is statutory. See MCL 500.4015.

• A. Nothing, because the misstatement voids the policy
• B. The full face amount, because the policy became incontestable
• C. The amount the most recent mortality charge or premium would have purchased at the correct age
• D. The face amount reduced by the premiums that were underpaid, with interest

Correct answer: C. The amount the most recent mortality charge or premium would have purchased at the correct age

Explanation: MCL 500.4018 requires each life policy to provide that if the insured's age or sex is misstated, the amount payable or death benefit is what would be purchased by the most recent mortality charge or premium at the correct age or sex. A is wrong because misstatement of age is an adjustment, not a forfeiture. B confuses this with the incontestability clause, which does not override the age-adjustment provision. D describes an offset method Michigan does not prescribe. See MCL 500.4018.

• A. Whole life
• B. A single-premium endowment
• C. Variable universal life
• D. Level term insurance for a 20-year period

Correct answer: D. Level term insurance for a 20-year period

Explanation: Term insurance is pure death protection: it pays only if death occurs during the term and builds no cash value, which is why it delivers the most coverage per premium dollar. Whole life and the other permanent forms cost more at issue because part of each premium funds a lifetime guarantee and a savings element she does not want. See iii.org.

• A. Yes, because insurable interest must exist at the time of death
• B. No, because insurable interest is required only when the policy is issued, and it existed then
• C. Yes, unless the insured's family consents to payment
• D. No, because business policies never require insurable interest

Correct answer: B. No, because insurable interest is required only when the policy is issued, and it existed then

Explanation: In life insurance, insurable interest must exist at the inception of the contract; it need not continue to the date of death. The partners had a genuine financial interest in each other's lives when the policy was issued, so the later dissolution does not defeat the claim. Business life insurance requires insurable interest at issue like any other policy.

• A. The agent must have witnessed the applicant's signature
• B. The answers must have been given under oath
• C. A copy of the application must be endorsed on or attached to the policy when it is issued
• D. The answers must be notarized within 30 days of delivery

Correct answer: C. A copy of the application must be endorsed on or attached to the policy when it is issued

Explanation: Life policies must provide that the policy - or the policy together with the application if a copy is endorsed upon or attached to it at issue - constitutes the entire contract between the parties. Statements in an attached application are, absent fraud, deemed representations rather than warranties; an unattached application cannot be used against the insured. See, e.g., Va. Code 38.2-3304, reflecting the standard provision.

• A. The death benefit is payable, because coverage became effective when the receipt's insurability condition was satisfied
• B. Only the premium is refunded, because no policy was ever delivered
• C. Nothing is payable, because conditional receipts never provide coverage before issue
• D. Half the face amount is payable as a compromise settlement

Correct answer: A. The death benefit is payable, because coverage became effective when the receipt's insurability condition was satisfied

Explanation: A conditional receipt specifies conditions - typically that the applicant prove insurable - that, once satisfied, make coverage effective as of the receipt (or exam) date even if the applicant dies before the policy is issued. Because underwriting found him a standard risk, the condition was met and the claim is payable. A binding receipt, by contrast, provides temporary coverage immediately regardless of insurability.

• A. A marketing manager at a for-profit software company
• B. A teacher employed by a public high school
• C. A self-employed retail store owner
• D. A loan officer at a commercial bank

Correct answer: B. A teacher employed by a public high school

Explanation: Only public educational institutions and 501(c)(3) tax-exempt organizations (plus certain ministers) may maintain 403(b) plans, so the public school teacher qualifies. Employees of for-profit companies and self-employed business owners must look to 401(k), SEP, SIMPLE, or IRA arrangements instead. See irs.gov.

• A. It may add the SIMPLE plan as long as total contributions stay within limits
• B. It may add the SIMPLE plan only if it freezes 401(k) matching
• C. SIMPLE plans are available only to employers with more than 100 employees
• D. It generally cannot adopt a SIMPLE plan, because an employer with a SIMPLE IRA cannot maintain another retirement plan

Correct answer: D. It generally cannot adopt a SIMPLE plan, because an employer with a SIMPLE IRA cannot maintain another retirement plan

Explanation: A SIMPLE IRA plan is limited to employers with 100 or fewer employees that do not maintain any other retirement plan, and it requires either a 3 percent matching or 2 percent nonelective employer contribution. Because the firm already sponsors a 401(k), it is generally ineligible; the 100-employee figure is a maximum, not a minimum. See irs.gov.

• A. A Roth IRA, funded with after-tax contributions
• B. A traditional IRA, funded with deductible contributions
• C. A nonqualified deferred annuity
• D. A SEP IRA funded by her employer

Correct answer: A. A Roth IRA, funded with after-tax contributions

Explanation: Roth IRA contributions are never deductible, but qualified distributions - including the earnings - are received tax-free, and amounts can be left in the account for life. Traditional IRA and SEP dollars are taxed when withdrawn, and a nonqualified annuity's earnings are taxable at distribution. See irs.gov.

• A. ERISA requires every employer with 10 or more workers to fund a pension
• B. ERISA guarantees each worker a benefit equal to final salary
• C. ERISA does not require an employer to establish a plan; it sets minimum participation, vesting, accrual, and funding standards and fiduciary duties for plans that are voluntarily established
• D. ERISA applies only to government and church plans

Correct answer: C. ERISA does not require an employer to establish a plan; it sets minimum participation, vesting, accrual, and funding standards and fiduciary duties for plans that are voluntarily established

Explanation: ERISA regulates most voluntarily established private-sector retirement and health plans - setting minimum standards for participation, vesting, benefit accrual, and funding, imposing fiduciary responsibilities, and giving participants the right to sue - but it does not compel any employer to create a plan. Government and church plans are actually among those exempt from ERISA. See dol.gov.