South Dakota Life Insurance Practice Exam Free - 2026

• A. Permitted, because the association does cover life policies of insolvent members
• B. Permitted only if Dale also hands the prospect the association's summary document
• C. Permitted if the statement is made orally rather than in writing
• D. Prohibited; no person may use the existence of the guaranty association for the purpose of sales, solicitation, or inducement to purchase insurance

Correct answer: D. Prohibited; no person may use the existence of the guaranty association for the purpose of sales, solicitation, or inducement to purchase insurance

Explanation: No person, including a member insurer, agent, or affiliate, may make any written or oral advertisement, announcement or statement that uses the existence of the Life and Health Insurance Guaranty Association for the purpose of sales, solicitation, or inducement to purchase insurance; the required summary document itself must state that this is prohibited and that the policyowner should not rely on association coverage when selecting an insurer. A, B and C are wrong because the prohibition applies regardless of the accuracy of the statement, delivery of the summary document, or whether it is oral or written. See SDCL 58-29C-62.

• A. Twisting, a Class 2 misdemeanor
• B. Rebating, a Class 1 misdemeanor
• C. Defamation of an insurer, a Class 4 felony
• D. Permissible puffery, provided the new policy is suitable

Correct answer: A. Twisting, a Class 2 misdemeanor

Explanation: Making or issuing a written or oral statement that misrepresents or makes incomplete comparisons of policy terms, conditions, or benefits in order to induce a policyholder to lapse, forfeit, surrender, retain, exchange, or convert a policy is twisting, and a violation is a Class 2 misdemeanor. Rebating (SDCL 58-33-14) involves offering something of value not specified in the contract, and is also a Class 2 misdemeanor, not Class 1; defamation (SDCL 58-33-7) concerns false statements about an insurer's financial condition and is a Class 2 misdemeanor, not a felony; D is wrong because knowingly false comparisons are never permitted. See SDCL 58-33-8.

• A. Lawful because gifts under $250 are not considered rebates
• B. Lawful if the gift is disclosed to the insurer
• C. An unlawful rebate; South Dakota prohibits giving or offering any valuable consideration or inducement not specified in the contract, and the violation is a Class 2 misdemeanor
• D. Lawful only if the client has accepted a gift from the insurer before

Correct answer: C. An unlawful rebate; South Dakota prohibits giving or offering any valuable consideration or inducement not specified in the contract, and the violation is a Class 2 misdemeanor

Explanation: No person may, as an inducement to life insurance, health insurance or an annuity, pay, allow, give or offer any rebate of premium, any special favor or advantage, or 'anything of value whatsoever not specified in the contract,' and a violation is a Class 2 misdemeanor; the insured who knowingly accepts such an inducement also commits a Class 2 misdemeanor under SDCL 58-33-25. A is wrong because the statute contains no dollar threshold for gifts; B and D are wrong because disclosure or prior gifts do not create an exception. See SDCL 58-33-14.

• A. 16 years
• B. 18 years
• C. 19 years
• D. 21 years

Correct answer: B. 18 years

Explanation: Before approving a resident insurance producer application the director must find that the individual is at least eighteen years of age, has not committed any act that is a ground for denial under SDCL 58-30-167, has paid the fees in SDCL 58-2-29, and has passed the examinations for the lines of authority sought; Jordan must wait until turning 18. Twenty-one is the minimum age only for the bail bonds examination prerequisite in the Pearson VUE candidate handbook, and sixteen and nineteen are not South Dakota licensing ages. See SDCL 58-30-148.

• A. The survivor receives one-third of the original joint payment for life
• B. The survivor receives two-thirds of the original joint payment for life
• C. The survivor receives the full joint payment until the account value is exhausted
• D. The survivor receives two-thirds of the original joint payment for a fixed period certain

Correct answer: B. The survivor receives two-thirds of the original joint payment for life

Explanation: Joint and survivor options let the parties choose what percentage continues to the survivor, and a two-thirds election reduces the check to two-thirds of the joint amount but continues it for the survivor's lifetime. Stopping payments entirely would defeat the purpose of a survivor option. Reducing the check to one-third or continuing the full payment until the account runs out misstates the election, and the survivor's reduced payment continues for life rather than for a fixed period.

• A. The immediate annuity may be purchased with a single premium alone, while a deferred annuity must be funded with periodic premiums
• B. The immediate annuity is available in fixed form alone, while a deferred annuity may be issued as either a fixed or variable contract
• C. The immediate annuity begins income payments within about one payment period of purchase, while a deferred annuity accumulates first
• D. The immediate annuity begins income payments after a one-year waiting period, while a deferred annuity pays income from the date of purchase

Correct answer: C. The immediate annuity begins income payments within about one payment period of purchase, while a deferred annuity accumulates first

Explanation: An immediate annuity is bought with a single premium and starts paying income right away, typically within one payment interval, whereas a deferred annuity holds and grows the money before any income begins. Single premium funding is actually required for an immediate annuity and is also available on deferred contracts. Both types can be issued in fixed or variable form, and the timing in the reversed option is backwards, since it is the deferred contract that waits before paying.

• A. The annuitant
• B. The federal government
• C. The beneficiary
• D. The insurance company

Correct answer: D. The insurance company

Explanation: A fixed annuity places contract funds in the insurer's general account and promises a minimum guaranteed rate, so the insurer absorbs the investment risk. In a variable annuity that risk shifts to the contract owner, whose values move with the separate account subaccounts. Beneficiaries have no role during accumulation, and annuities carry no government guarantee.

• A. Gather information on the client's financial situation, objectives, and needs and have reasonable grounds for the recommendation
• B. Obtain written approval of the recommendation from the client's attorney or accountant before the application is signed
• C. Rely on the client's stated interest in the product, since a consumer's own request satisfies the suitability standard
• D. Submit the completed consumer profile form to the state insurance department for review and approval before the sale can be completed

Correct answer: A. Gather information on the client's financial situation, objectives, and needs and have reasonable grounds for the recommendation

Explanation: Suitability standards require the producer to collect relevant consumer information such as age, income, liquidity needs, risk tolerance, and time horizon, and to have a reasonable basis for believing the recommendation fits. A client's expressed interest does not replace the required fact-finding, no attorney or accountant sign-off is required, and the consumer profile is retained by the producer and insurer rather than filed with the state for approval.

• A. Its cash value is invested directly in the securities that make up the index, so it carries no minimum guarantee
• B. Its credited interest is tied to the performance of an external market index, subject to a floor and limiting features
• C. It must be registered as a security with the SEC and sold by a producer who holds a securities registration
• D. It credits a fixed rate declared in advance each year and cannot be annuitized into a guaranteed lifetime income

Correct answer: B. Its credited interest is tied to the performance of an external market index, subject to a floor and limiting features

Explanation: An indexed annuity credits interest based on movement in a named index while a floor protects against negative index years, and caps, spreads, or participation rates limit the upside. A minimum guarantee is a defining feature, so claiming there is none is wrong. Most indexed annuities are not registered securities, and like other annuities they can be annuitized for lifetime income.

• A. Accumulate at interest
• B. Cash payment
• C. Paid-up additions
• D. Reduce premium

Correct answer: C. Paid-up additions

Explanation: The paid-up additions option buys tiny single-premium blocks of permanent insurance at the insured's attained age, and each addition carries its own cash value and can earn future dividends. Taking cash or applying the dividend against the next premium adds no new coverage. Leaving dividends to accumulate at interest builds a fund with the insurer but does not increase the death benefit through additional insurance.

• A. Buy single-premium paid-up additions that increase the policy's face amount permanently
• B. Prepay the next annual premium, with any excess held at interest for one year
• C. Pay up the policy one year sooner than the original premium schedule provides
• D. Buy one-year term insurance, often in an amount related to the policy's cash value

Correct answer: D. Buy one-year term insurance, often in an amount related to the policy's cash value

Explanation: The one-year term dividend option applies the dividend as a single premium for term coverage lasting one year, commonly limited to an amount tied to the policy's cash value. It does not prepay a future premium, which would simply be the premium reduction option, and it does not buy paid-up additions or shorten the premium-paying period; those are separate dividend options.

• A. They are not guaranteed and depend on the insurer's mortality, expense, and investment results
• B. They are guaranteed by the contract once the policy has been in force for a stated number of years
• C. They are taxable as ordinary income when paid, because they represent a share of the insurer's earnings
• D. They are paid by stock insurers on nonparticipating policies out of the shareholders' surplus

Correct answer: A. They are not guaranteed and depend on the insurer's mortality, expense, and investment results

Explanation: Dividends represent divisible surplus and vary with how favorably the insurer's actual mortality, expenses, and investment earnings compare to the assumptions used in pricing, so they can never be guaranteed. Illustrating them as guaranteed would be a misrepresentation. Dividends are treated as a return of excess premium rather than taxable earnings, and only participating policies pay dividends at all.