Tennessee Life Insurance Practice Exam Free - 2026

• A. Surrendering an individual whole life policy to buy a new universal life policy from a different insurer
• B. Replacing group life insurance
• C. Borrowing 30 percent of an existing policy's loan value to fund a new individual policy
• D. Lapsing an individual term policy because a new individual policy was purchased

Correct answer: B. Replacing group life insurance

Explanation: The replacement rule exempts credit life insurance, group life insurance, and applications to the existing insurer that exercise a contractual change or conversion privilege, among other listed transactions. The other choices are classic replacements of individual coverage and trigger the producer's duties. See Tenn. Comp. R. & Regs. 0780-01-24-.04.

• A. Care, disclosure, conflict of interest, and documentation
• B. Licensing, appointment, continuing education, and bonding
• C. Suitability, commission disclosure, replacement notice, and free look
• D. Age, income, net worth, and tax status

Correct answer: A. Care, disclosure, conflict of interest, and documentation

Explanation: A producer recommending an annuity must act in the consumer's best interest without placing the producer's or the insurer's financial interest ahead of the consumer's, which the rule treats as met when the care, disclosure, conflict-of-interest and documentation obligations are satisfied. Care means a reasonable basis, after collecting the consumer profile information, to believe the recommendation effectively addresses the consumer's financial situation; a consumer who refuses to provide profile information must sign the rule's acknowledgment, and the insurer must maintain a supervision system that bars sales contests tied to specific annuities. See Tenn. Comp. R. & Regs. 0780-01-86-.06.

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

Correct answer: A. 18 years

Explanation: Tennessee's Insurance Producer Licensing Act requires an individual applicant to be at least eighteen (18) years of age, to have passed the examinations for the lines applied for, to pay the fees, and not to have committed any act that is a ground for denial. Sixteen is too young, and neither 19 nor 21 is the statutory threshold. See Tenn. Code Ann. § 56-6-106(a).

• A. Twelve months from the date of issue
• B. Twenty-four months from the last day of the licensee's birth month
• C. Thirty-six months from the last day of the licensee's birth month
• D. Until March 1 of the next even-numbered year

Correct answer: B. Twenty-four months from the last day of the licensee's birth month

Explanation: Individual producer licenses in Tennessee remain in effect for twenty-four (24) months from the last day of the licensee's birth month and are renewed biennially at the end of that period. A twelve-month or thirty-six-month term is wrong, and the March 1 biennial expiration applies only to business entity licenses, not individuals. See Tenn. Code Ann. § 56-6-107.

• A. $300,000, because the specified amount is the most the insurer ever pays
• B. $340,000, because Option B pays the specified amount plus the accumulated cash value
• C. $260,000, because the cash value is deducted from the specified amount at death
• D. $40,000, because Option B substitutes the cash value for the specified amount

Correct answer: B. $340,000, because Option B pays the specified amount plus the accumulated cash value

Explanation: Under the increasing (Option B) arrangement, the beneficiary receives the specified amount plus the policy's cash value, so the total death benefit grows as the cash value grows: $300,000 + $40,000 = $340,000. Paying only the specified amount describes the level (Option A) design, and the cash value is never subtracted from or substituted for the face amount. State insurance department consumer guides describe the two universal life death benefit options exactly this way.

• A. $100,000, equal to the cash surrender value
• B. $105,000, or 105 percent of the cash surrender value
• C. $250,000, or 250 percent of the cash surrender value
• D. $150,000, or 150 percent of the cash surrender value

Correct answer: C. $250,000, or 250 percent of the cash surrender value

Explanation: Under the cash value corridor of 26 U.S.C. 7702(d), the applicable percentage for an insured under age 40 is 250 percent, so the death benefit must be at least 250% x $100,000 = $250,000. The percentage grades down at older ages, reaching 105 percent in the late-70s-to-80s range and 100 percent by age 95. If the death benefit fell below the corridor, the contract would lose its tax status as life insurance. See 26 U.S.C. 7702.

• A. Monthly deductions for the cost of insurance and expenses continued and have nearly exhausted her cash value
• B. The insurer canceled the policy for nonpayment at the end of the standard 31-day grace period three years ago
• C. The policy automatically converted to extended term insurance, and the term period is now expiring
• D. The guaranteed interest rate expired, so the insurer is required by law to terminate the contract

Correct answer: A. Monthly deductions for the cost of insurance and expenses continued and have nearly exhausted her cash value

Explanation: Premium flexibility does not make universal life coverage free: every month the insurer keeps deducting cost-of-insurance and expense charges from the account value, and when the cash value can no longer cover them, the policy lapses. Oregon's insurance regulator warns that owners who underpay 'receive a notice from their insurance company that their policy will cancel if they do not increase their payment.' The policy did not lapse three years ago precisely because the cash value kept it in force, and extended term is a whole life nonforfeiture mechanism, not an automatic universal life feature.

• A. The 5.5 percent rate, because an illustrated rate becomes contractually binding once the policy is delivered
• B. The average of the two rates, because regulators require insurers to split the difference
• C. Neither rate, because universal life interest crediting carries no guarantees of any kind
• D. Only the 2 percent contractual minimum; the current rate can change at the insurer's discretion

Correct answer: D. Only the 2 percent contractual minimum; the current rate can change at the insurer's discretion

Explanation: Universal life policies credit a current interest rate declared by the insurer, but only the guaranteed minimum stated in the contract is promised for the life of the policy. The NAIC's buyer's guide notes that non-variable policies 'often have guaranteed minimums for some features (interest or cash value, for example),' while illustrated current rates are projections the insurer may lower. An illustration never converts a current rate into a guarantee.

• A. Policy loan interest and federal income tax withholding
• B. Surrender charges and state premium taxes
• C. The cost of insurance charge plus the policy's expense charges
• D. Dividend repayments and reinstatement fees

Correct answer: C. The cost of insurance charge plus the policy's expense charges

Explanation: A universal life account works like a bucket: premiums and credited interest flow in, and each month the insurer takes out the cost of insurance (the mortality charge for the death benefit) and the policy's expense charges. Oregon's insurance regulator describes it the same way: 'Money is taken out of the bucket by the cost of insurance and the expense charges of the policy.' Surrender charges apply only on early termination, and loan interest accrues only if a loan exists.

• A. It is the premium the state requires; paying it makes the coverage guaranteed to age 121
• B. It is an estimate, based on current assumptions, of the level payment that should keep the policy in force; it is not a guarantee
• C. It is the legal maximum she may pay into the policy in any year
• D. It is the minimum deposit needed to avoid modified endowment contract status

Correct answer: B. It is an estimate, based on current assumptions, of the level payment that should keep the policy in force; it is not a guarantee

Explanation: The target (or suggested) premium is the insurer's estimate of the level payment that would sustain the coverage - Oregon's regulator describes it as 'estimating what payment would provide coverage to age 100 without depleting the cash value.' Because insurers 'can only make educated predictions on future interest rates,' actual results can fall short, and owners may later be told to pay more to avoid lapse. It is neither a statutory amount, a contribution ceiling, nor a MEC threshold - the MEC limit under 26 U.S.C. 7702A is a separate calculation.

• A. Lena, because separate account values in a variable policy rise and fall with the investments she selected, with no guaranteed minimum cash value
• B. The insurer, because state law requires the general account to restore any separate account losses
• C. The subaccount fund managers, who must reimburse policyowners for negative returns
• D. No one, because the loss is only on paper and the insurer must credit the guaranteed universal life interest rate instead

Correct answer: A. Lena, because separate account values in a variable policy rise and fall with the investments she selected, with no guaranteed minimum cash value

Explanation: In variable and variable universal life, cash values are held in separate account subaccounts chosen by the policyowner, who therefore bears the investment risk. The NAIC's buyer's guide notes these policies 'have the greatest potential to build cash value but also the greatest risk of losing cash value,' while it is non-variable policies that carry guaranteed minimums. Neither the insurer's general account nor the fund managers make up separate account losses.

• 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.