CLU Cheat Sheet 2026

The 30 highest-yield CLU facts, distilled from real exam questions. Print it, save it as a PDF, or study it here — free, no sign-up.

1. Which life insurance ownership arrangement is typically used to keep the death benefit outside the insured's taxable estate under IRC Section 2042? → Irrevocable life insurance trust (ILIT)
2. What is a key advantage of a noncontributory group life insurance plan from the employer's perspective? → 100% participation is automatic, eliminating adverse selection
3. Under the incontestability clause, after what period can an insurer generally NOT contest a life insurance policy for misrepresentation? → 2 years
4. A life insurance policy is classified as a unilateral contract because: → Only the insurer makes a legally enforceable promise
5. In both consumption and saving. Define the PV to FV exchange rate ratio. → FV/PV
6. Which of the following transfers of a life insurance policy is an exception to the transfer for value rule? → A transfer to the insured
7. In the context of qualified retirement plans, which annuity form is required as the default payout option for married participants under ERISA? → Qualified joint and survivor annuity (QJSA)
8. Interest earned on life insurance policy loans is generally: → Not deductible for personal policies under IRC Section 264
9. Under ERISA, what is the primary fiduciary duty of a plan administrator for a group life insurance plan? → Act solely in the interest of plan participants and beneficiaries
10. The alternative minimum tax (AMT) was primarily designed to ensure that: → High-income taxpayers pay at least a minimum amount of federal income tax
11. The elimination period in a disability income policy serves a function most similar to which feature found in other insurance lines? → A deductible
12. What is the required minimum distribution (RMD) starting age for qualified annuities and IRAs under current federal law (SECURE 2.0)? → Age 73
13. When a nonqualified annuity owner dies before annuitization, how are gains in the contract taxed to a non-spouse beneficiary who takes a lump sum? → As ordinary income in the year received
14. The legal doctrine of subrogation, as it applies to life insurance, differs from property insurance because: → Life insurance is not a contract of indemnity, so subrogation generally does not apply
15. What distinguishes a participating life insurance policy from a non-participating policy? → Participating policies pay dividends that may reduce premiums or increase coverage
16. Regarding the federal income taxation of life insurance, which of the following statements is generally TRUE? → The death benefit paid in a lump sum to a named beneficiary is received income tax-free.
17. Under ERISA, what is the maximum period a defined contribution plan can require for an employee to become fully vested under a cliff vesting schedule? → 3 years
18. How are withdrawals from a nonqualified deferred annuity taxed prior to annuitization? → Last-in, first-out (LIFO) — gain withdrawn first, then cost basis
19. A policy issued with a rated premium due to a health impairment means the applicant: → Pays a higher-than-standard premium to reflect increased risk
20. A taxpayer in the 32% marginal bracket receives $10,000 of qualified dividend income. This income is taxed at: → 15%, because they are below the top bracket threshold for the 20% rate
21. Which provision in a life insurance policy allows the insured to restore a lapsed policy within a specified period by paying overdue premiums plus interest? → Reinstatement provision
22. Which of the following life insurance policy loans triggers immediate income tax? → A loan from a MEC that constitutes a distribution
23. Under group life insurance, what is the 'master contract' and who holds it? → The primary policy issued to and held by the employer or group policyholder
24. Which life insurance concept describes the present value of future premiums expected to be paid, subtracted from the present value of future benefits? → Policy reserve
25. A client is evaluating a variable annuity with a Guaranteed Minimum Withdrawal Benefit (GMWB). What is the PRIMARY risk this rider is designed to mitigate? → Longevity risk — outliving assets
26. Which retirement plan design feature automatically re-enrolls existing employees at a higher default deferral rate each year? → Automatic Escalation (also called Auto-Increase)
27. An insured dies during the grace period before paying the overdue premium. How does the insurer typically handle the claim? → The full death benefit is paid, and the overdue premium is deducted from the proceeds
28. In a group insurance context, what is a 'benefit trigger' in a long-term care insurance policy? → A condition that must be met before benefits are payable
29. For income tax purposes, contributions to a Health Savings Account (HSA) made by an eligible individual are: → Deductible above-the-line regardless of whether the taxpayer itemizes
30. Which qualified plan vesting schedule requires an employee to be at least 20% vested after 2 years, reaching 100% vesting no later than year 6? → Graded vesting