PSI Insurance Exam Practice 2 — Questions and Answers
Question 1: Which type of life insurance policy builds cash value and keeps the premium level for the life of the insured?
- Term life
- Whole life (Correct answer)
- Universal life
- Variable term
Correct answer: Whole life
Whole life insurance provides permanent coverage with a fixed premium and a guaranteed cash value accumulation component.
Question 2: Under the concept of subrogation, an insurer that pays a claim then has the right to:
- Cancel the policy immediately
- Recover payment from a negligent third party (Correct answer)
- Increase the insured's premium
- Deny future claims on the same loss
Correct answer: Recover payment from a negligent third party
Subrogation allows the insurer to step into the insured's shoes and sue the responsible third party to recover the amount paid.
Question 3: A property insurance policy that pays the cost to repair or replace damaged property without deducting for depreciation is using which valuation method?
- Actual cash value
- Agreed value
- Replacement cost (Correct answer)
- Market value
Correct answer: Replacement cost
Replacement cost coverage pays the full cost to replace damaged property with new property of like kind and quality, without subtracting depreciation.
Question 4: An insured deliberately misrepresents a material fact on an insurance application. This is known as:
- Concealment
- Fraud (Correct answer)
- Warranty
- Estoppel
Correct answer: Fraud
Fraud is an intentional misrepresentation of a material fact made with the intent to deceive the insurer.
Question 5: The 'free look' period in a life insurance policy typically allows the policyowner to:
- Lock in a lower premium for 30 days
- Return the policy for a full refund within a set number of days (Correct answer)
- Make free changes to beneficiaries
- Borrow against cash value interest-free
Correct answer: Return the policy for a full refund within a set number of days
The free look period (typically 10–30 days) lets the policyowner review and return the policy for a full premium refund if not satisfied.
Question 6: Which Medicare supplement plan is standardized so that insurers must offer identical benefits under the same plan letter?
- Medicaid wrap plans
- Medicare Advantage plans
- Medigap plans (Correct answer)
- Medicare Part D plans
Correct answer: Medigap plans
Medigap (Medicare Supplement) plans are federally standardized by plan letter (A–N), so Plan G from one insurer must offer the same benefits as Plan G from another.
Question 7: Under a disability income policy, the 'elimination period' functions similarly to:
- A grace period
- A deductible expressed in time (Correct answer)
- A probationary period for pre-existing conditions
- A contestability clause
Correct answer: A deductible expressed in time
The elimination period is a waiting period at the start of a disability during which no benefits are paid, acting like a time-based deductible.
PSI Insurance Exam Practice 2
Which type of life insurance policy builds cash value and keeps the premium level for the life of the insured?