PSI Insurance Exam Practice 4 — Questions and Answers
Question 1: Which life insurance rider allows the policyowner to purchase additional coverage at specified future dates without proving insurability?
- Waiver of premium rider
- Accidental death benefit rider
- Guaranteed insurability rider (Correct answer)
- Return of premium rider
Correct answer: Guaranteed insurability rider
The guaranteed insurability (or guaranteed purchase option) rider lets the insured buy more coverage at specific ages or life events without a new medical exam.
Question 2: A homeowners policy's Coverage C—Personal Property typically covers belongings on what basis by default?
- Replacement cost
- Agreed value
- Actual cash value (Correct answer)
- Market value
Correct answer: Actual cash value
Standard homeowners policies cover personal property on an actual cash value (ACV) basis by default, deducting depreciation from the claim payment.
Question 3: An annuity that begins paying income immediately after a single lump-sum premium is paid is called a(n):
- Deferred annuity
- Flexible premium annuity
- Immediate annuity (Correct answer)
- Variable annuity
Correct answer: Immediate annuity
An immediate annuity starts income distributions typically within one month of the single premium payment, making it ideal for someone already at retirement.
Question 4: Which of the following best describes a 'surplus lines' insurer?
- An insurer licensed in all 50 states that specializes in high-limit policies
- A non-admitted insurer that covers risks the admitted market will not write (Correct answer)
- A government reinsurance pool for catastrophic losses
- A fraternal benefit society exempt from state regulation
Correct answer: A non-admitted insurer that covers risks the admitted market will not write
Surplus lines (non-admitted) insurers are not licensed in the state but may legally write coverage for unique or hard-to-place risks through a licensed surplus lines broker.
Question 5: Under workers' compensation, which benefit pays a portion of the injured employee's lost wages during recovery?
- Medical benefits
- Temporary total disability benefits (Correct answer)
- Permanent partial disability benefits
- Death benefits
Correct answer: Temporary total disability benefits
Temporary total disability (TTD) benefits replace a percentage of the worker's wages while they are completely unable to work but are expected to recover.
Question 6: A life insurance policy loan taken against the cash value that is not repaid before death will:
- Cause the policy to lapse immediately
- Reduce the death benefit paid to beneficiaries by the outstanding loan balance (Correct answer)
- Be forgiven and have no effect on the death benefit
- Trigger a taxable distribution equal to the full loan amount
Correct answer: Reduce the death benefit paid to beneficiaries by the outstanding loan balance
An unpaid policy loan plus accrued interest is deducted from the death benefit at the time of the insured's death.
Question 7: The 'coinsurance clause' in a commercial property policy is designed to encourage property owners to:
- Purchase coverage equal to at least a specified percentage of the property's value (Correct answer)
- File claims only once per policy period
- Use the same insurer for all lines of coverage
- Name the mortgage lender as an additional insured
Correct answer: Purchase coverage equal to at least a specified percentage of the property's value
The coinsurance clause penalizes underinsurance; if the insured carries less than the required percentage (e.g., 80%) of property value, the insurer pays only a proportional share of any loss.
PSI Insurance Exam Practice 4
Which life insurance rider allows the policyowner to purchase additional coverage at specified future dates without proving insurability?