Life Insurance Exam: How Difficult Is It?

Selling life insurance is a challenging career path, with some industry analysts reporting agents burning out within a year. The job typically operates on a commission-only basis, and it can be difficult to find qualified customers. However, it can be relatively easy to find a job selling life insurance, and there is the potential for a high salary. To sell life insurance, you must pass a licensing exam. While some people find this exam easy, others find it challenging. The exam is multiple-choice and covers topics such as insurance regulation, life insurance basics, policy provisions, federal tax considerations, and health insurance. To pass, you need to answer at least 70% of the questions correctly.

State-specific insurance exams

The insurance test that you take to become a licensed insurance agent will differ depending on the state in which you live. Twenty-five of the fifty United States use the Pearson VUE insurance licensing exam. While the exam is challenging, and many people fail on their first try, adequate preparation plays a large role in the potential for successfully passing.

The state-specific insurance exams will cover the state's rules and regulations, including requirements for contract language, disclosures, and rules that pertain to the life insurance policy itself. It will also cover licensing requirements for insurance agents, brokers, limited representatives, and adjusters. You may also be asked about continuing education requirements and available professional organizations in your state.

The state portions of the exams are where variations determine the complexity of the exam due to the specifics that relate to that state's regulations. The format of the questions, the score needed to pass, pre-licensing requirements, and the amount of time permitted for completion will differ between states.

The majority of states require a score of 70-75% to pass each exam, but this can be as high as 80%. The pass rate for the life insurance exam nationally is 62.9%. The length of the test varies by state but is often between 50 and 100 questions, with an allotted time of one to two hours to complete it.

Life insurance basics

Life insurance is a contract between an individual and an insurance company. The individual, or policyholder, pays regular premiums to the insurance company, which, in turn, guarantees to pay a sum of money to the policyholder's chosen beneficiaries when the policyholder dies. The beneficiaries receive this sum, known as the death benefit, as a tax-free lump sum.

There are two main types of life insurance: term life insurance and whole life insurance. Term life insurance provides a death benefit for a set period, typically between 10 and 30 years. Whole life insurance, on the other hand, provides permanent coverage for the entirety of the policyholder's life, as long as premiums continue to be paid. Whole life insurance also includes a cash value component, which functions like a savings account. The policyholder can use the cash value for various purposes, such as taking out loans or paying policy premiums.

Life insurance is particularly important if you have people depending on you for financial support. It can help replace lost income, pay final expenses, create an inheritance for heirs, and pay taxes. It can also be used to make charitable contributions or create a source of savings.

To obtain a life insurance license in the United States, you must pass a state licensing exam. The exam covers various topics, including insurance regulation, life insurance basics, life insurance policies, and federal tax considerations. It is a multiple-choice exam, and passing scores are typically around 70%.

Insurance regulation

One key area of insurance regulation pertains to licensing requirements. In most states, individuals who want to sell life insurance must first obtain a license from the state's insurance department or commission. The requirements for obtaining this license can vary but often include completing pre-licensing education, passing a background check, and fingerprinting. Some states may also require individuals to apply for the license before taking the licensing exam, while others may allow individuals to take the exam first.

The licensing exam itself is another important component of insurance regulation. The exam is designed to test the applicant's knowledge of insurance-related topics, including state rules and regulations, insurance applications, policy riders, exclusions, and taxes. The exam is typically administered by a third-party testing company, such as PearsonVue, and is offered at various testing locations throughout the state. It is important to note that the format of the exam may differ between states, with some combining certain types of insurance exams (e.g., Property and Casualty) or offering a Personal Lines exam for agents selling only homeowner or auto insurance.

In addition to state-specific regulations, life insurance agents also need to be aware of federal laws and guidelines that pertain to the insurance industry. For example, when selling life and health insurance, agents need to have a strong understanding of federal tax considerations for both life insurance and annuities, as well as health insurance. This includes knowledge of tax issues related to annuity policies, which may be covered in the licensing exam.

Furthermore, insurance regulation also governs the conduct of insurance agents and brokers. For instance, regulations may outline the requirements for insurance agents to act as fiduciaries, which includes being honest, trustworthy, and qualified to perform insurance sales functions. Non-compliance with these regulations can result in disciplinary action, including the revocation of an agent's license to sell insurance.

Overall, insurance regulation plays a crucial role in ensuring the protection of consumers and maintaining the integrity of the insurance industry. By understanding and adhering to the relevant insurance regulations, life insurance agents can ensure that they are operating within the boundaries of the law and providing their clients with the best possible service.

Health insurance general knowledge

The life and health insurance exam is a requirement for anyone wishing to sell life and health insurance. The exam is offered by state licensing boards, and while the tests and requirements vary from state to state, the overarching topics covered are similar.

• Qualified health plans
• Individual health insurance policy general provisions
• Disability income and related insurance
• Health maintenance organizations (HMOs)
• Group health insurance
• Insurance for special needs individuals and senior citizens
• Federal tax considerations for health insurance

The health insurance exam is considered more difficult than the life insurance exam because health insurance policies are more complicated.

Preparation

To prepare for the exam, it is recommended that you spend 35 to 40 hours studying over a few weeks. There are many resources available, including classes, flashcards, study guides, and practice exams. While memorizing definitions will help, understanding the core concepts within insurance is key to passing the exam. It is also important to be mindful of the time and to focus on the main points of the questions.

Exam preparation

The life insurance licensing exam is a challenging test, but with the right preparation, you can pass with flying colours. Here are some tips to help you prepare for the exam and increase your chances of success:

• Understand the basic concepts: Focus on grasping the fundamental concepts of life insurance rather than memorising endless definitions. Understanding the core concepts will enable you to answer questions logically and with ease.
• Read, reinforce and repeat: Ensure you thoroughly understand each lesson by carefully reading the material, watching any corresponding videos, and reviewing the lesson summary. Reinforce your understanding by taking lesson exams and exam simulators. Repetition is key to retaining information, so don't hesitate to go over the material multiple times before the exam.
• Recognise multiple names for concepts: Be aware that some concepts may have multiple names or variations. For example, Professional Liability Insurance is also known as Errors and Omissions Insurance (E&O). Knowing these variations will help you confidently identify the correct answers.
• Understand the differences between similar concepts: Realise that a concept can be part of a more generalised concept, but not the other way around. For instance, a principal is considered an insurer, but an insurer is not necessarily a principal. Understanding these nuances will help you accurately identify the relationships between concepts.
• Take your time and be mindful: When taking the exam, make sure you read each question carefully and thoroughly. Understand exactly what the question is asking before selecting your answer. Be mindful of qualifiers, such as "never" or "always", as they strengthen the specificity of a question. Also, watch out for double negatives, as they can change the meaning of a question.
• Stick with your initial answer: Unless you misread the question, your first answer is usually the correct one. While it's important to consider all answer choices, don't change your answer unless you realise you made a mistake.
• Manage your time effectively: The exam is timed, so allocate your time wisely. If you come across a difficult question, skip it and move on to the next one. You can always come back to it later. Remember to check your pacing by attempting practice exams under testing conditions.
• Stay relaxed and focused: Exams can be stressful, but it's crucial to stay calm and focused. Take deep breaths and remind yourself that you are well-prepared. Maintain your concentration throughout the exam, as it can be tedious.
• Utilise exam study tools: Take advantage of the various exam study tools available, such as practice exams, study guides, flashcards, and online resources. These tools can help you gauge your understanding and identify areas that need improvement.
• Create a study schedule: Develop a structured study plan over a few weeks to help you stay focused and dedicated. Remove distractions, such as your phone or TV, to optimise your learning environment.

Remember, the key to success is understanding the core concepts, staying focused, and utilising effective study strategies. With dedication and preparation, you will be well on your way to passing the life insurance licensing exam.

Frequently asked questions