Florida Statutes — Life and Annuity (incl. Variable Products) — practice questions

10% of the exam ≈15 real questions 21 free questions here

Florida rules for marketing, disclosure, replacement, suitability and best interest, individual contract provisions, and group life — about 15 scored questions, all state-specific.

Where people lose points

• Florida life free look is 14 days; annuity free look is 21 days.
• Buyer’s guide and policy summary are separate required disclosures with different timing.
• Divorce revokes a beneficiary designation naming the former spouse unless the policy or court order says otherwise.
• Replacement requires the signed Form OIR-B2-312 submitted with the application under Rule 69O-151.007.

Questions and answers, explained

All 10 questions above, with the correct answer and why it is correct. Everything here is on florida statutes — life and annuity (incl. variable products).

1. A client tells his agent he will simply stop paying premiums on his current whole life policy and let it lapse once his new policy is issued — no cash surrender will occur. The agent concludes replacement rules do not apply because nothing is being surrendered. The agent is:

   • ACorrect, because a replacement requires an actual surrender of the existing policy’s cash values
   • BIncorrect, because a transaction in which existing insurance will lapse is a replacementCorrect
   • CCorrect, as long as the new policy is written with a completely different insurer
   • DIncorrect, but only if the two policies happen to have identical face amounts

   Why: Under Rule 69O-151.002, F.A.C., replacement includes any transaction in which, because of the new purchase, existing life insurance has been or will be lapsed, forfeited, surrendered or otherwise terminated, reduced in value, or subjected to substantial borrowing. Allowing a policy to lapse is expressly within the definition, so the full replacement procedures (signed statements and the Notice Regarding Replacement) apply.

   Reference FL-II.B; Rule 69O-151.002, F.A.C.

2. A Florida resident dies owing substantial credit card debt. His life insurance names his spouse as beneficiary. What may the insured's creditors claim from the death proceeds?

   • AThey are paid first, before the beneficiary receives anything
   • BNothing — proceeds payable to a named beneficiary are exempt from the insured's creditorsCorrect
   • CUp to 50 percent of the proceeds
   • DThe full amount, unless the beneficiary was named irrevocably

   Why: Under s. 222.13, F.S., life insurance proceeds on a Florida resident inure exclusively to the named beneficiary and are exempt from the claims of the insured's creditors, unless the policy directs otherwise. The protection is lost when proceeds are payable to the insured's estate — then they become estate assets subject to creditor claims; the revocable/irrevocable status of the beneficiary is irrelevant to this exemption.

   Reference FL-II.C; s. 222.13, F.S.

3. An employer cancels its entire group life insurance policy and does not replace it. Employee A had been insured under the policy for 7 years; Employee B for 2 years. Under s. 627.567, F.S., who is entitled to convert to an individual policy?

   • AOnly Employee A, because conversion at policy termination requires at least 5 years of coverageCorrect
   • BOnly Employee B, because newer insureds receive priority
   • CBoth employees, because conversion rights never depend on length of coverage
   • DNeither employee, because conversion applies only to individual terminations

   Why: When the group policy itself terminates or is amended to end coverage for a class, s. 627.567, F.S., limits conversion to persons who were insured for at least 5 years before termination, and the convertible amount is capped (the smaller of the coverage lost minus any new group coverage obtained within 31 days, or $10,000). This differs from the individual-termination rule of s. 627.566, F.S., where an employee who leaves the job may convert regardless of how long she was covered.

   Reference FL-II.D; s. 627.567, F.S.

4. An agent advises a client to surrender her existing whole life policy for its cash value and does not recommend any replacement product. Under s. 627.4553, F.S., before the surrender is executed the agent must:

   • AObtain the insurer’s written approval of the surrender and file a copy with the Office of Insurance Regulation within 10 days
   • BFile a replacement notice on Form OIR-B2-312 with the Office of Insurance Regulation before the surrender may be processed
   • CDo nothing, because the duty is triggered only when the agent also sells a new contract funded by the surrendered policy
   • DGive written information on the surrender charge, the guarantees and death benefit being lost, and tax consequences, and keep a dated copyCorrect

   Why: Section 627.4553, F.S., applies precisely when the agent recommends the surrender of an annuity or of a life policy with a cash value and does NOT recommend the purchase of another product; the agent must deliver the listed information in writing before the surrender is executed and must maintain a copy of the information and the date it was provided to the owner. Option C reverses the rule — the statute exists to close the gap the replacement rules leave open; Form OIR-B2-312 (B) belongs to replacement transactions in which new coverage is purchased, and it goes to the existing insurer, not to the Office.

   Reference FL-II.A; s. 627.4553, F.S.

5. To pay the first premium on a new life policy, an agent arranges for the applicant to borrow against her existing policy in an amount equal to 40% of that policy's loan value. The agent files no replacement paperwork because the old policy stays in force. Under Rule 69O-151.002, F.A.C., the agent is:

   • ACorrect, because the existing policy remains in force throughout
   • BCorrect, because a policy loan can never constitute a replacement
   • CIncorrect: borrowing more than 25% of loan value is a replacementCorrect
   • DIncorrect, but only because the new policy comes from a different insurer

   Why: Rule 69O-151.002, F.A.C., defines replacement to reach transactions in which existing insurance is pledged as collateral or otherwise subjected to borrowing, in a single transaction or in the aggregate, exceeding 25 percent of the loan value — even though nothing is surrendered, lapsed, or reduced. Option D is wrong because Florida's replacement duties apply whether the new coverage is written by the same insurer or a different one; the same-insurer carve-out in Rule 69O-151.004, F.A.C., covers only an application to the existing insurer exercising a contractual change or conversion privilege, which is not what happened here.

   Reference FL-II.B; Rules 69O-151.002, 69O-151.004, F.A.C.

6. Two years after her Florida life policy lapsed for nonpayment, the owner asks to reinstate it. Under s. 627.459, F.S., the insurer:

   • AMust reinstate on request, with no conditions of any kind attached
   • BMust reinstate but may not charge interest on the overdue premiums
   • CMay not reinstate at all, because the right to do so expires 12 months after default
   • DMay require evidence of insurability plus all overdue premiums with interestCorrect

   Why: Section 627.459, F.S., gives the owner the right to reinstate within 3 years after the date of default, conditioned on evidence of insurability satisfactory to the insurer, payment of all overdue premiums with interest, and payment or reinstatement of any other policy indebtedness with interest. Option C invents a 12-month cutoff; the real limits are the 3-year window and the fact that the right disappears if the policy was surrendered for its cash value or any paid-up term insurance has expired. Interest is capped at 6 percent per year compounded annually, or by s. 627.4585, F.S., for policies issued after October 1, 1981.

   Reference FL-II.C; s. 627.459, F.S.

7. A judgment creditor of a living Florida resident tries to reach the $80,000 cash value (valor en efectivo) of the debtor's whole life policy and the proceeds of an annuity contract the debtor owns. Under s. 222.14, F.S.:

   • ABoth the cash surrender value and the annuity proceeds are exempt from that creditorCorrect
   • BOnly the annuity is exempt; life insurance cash values are always reachable by creditors
   • CNeither is exempt, because the insured debtor is still alive today
   • DBoth are exempt, but only up to a combined total of $50,000

   Why: Section 222.14, F.S., exempts the cash surrender values of life insurance policies issued upon the lives of Florida citizens or residents, and the proceeds of annuity contracts issued to Florida citizens or residents, from attachment, garnishment, or legal process in favor of any creditor of the insured or of the annuity beneficiary, with no dollar cap; the only exception is a policy or contract effected for that creditor's benefit. Option C confuses this with s. 222.13, F.S., which protects DEATH proceeds payable to a named beneficiary — a related but separate protection.

   Reference FL-II.C; ss. 222.13, 222.14, F.S.

8. A Florida life policy has a $100,000 death benefit bought with an annual premium of $1,200. At the insured's death the insurer discovers his age was understated: at his correct age the premium rate would have been $20 per $1,000 of coverage instead of $12 per $1,000. Under s. 627.456, F.S., the death benefit payable is:

   • A$100,000
   • B$60,000Correct
   • C$80,000
   • D$100,000 less the premium shortfall plus interest

   Why: Section 627.456, F.S., provides that if the age or sex of the insured has been misstated, the amount payable is what the premium would have purchased at the correct age or sex: $1,200 ÷ $20 per $1,000 = 60 units, or $60,000. Option D reflects the common misconception that the insurer simply deducts the underpaid premium; Florida instead prorates the benefit, and because this is a standard provision rather than a contest, it applies even after the incontestability period has run.

   Reference FL-II.C; s. 627.456, F.S.

9. A promoter offers a 76-year-old Floridian a "free" $2 million policy: an investor group lends the premiums on a non-recourse basis, and after two years the insured must either repay the loan with interest — which he could never afford — or surrender the policy to the lender. Which statement is correct?

   • AA lawful premium finance arrangement, since the insured owns the policy for the first two years
   • BLawful, because the policy will be more than two years old before it is transferred
   • CIt bears the hallmarks of stranger-originated life insurance, which Florida prohibitsCorrect
   • DSimply a viatical settlement, regulated only after the policy is actually sold

   Why: Florida makes it unlawful to knowingly issue, solicit, market, or otherwise promote the purchase of a life policy for the purpose of, or with an emphasis on, selling it to a third party, and s. 626.99287, F.S., separately voids arrangements in which the policy is subject to a non-recourse loan secured by the policy within five years of issue. Choice B is the trap: waiting past the two-year mark does not cure a policy that was investor-originated and lacked genuine insurable interest at inception.

   Reference s. 626.99275, F.S.; s. 626.99287, F.S. — STOLI prohibitions

10. An application for an individual life insurance policy in Florida offers the applicant the option of an automatic policy loan against the cash value to pay the premium in the event of nonpayment. The applicant leaves that section blank. Under s. 627.4556, F.S., what is the result?

    • AThe option is deemed rejected, because silence is never an election.
    • BThe option applies only if the policy already has cash value on the date of issue.
    • CThe insurer must contact the applicant for a decision before it may issue the policy.
    • DThe option is deemed elected; the applicant must make an affirmative election not to include it in the policy.Correct

    Why: Florida flips the usual default: where the application offers an automatic policy loan option, s. 627.4556, F.S., deems it elected unless the applicant makes an affirmative election NOT to include the provision, so consumers are protected against unintentional lapse by inaction. Option A states the general contract-law instinct and is the closest distractor, but this statute is a deliberate exception to it. The practical trade-off is that each automatic loan accrues interest and reduces the death benefit until repaid. (Outline II.B.)

    Reference s. 627.4556, F.S.; FL 2-15 Outline II.B (Automatic premium loan)

Topics inside this domain

• Free look periods on the Florida 2-15
• Twisting vs churning vs sliding vs rebating
• Annuities on the Florida 2-15
• Life policy provisions and clauses
• Variable life, VUL and the separate account
• Annuity best interest rules for buyers 65+

Drill other domains

• Types of Life Policies and Features (10%)
• Life Policy Riders, Provisions, Options, and Exclusions (10%)
• Life Application, Underwriting, and Policy Delivery (8%)
• Retirement and Other Life Insurance Concepts (5%)
• Types of Health Policies (11%)
• Health Policy Provisions, Clauses, and Riders (10%)

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