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CLU Fundamentals of Insurance Planning Practice Questions

Official outline
The American College CLU designation (courses)
Questions on this page
6
Updated
Nov 3, 2026

  1. Question 1, easy

    The 'human life value' approach to determining an individual's life insurance need is based primarily on:

    • A.The present value of the insured's future net earnings that would otherwise be available to support dependents
    • B.The total face amount of insurance the insured can medically qualify for
    • C.The insured's current outstanding debts and funeral expenses only
    • D.The cash surrender value of the insured's existing policies
    Show answer and explanationHide answer

    Correct answer: A. The present value of the insured's future net earnings that would otherwise be available to support dependents

    The human life value approach estimates the economic value of the insured to their dependents by calculating the present value of the insured's expected future earnings (net of personal consumption, taxes, and other adjustments) over the insured's remaining working years. It is one of the earliest and most conceptually simple methods for estimating life insurance need, though it is often supplemented or replaced in practice by the more detailed needs approach.

    • A. Correct. Human life value is fundamentally a present-value-of-future-earnings calculation.
    • B. Incorrect. This describes underwriting/amount-of-insurance limits, not human life value.
    • C. Incorrect. This narrow debt/expense focus describes one piece of the needs approach, not human life value.
    • D. Incorrect. Cash surrender value is unrelated to the human life value calculation.

  2. Question 2, hard

    A client enrolls in a qualifying high-deductible health plan (HDHP) and wants to open and fund a Health Savings Account (HSA). She is also covered as a dependent under her spouse's employer plan, which includes a general-purpose health FSA that reimburses any medical expense for the whole family. What is the most accurate assessment of her HSA eligibility?

    • A.She is eligible because her own coverage is a qualifying HDHP, and a spouse's separate employer plan is not counted when determining her eligibility, even if it reimburses her medical expenses
    • B.She is eligible because a dependent's HSA eligibility depends on her own plan, not on health FSA elections made by the primary policyholder
    • C.She is eligible if she does not file a claim under the spouse's FSA during the year and keeps her HSA contributions within the family limit
    • D.She is not eligible, because her spouse's general-purpose health FSA is disqualifying 'other coverage' that pays medical expenses before the HDHP deductible is met
    Show answer and explanationHide answer

    Correct answer: D. She is not eligible, because her spouse's general-purpose health FSA is disqualifying 'other coverage' that pays medical expenses before the HDHP deductible is met

    HSA eligibility requires that the individual have no disqualifying non-HDHP coverage, and a spouse's general-purpose health FSA that can reimburse the family's medical expenses counts as disqualifying coverage even if she never personally submits a claim. Availability of the coverage is what matters, not use. A limited-purpose (dental/vision) or post-deductible FSA would not disqualify her, but a general-purpose one does.

    • A. Her own HDHP coverage isn't the whole picture; disqualifying 'other coverage' reaching her through her spouse's plan still breaks HSA eligibility, even when it reimburses her medical expenses.
    • B. A general-purpose FSA covering the whole family extends disqualifying coverage to her as a covered dependent, so the policyholder's election does affect her eligibility.
    • C. Eligibility turns on whether disqualifying coverage exists, not on whether she personally submits a claim or on how much she contributes.
    • D. A general-purpose health FSA that reimburses the whole family's medical expenses before the deductible is met counts as disqualifying other coverage for any family member covered by it, including her.

  3. Question 3, easy

    Which of the following is NOT a factor underwriters consider in classifying an applicant's mortality risk?

    • A.Tobacco use and nicotine product history
    • B.Family history of heart disease or cancer
    • C.Hazardous avocations, such as skydiving
    • D.Applicant's political party affiliation
    Show answer and explanationHide answer

    Correct answer: D. Applicant's political party affiliation

    Underwriters classify mortality risk using verifiable factors demonstrably correlated with life expectancy: tobacco use, family medical history, hazardous occupations/avocations, current health, and build, among others. Political affiliation has no actuarial or legal basis for underwriting and using it would also raise serious legal and ethical concerns.

    • A. Tobacco and nicotine use is a standard factor underwriters use to classify mortality risk.
    • B. Family history of conditions such as heart disease or cancer is a standard factor used to assess hereditary risk.
    • C. Hazardous avocations such as skydiving are a standard factor underwriters weigh in risk classification.
    • D. Political party affiliation has no bearing on mortality risk and is not a factor underwriters consider.

  4. Question 4, medium

    A couple considers three-year versus six-year long-term-care benefit periods with equal daily benefits. Which analysis is best?

    • A.Select six years because the longer period costs the same premium as three years when daily benefits are equal
    • B.Assess tail-duration care costs, family resources and affordability rather than assuming either term always wins
    • C.Disregard inflation protection and daily benefit limits since the benefit period drives the total benefit
    • D.Select three years because few claims last longer than that and tail costs are covered by Medicare
    Show answer and explanationHide answer

    Correct answer: B. Assess tail-duration care costs, family resources and affordability rather than assuming either term always wins

    Benefit period affects protection against long, costly claims and premium, and interacts with inflation protection and the family's own resources. The right choice comes from analyzing those factors, not from a fixed rule.

    • A. A longer benefit period raises premium; it is not priced the same as a shorter one.
    • B. Correct: the decision balances tail-risk protection against premium affordability and available resources.
    • C. Inflation protection and the daily benefit limit materially affect how far benefits go and cannot be set aside.
    • D. Some claims run longer than three years, and Medicare generally does not pay for long-term custodial care.

  5. Question 5, easy

    A business owner purchases key person life insurance on a critical executive rather than self-funding the potential loss. This is an example of which risk management technique?

    • A.Risk avoidance
    • B.Risk retention
    • C.Risk transfer
    • D.Risk reduction
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    Correct answer: C. Risk transfer

    Purchasing insurance to shift the financial burden of a potential loss to an insurer is the classic example of risk transfer, one of the four primary risk management techniques (avoidance, retention, transfer, reduction). The business is not eliminating the risk of losing the key person, nor reducing its likelihood. It is transferring the financial consequence to the insurer.

    • A. Avoidance would mean not having the key person role or exposure at all; the business still has the exposure, it's just insuring it.
    • B. Retention describes self-funding the potential loss, which is explicitly what the owner chose not to do.
    • C. Correct. Buying life insurance shifts the financial risk of the executive's death to the insurer, which is risk transfer.
    • D. Reduction refers to lowering the likelihood or severity of the underlying risk itself, not shifting the financial consequence to a third party.

  6. Question 6, medium

    Using a simplified human life value approach (ignoring discounting and taxes for this exercise), an underwriter estimates a 42-year-old client's net annual economic contribution to her household at $60,000 and expects her to work 15 more years before retiring. Based on this method alone, what is the approximate life insurance need?

    • A.$900,000
    • B.$600,000
    • C.$750,000
    • D.$1,200,000
    Show answer and explanationHide answer

    Correct answer: A. $900,000

    The (simplified, undiscounted) human life value approach multiplies net annual economic contribution by remaining working years: $60,000 x 15 = $900,000. $600,000 comes from mistakenly using 10 years, $750,000 from 12.5 years, and $1,200,000 from 20 years. All wrong year counts.

    • A. Multiplying the $60,000 annual contribution by the 15 remaining working years gives $900,000, the human life value under this simplified method.
    • B. $600,000 would result from only 10 years of contributions, not the 15 years given in the facts.
    • C. $750,000 doesn't correspond to $60,000 times any of the figures given in the problem.
    • D. $1,200,000 would require 20 years of contributions, which is more than the 15-year work horizon stated.

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