California Insurance License Exam Practice Test Practice Question
A life insurance policy written after 1988 that fails to meet the seven-pay test is known as
Correct Answer: D
Rationale: A life insurance policy written after 1988 that fails to meet the seven-pay test is classified as a modified endowment contract (MEC). This designation means the policy has exceeded the premium limits set by the IRS, leading to different tax implications for withdrawals and loans.
Option A, an endowment policy, typically matures after a specific period, which is unrelated to the seven-pay test. Option B, a modified life policy, refers to a policy with flexible premiums but does not specifically address the MEC classification. Option C, a single premium contract, involves a one-time premium payment and can also be a MEC, but it does not encompass all policies failing the seven-pay test.
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