California Life Insurance Practice Exam Free - 2026

• A. A duty of honesty, good faith, and fair dealing
• B. A duty to obtain a physician's certification of capacity
• C. A duty to record all conversations
• D. A duty to co-sign the application with a family member

Correct answer: A. A duty of honesty, good faith, and fair dealing

Explanation: All insurers, brokers, agents, and others engaged in the transaction of insurance owe a prospective insured who is 65 years of age or older a duty of honesty, good faith, and fair dealing, in addition to any other duties imposed by law. See Cal. Ins. Code 785.

• A. A court order authorizing the test
• B. Verbal permission noted in the agent's file
• C. The applicant's written informed consent for the test
• D. Approval from the applicant's primary physician

Correct answer: C. The applicant's written informed consent for the test

Explanation: A life or disability income insurer that asks an applicant to undergo an HIV test must obtain the applicant's written informed consent, which must describe the test, its purpose, potential uses and limitations, the meaning of results, notification procedures, and the right to confidential treatment. See Cal. Ins. Code 799.03.

• A. A fine of up to $5,000
• B. A fine of up to $50,000, up to one year in county jail, or both
• C. A fine of up to $10,000 and a permanent bar from licensure
• D. A fine of up to $100,000 and up to three years in state prison

Correct answer: B. A fine of up to $50,000, up to one year in county jail, or both

Explanation: Transacting insurance without a valid license is a misdemeanor in California punishable by a fine of not more than $50,000, imprisonment in a county jail for not more than one year, or both. The $5,000 and $10,000 figures are the civil penalties for unfair practices under the Unfair Practices Act, not the unlicensed-transaction penalty. See Cal. Ins. Code 1633.

• A. Exactly 10 days
• B. At least 20 days
• C. A period the insurer sets that is not less than 10 days nor more than 30 days
• D. At least 30 days

Correct answer: C. A period the insurer sets that is not less than 10 days nor more than 30 days

Explanation: For buyers under age 60, California requires every individual life policy to carry a notice that the owner may return it for cancellation, and the return period the insurer chooses must be not less than 10 days nor more than 30 days. On a nonvariable policy the insurer must refund all premiums and any policy fee within 30 days of being told the owner canceled. The 30-day minimum applies only to senior citizens under a separate section. See Cal. Ins. Code 10127.9.

• A. Making false or misleading statements to induce someone to buy insurance
• B. Paying a commission to a person who does not hold a valid producer license
• C. Placing business with an insurer that is not authorized to do business in the state
• D. Returning part of a commission to a client as an inducement to purchase a policy

Correct answer: A. Making false or misleading statements to induce someone to buy insurance

Explanation: Misrepresentation is making false, deceptive, or misleading statements, either oral or written, to induce someone to purchase, lapse, or change an insurance policy. This is illegal and unethical.

• A. A policy on which the owner has prepaid the next year's premium at a discounted rate
• B. A policy that has lapsed for nonpayment but may still be reinstated within a set period
• C. A policy whose death benefit has already been paid in full to the named beneficiary
• D. A policy that requires no further premium payments but remains in force

Correct answer: D. A policy that requires no further premium payments but remains in force

Explanation: A paid-up policy is one for which no more premium payments are required, but the policy remains in force with its death benefit intact. This can result from using dividends or cash value to pay premiums.

• A. Using cash value to purchase a smaller permanent policy with no future premiums
• B. Using cash value to purchase term coverage for the full face amount for a limited period
• C. Using cash value to pay overdue premiums automatically so the policy does not lapse
• D. Surrendering the policy and receiving the cash value in a lump sum minus any loans

Correct answer: A. Using cash value to purchase a smaller permanent policy with no future premiums

Explanation: The reduced paid-up option allows the policyholder to use the cash value to purchase a smaller permanent life insurance policy with no future premium payments required.

• A. Using cash value to purchase a smaller amount of permanent insurance with no further premiums
• B. Using cash value to purchase term insurance for the same face amount for a limited time
• C. Renewing an expiring term policy for an additional period without new evidence of insurability
• D. Using cash value as a loan to keep the policy in force after the grace period has run out

Correct answer: B. Using cash value to purchase term insurance for the same face amount for a limited time

Explanation: Extended term is a nonforfeiture option that uses the policy's cash value to purchase term insurance for the original face amount for as long as the cash value will allow.

• A. Life insurance on two lives under one policy that pays the benefit when the first insured dies
• B. Individual policies sold to members of an association at a discount, each with its own contract
• C. Life insurance provided to a group under a single master policy, typically by an employer
• D. Life insurance owned by a business on several key employees with the business as beneficiary

Correct answer: C. Life insurance provided to a group under a single master policy, typically by an employer

Explanation: Group life insurance covers multiple individuals under a single master policy, typically provided by employers. It usually offers term coverage and may be convertible to individual policies upon leaving the group.

• A. A policy owned by a key employee, with premiums paid by the business as a fringe benefit
• B. A policy owned by a business on an owner, with the owner's family as the beneficiary
• C. A policy owned by each partner on the other partners to fund a buy-sell agreement
• D. A policy owned by a business on a key employee, with the business as beneficiary

Correct answer: D. A policy owned by a business on a key employee, with the business as beneficiary

Explanation: Key person (key man) life insurance is purchased by a business on the life of a key employee, with the business as beneficiary. It protects the business against financial loss if that person dies.

• A. An agreement funded by life insurance that facilitates business ownership transfer upon death
• B. An agreement in which a business insures a key employee to offset losses from their death
• C. An agreement in which an employer and employee share the premiums and benefits of one policy
• D. An agreement in which a policyowner assigns policy rights to a creditor as loan security

Correct answer: A. An agreement funded by life insurance that facilitates business ownership transfer upon death

Explanation: A buy-sell agreement is a legally binding contract, often funded by life insurance, that allows surviving business owners to purchase a deceased owner's share of the business at a predetermined price.

• A. An arrangement where the surviving business owners buy a deceased owner's share using life insurance
• B. An arrangement where the cost and benefits of a policy are shared between employer and employee
• C. An arrangement where an employer pays a bonus that the employee uses to pay premiums on a policy they own
• D. An arrangement where the death benefit is divided between two named beneficiaries in equal shares

Correct answer: B. An arrangement where the cost and benefits of a policy are shared between employer and employee

Explanation: Split-dollar life insurance is an arrangement where the premium costs and policy benefits are shared between an employer and employee (or other parties) according to a specified agreement.