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California Licensing, Agent Duties and Ethics: Practice Questions

20 free practice questions with explanations. Pick an answer for each, then check your score.

Exam weight: California Insurance Code and ethics objectives, both exams on the California Life-Only and Accident & Health agent exams. Updated 2026-11-04.

Quick study guide

Who is who

The Code's insurance agent (acts on behalf of an admitted insurer), insurance broker (acts for pay on behalf of another person, dealing with but not on behalf of the insurer) and insurance solicitor (a natural person employed to help a property and casualty broker-agent) all exclude life, disability and health insurance, so there is no "life solicitor." Life and health business needs a life or accident and health or sickness license. A life and disability insurance analyst advises on policies for a fee paid by someone other than an insurer, under a signed written fee agreement.

License	What it covers (CIC 1626)
Life	Human lives, including endowments and annuities; may add accidental death or dismemberment and disability income
Accident and health or sickness	Sickness, bodily injury or accidental death; may add disability income

Transact means solicitation, negotiations before the contract, execution, and later matters arising out of it (CIC 35). Doing it unlicensed is a misdemeanor: a fine up to $50,000, up to one year in county jail, or both (CIC 1633).

Education, term and renewal

Applicants complete a 12-hour ethics and Insurance Code course with one hour on fraud; one course covers several license types (CIC 1749). A license runs a two-year term ending on the last day of the month it was first issued (CIC 1630). Each renewal needs 24 hours of continuing education, 3 in ethics including one hour on fraud, and holding both licenses still means 24 in total (CIC 1749.33). Renew on time with CE done and you may keep working up to 60 days past expiry, unless told sooner that the application is deficient (CIC 1720).

Appointments and premium money

You act for an insurer only after it files a notice of appointment; when all appointments end, the license becomes inactive, not cancelled (CIC 1704). Premiums are held in a fiduciary capacity, and diverting them is theft (CIC 1733). Remit them, less commissions, or keep them in a separate trust account at an FDIC-insured bank or savings and loan (CIC 1734).

Seniors, wording and ethics

Anyone transacting insurance owes a buyer aged 65 or older a duty of honesty, good faith and fair dealing (CIC 785). Before a first meeting in a senior's home, deliver written notice no less than 24 hours and no more than 14 days ahead, and leave at once when asked (CIC 789.10). "Shall" is mandatory and "may" permissive (CIC 16). Laws are not a complete guide to ethics: put the customer's interest first and recommend what meets the customer's needs.

Practice questions

Under California law, a life license authorizes the holder to transact which of the following?
1. A.Life insurance on the insured and property insurance on the insured's home and belongings
2. B.Life insurance only, because annuities need a separate annuity license from the department
3. C.Insurance on human lives, including annuities, with optional accident and disability income benefits
4. D.Health insurance for sickness and injury, but not life insurance, endowments or annuities
Show answer
Answer: C. Insurance Code section 1626(a)(1) says a life license covers insurance on human lives, including benefits of endowment and annuities, and may include benefits for death or dismemberment by accident and for disability income. Annuities fall under the life license itself rather than a separate license. Property coverage needs a property broker-agent license, and sickness coverage is the accident and health or sickness license.
Source: California objectives I.C.2.3; Cal. Ins. Code § 1626
A California agent holds only an accident and health or sickness license. A client asks her to sell him a fixed deferred annuity. What is true?
1. A.She can sell it as long as the annuity includes a disability income benefit
2. B.She can sell it, because annuities are a health product
3. C.She can sell it if the insurer gives her a written appointment
4. D.She needs a life license, because annuities fall under the life license
Show answer
Answer: D. Under Insurance Code section 1626, annuities belong to the life license; the accident and health or sickness license covers sickness, bodily injury and accidental death and may include disability income. An appointment from an insurer cannot widen what a license authorizes, and adding a disability benefit does not turn an annuity into an accident and health product.
Source: California objectives I.C.2.3; Cal. Ins. Code § 1626
How does the California Insurance Code describe an insurance broker?
1. A.A natural person employed by a property and casualty broker-agent to help transact insurance
2. B.A person paid to act on behalf of another person, transacting with but not on behalf of an insurer
3. C.A person who advises insureds about their policies for a fee paid by someone other than an insurer
4. D.A person who transacts insurance on behalf of, and by authority of, an admitted insurer
Show answer
Answer: B. Sections 33 and 1623 define an insurance broker as someone who, for compensation and on behalf of another person, transacts insurance (other than life, disability or health) with, but not on behalf of, an insurer. Acting on behalf of the insurer describes an insurance agent (sections 31 and 1621). A person employed to help is a solicitor, and fee-based advice on life or disability contracts describes a life and disability insurance analyst.
Source: California objectives I.C.2.6 and I.C.2.7; Cal. Ins. Code § 33; Cal. Ins. Code § 1623
A new employee wants to be licensed as a "life solicitor" so he can help an agent sell life policies. What does the Insurance Code provide?
1. A.A solicitor license covers life insurance once the employing agent files a notice of appointment
2. B.There is none: solicitors only aid property and casualty broker-agents, outside life and health lines
3. C.A life solicitor license lets him sell life insurance policies but not annuities or endowments
4. D.A life solicitor may sell any line of insurance after working for an agent for one full year
Show answer
Answer: B. Section 1624 defines an insurance solicitor as a natural person employed to aid a property and casualty broker-agent in transacting insurance other than life, disability or health. Because the definition excludes those lines, the California objectives stress that there is no such license as a life solicitor. Someone who wants to sell life insurance needs a life license.
Source: California objectives I.C.2.8; Cal. Ins. Code § 1624
Under California Insurance Code section 35, "transact" as applied to insurance includes all of the following EXCEPT:
1. A.Soliciting a prospect to buy a policy
2. B.Handling matters that arise out of a contract after it is executed
3. C.Investing the insurer's reserves in bonds
4. D.Negotiations before a contract is executed
Show answer
Answer: C. Section 35 lists four activities: solicitation, negotiations preliminary to execution, execution of a contract of insurance, and transaction of matters after execution that arise out of the contract. Servicing a policy after it is issued is therefore part of transacting. Managing the insurer's investments is not on the list.
Source: California objectives I.C.2.4; Cal. Ins. Code § 35
A person with no insurance license solicits and sells life policies in California. Under Insurance Code section 1633, the maximum penalty is:
1. A.A $5,000 administrative fine, with no criminal charge or jail time
2. B.A felony punishable by up to five years in state prison
3. C.Forfeiting the commissions on the policies sold, with no other penalty
4. D.A misdemeanor: a fine up to $50,000, up to one year in county jail, or both
Show answer
Answer: D. Section 1631 bars anyone from soliciting, negotiating or effecting insurance without a valid license, and section 1633 makes transacting insurance without a license a misdemeanor punishable by a fine not exceeding $50,000, county jail for up to one year, or both. It is not a felony under this section, and the penalty goes beyond a civil fine or lost commissions.
Source: California objectives I.C.2.4; Cal. Ins. Code § 1631; Cal. Ins. Code § 1633
An applicant plans to get both a life license and an accident and health or sickness license in California. What ethics prelicensing study does Insurance Code section 1749 require?
1. A.One 12-hour course on ethics and the Code, with one hour on insurance fraud
2. B.One 3-hour ethics course, with no insurance fraud component
3. C.Two separate 12-hour ethics courses, one for each license sought
4. D.No ethics course, because ethics is covered only in continuing education
Show answer
Answer: A. Section 1749(a)(1) requires 12 hours of study on ethics and the Insurance Code, including one hour on insurance fraud. An applicant seeking more than one of the listed license types, such as life and accident and health, needs to complete only one 12-hour course. The 3-hour ethics figure belongs to continuing education before renewal, not prelicensing.
Source: California objectives Overview (prelicensing education); Cal. Ins. Code § 1749
A California agent holds both a life license and an accident and health or sickness license. How much continuing education must she complete before each renewal?
1. A.24 hours in total, including 3 hours of ethics with one hour on insurance fraud
2. B.12 hours in total, all of it in ethics and the California Insurance Code
3. C.24 hours in total, with no ethics requirement after the first renewal
4. D.24 hours for each license, 48 hours in total, with 3 hours of ethics for each license
Show answer
Answer: A. Section 1749.33 requires 24 hours of instruction, 3 of them in ethics, before renewal of either license, and subdivision (c) says an agent holding both licenses completes a total of 24 hours. Since 1 March 2023 the 3-hour ethics course must include one hour on insurance fraud. The two licenses do not add up to 48 hours, and 12 hours is the prelicensing ethics course.
Source: California objectives I.C.2.18; Cal. Ins. Code § 1749.33
A California life agent's license was first issued on 10 March 2026. Under the Insurance Code, when does that license term end?
1. A.10 March 2027
2. B.10 March 2030
3. C.31 December 2027
4. D.31 March 2028
Show answer
Answer: D. Section 1630 defines the license term as a two-year period ending in the second following year on the last calendar day of the month in which the license was first issued. A license issued in March 2026 therefore runs to 31 March 2028. It is not a one-year or calendar-year term, and it does not end on the anniversary of the issue day.
Source: California objectives I.C.2.11; Cal. Ins. Code § 1630; Cal. Ins. Code § 1717
A life agent files a complete renewal application and fee before her license expires and has finished all required continuing education, but the department has not yet processed it. What may she do?
1. A.She may keep working up to 60 days past expiration, unless told sooner the application is deficient
2. B.She must stop all insurance work on the day the license expires until the renewal is approved
3. C.She may keep operating for one more year, as long as she pays a delinquent renewal fee
4. D.She may keep operating indefinitely under the old license until the department acts on it
Show answer
Answer: A. Section 1720 lets a licensee who filed the renewal application and fee on or before expiration, and met all continuing education requirements, keep operating for 60 days after the expiration date or until the department says the application is deficient, whichever comes first. The one-year window in section 1718 is the period for filing a late renewal of an already expired license with a delinquent fee; it does not let the agent keep transacting.
Source: California objectives I.C.2.11; Cal. Ins. Code § 1720; Cal. Ins. Code § 1718
A life agent's only insurer appointment is terminated. What happens to his California license?
1. A.It converts automatically into a solicitor license until another insurer appoints him
2. B.It remains fully active, so he can keep soliciting and selling policies for any life insurer
3. C.It is cancelled immediately, and he must pass the licensing exam again before reapplying
4. D.It becomes inactive: he cannot transact until a new appointment is filed, but it can be renewed
Show answer
Answer: D. Under section 1704(a), a licensee cannot act as an insurer's agent until that insurer files a notice of appointment. Section 1704(b) says that when all appointments end the license is not cancelled but becomes inactive; it can be renewed, and it can be reactivated before it expires by filing a new appointment. An inactive license does not let the holder transact insurance that requires an active license.
Source: California objectives I.C.2.15; Cal. Ins. Code § 1704
An agent collects a client's premium and uses the money to pay his own office rent, planning to repay it later. Under the Insurance Code, this is:
1. A.Theft, because he receives and holds premiums in a fiduciary capacity
2. B.Allowed, as long as the client agrees to the arrangement in writing beforehand
3. C.Allowed, as long as he forwards the full premium to the insurer within 30 days
4. D.A minor recordkeeping error that carries no penalty if the money is repaid
Show answer
Answer: A. Section 1733 says premiums and return premiums received by a licensee are held in the licensee's fiduciary capacity, and a person who diverts or appropriates those funds to his own use is guilty of theft. A plan to repay the money later does not change that. This is why the objectives stress the producer's fiduciary duties.
Source: California objectives I.C.2.17; Cal. Ins. Code § 1733
Under Insurance Code section 1734, which is an acceptable way for an agent to handle premiums received from clients?
1. A.Invest them in a brokerage account so they earn interest for the client meanwhile
2. B.Remit them, less commissions, or hold them in a separate FDIC-insured trust account
3. C.Deposit them in the agent's personal checking account and forward them at month end
4. D.Hold them in cash in the agency's office safe until the insurer issues the policy
Show answer
Answer: B. Section 1734 gives the licensee options: remit premiums, less commissions, to the insurer or person entitled to them, or keep the fiduciary funds in an FDIC-insured bank or savings and loan trust account separate from any other account (or hold them under section 1734.5). The agent may add his own money to the trust account for purposes such as advancing premiums, but may not put premiums in a personal account, keep them as cash, or invest them.
Source: California objectives I.C.2.17; Cal. Ins. Code § 1734
A licensed life and disability insurance analyst plans to charge a client a fee for reviewing her life policies. Which requirement applies under Insurance Code section 1848?
1. A.A signed written agreement must state the services, the fee, and that insurers provide policy help free
2. B.The analyst must keep a copy of the signed fee agreement for at least 10 years after signing
3. C.The fee may be agreed orally, and the analyst may set it at any amount the client accepts
4. D.The analyst may charge a fee for servicing policies on which he also earns insurer commissions
Show answer
Answer: A. Section 1848 allows a fee only under a written agreement signed by the party charged, stating that information and services on insurance policies may be obtained directly from the insurer without cost, the services to be performed, and the fee. The analyst may not charge for servicing contracts on which he receives insurer compensation, must disclose if he is also a licensed agent who earns commissions, and must keep each agreement for at least three years after the services are fully performed.
Source: California objectives I.C.2.21; Cal. Ins. Code § 32.5; Cal. Ins. Code § 1848
Under California Insurance Code section 1759, an "administrator" (third-party administrator) is a person who:
1. A.Examines the financial condition and solvency of insurers on behalf of the Insurance Commissioner
2. B.Collects premiums from, or settles claims on, Californians for life or health coverage or annuities
3. C.Sells life and health insurance as a licensed agent and does nothing other than sell policies
4. D.Handles premium deductions and claims as an employer only for its own employees
Show answer
Answer: B. Section 1759 defines an administrator as a person who collects charges or premiums from, or adjusts or settles claims on, residents of the state in connection with life or health insurance or annuities. The section excludes, among others, an employer acting for its own employees and a licensed life or health agent whose activities are limited exclusively to the sale of insurance. Examining insurers is the commissioner's job, not an administrator's.
Source: California objectives I.C.2.20; Cal. Ins. Code § 1759
A life agent who is not a surplus line broker helps a nonadmitted insurer sell policies in California. Besides the misdemeanor penalty, what does Insurance Code section 703 require him to forfeit to the state?
1. A.All commissions he earned in the past five years from any insurer
2. B.$50,000 for each policy sold for the nonadmitted insurer
3. C.$1,000 for each day until the policies are cancelled or replaced
4. D.$500, plus $100 for each month or part of a month it continues
Show answer
Answer: D. Section 703 makes acting as agent for, advertising, or otherwise aiding a nonadmitted insurer a misdemeanor unless done by a surplus line broker. In addition to the misdemeanor penalty, the violator forfeits $500 to the state plus $100 for each month or fraction of a month the violation continues. The $50,000 figure is the maximum fine for transacting without a license under section 1633.
Source: California objectives I.C.2.10 and I.C.3.2; Cal. Ins. Code § 703
Under California Insurance Code section 785, what duty do agents and insurers owe a prospective insured who is 65 or older?
1. A.A duty to obtain a court order before completing any sale
2. B.No added duty, because seniors are treated like any other buyer
3. C.A duty of honesty, good faith and fair dealing, in addition to any other duty
4. D.A duty to sell only the lowest-premium policy available
Show answer
Answer: C. Section 785(a) says all insurers, brokers, agents and others engaged in the transaction of insurance owe a prospective insured aged 65 or older a duty of honesty, good faith and fair dealing, on top of any other express or implied duty. Conduct during the offer and sale is relevant to a claim that the duty was breached. The law does not require the cheapest policy or a court order.
Source: California objectives I.C.2.24 (Ethics); Cal. Ins. Code § 785
A section of the California Insurance Code requires an insurer to give an agent notice but doesn't say how. Under Insurance Code section 38, how may the notice be given?
1. A.Only by certified mail with a return receipt requested
2. B.Only by personal delivery, with the person's signed receipt
3. C.By mailing it, postage prepaid, to the person's residence or principal place of business in California
4. D.Only by publishing it in a newspaper in the person's county
Show answer
Answer: C. Unless the Code expressly provides otherwise, section 38 lets any required notice be given by mailing it, postage prepaid, to the person at his or her residence or principal place of business in California. An affidavit from the person who mailed it is prima facie evidence that it was mailed. Personal delivery, certified mail or newspaper publication are needed only when a specific section requires them.
Source: California objectives I.C.4 (notice by mail); Cal. Ins. Code § 38
A California Insurance Code section says an insurer "shall" deliver a notice and that the insured "may" request a copy. Under section 16, what do these words mean?
1. A.Both words are permissive unless the commissioner adopts a regulation
2. B."Shall" is only a recommendation, while "may" creates a mandatory duty
3. C."Shall" is mandatory and "may" is permissive, unless the context shows otherwise
4. D.Both words create mandatory duties that the insurer and insured must perform
Show answer
Answer: C. Section 16 states that, as used in the Insurance Code, "shall" is mandatory and "may" is permissive, unless otherwise apparent from the context. So the insurer must deliver the notice, while the insured has the choice of requesting a copy. Reading "shall" as a mere recommendation reverses the rule.
Source: California objectives I.C.4 (shall and may); Cal. Ins. Code § 16
An agent could earn a higher commission on Policy X, but Policy Y fits the client's stated needs and budget better. Both are legal to sell. Which action follows the ethics standards in California's exam objectives?
1. A.Recommend Policy Y, putting the client's interest and stated needs first
2. B.Present only Policy X and avoid mentioning that Policy Y is also available
3. C.Tell the client that Policy Y's insurer may be shaky, to make the choice easier
4. D.Recommend Policy X, since nothing in the law forbids selling it to this client
Show answer
Answer: A. The ethics objectives tell agents to place the customer's interest first, identify the customer's needs and recommend products that meet them, represent products truthfully, and avoid unfair or inaccurate remarks about competitors. They also stress that the Insurance Code and regulations list many illegal practices but are not a complete guide to ethical behavior, so "the law does not forbid it" is not the test. Hiding the better option or casting doubt on a competitor breaks those standards.
Source: California objectives I.C.2.22 and I.C.2.23 (Ethics)

Where these questions come from: California Department of Insurance educational objectives for the Life-Only and Accident & Health agent examinations, section I.C.2 Producers (Insurance Code and Ethics objectives), with related items from I.C.3 Insurers and I.C.4 Market Regulation. See how we write questions.