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California Life and Annuity Law, Replacement and Seniors: Practice Questions

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

Exam weight: California-specific objectives on the Life-Only exam on the California Life-Only and Accident & Health agent exams. Updated 2026-11-04.

Quick study guide

California's Life-Only exam weaves Insurance Code rules into the annuity, replacement, contract and group life objectives. Most questions turn on a number (days, ages, years, dollars) or on who owes the duty.

Free look: four periods to keep apart

Situation	Right to return	Code section
Individual life policy or annuity, buyer under 60	Insurer sets a period of at least 10 and no more than 30 days	10127.9
Individual life policy or annuity, buyer 60 or older on the purchase date	At least 30 days	10127.10
Policy that replaces existing life insurance or an annuity	30 days from delivery, unconditional refund	10509.6(d)
Group life certificate offered to someone 65 or older	30-day examination period	786

A fixed policy returned in time is void from the start and all premiums and fees come back within 30 days of the cancellation notice. A variable contract returns the account value plus fees. For a senior, the premium must sit in fixed-income or money-market funds during the 30 days unless the owner directs otherwise; without that direction, the full premium comes back. The clock starts on delivery by certified or registered mail, or with a signed receipt; a policy is deemed received six months after issue if premiums are paid (10113.6).

Replacement (10509–10509.9)

Replacement includes lapsing, surrendering, converting to reduced paid-up or extended term, or borrowing more than 25% of the loan value of existing coverage. If replacement is involved, the agent presents the signed Notice Regarding Replacement no later than when taking the application. The replacing insurer tells the existing insurer within three working days; an existing insurer trying to conserve the business sends a policy summary within 20 days. Replacement records are kept at least three years. Agent penalties: at least $1,000 for a first violation, $5,000 to $50,000 per knowing or repeat violation.

Annuity suitability and seniors

Before recommending an annuity, the producer makes reasonable efforts to collect 14 items of suitability information (10509.913) and needs a reasonable basis to believe the consumer gets a tangible net benefit. An exchange is judged partly on whether the consumer had another one in the preceding 60 months. Recommendation records are kept five years, as are agent and insurer records under 10508–10508.5. Recommending an unnecessary replacement annuity that triggers a surrender charge to someone 65 or older is a violation. An agent meeting a senior at home delivers a written notice 24 hours to 14 days ahead (789.10).

Two more numbers

Group life conversion: 31 days after employment ends, no evidence of insurability (10209). CLHIGA covers up to $300,000 in death benefits ($100,000 cash value) and $250,000 in annuity value per life, never above 80% of the insurer's obligation (1067.02).

Practice questions

Under California Insurance Code section 10127.9, how long must the right-to-return period be on an individual life policy sold to a 45-year-old?
1. A.At least 20 days and no more than 60 days after receipt
2. B.Exactly 10 days from the application date
3. C.At least 10 days and no more than 30 days after receipt
4. D.Exactly 30 days from the policy date
Show answer
Answer: C. Section 10127.9 requires every individual life policy and annuity to carry a cover notice giving the owner a return period set by the insurer of not less than 10 days nor more than 30 days after receipt. The fixed 30-day minimum applies only to buyers 60 or older under section 10127.10, and the period runs from receipt of the policy, not from the application or policy date.
Source: California Life-Only objectives II.D.1.b; Cal. Ins. Code 10127.9
A 62-year-old buys an individual fixed annuity in California. What free-look period must the contract give her?
1. A.10 days, because the senior rule starts at age 65
2. B.20 days, the period used for all annuities
3. C.At least 30 days, because she is 60 or older on the purchase date
4. D.No free look, because annuities are investments rather than insurance
Show answer
Answer: C. Section 10127.10 defines a senior citizen for this purpose as someone 60 or older on the date of purchase and requires a return period of not less than 30 days on individual life policies and annuities sold to seniors. Age 65 is the threshold for other senior rules (such as section 785 and the unnecessary-replacement ban), which is why the 60 here is easy to confuse; annuities are not excluded.
Source: California Life-Only objectives II.D.1.a; Cal. Ins. Code 10127.10
A 70-year-old buys an individual variable annuity and gives no instructions about the 30-day cancellation period. Where may the insurer invest the premium during that period?
1. A.In the stock subaccounts the agent recommended
2. B.Only in fixed-income investments and money-market funds
3. C.Anywhere, as long as the account value is refunded on return
4. D.In the insurer's general account at a guaranteed 3% rate
Show answer
Answer: B. Section 10127.10 limits a senior's variable life or variable annuity premium to fixed-income investments and money-market funds during the 30-day cancellation period unless the owner specifically directs investment in the underlying funds. If she returns it without having given that direction, the policy is void from the start and all premiums and fees are refunded; only an owner who chose the underlying funds gets the account value back, which could be less than the premium.
Source: California Life-Only objectives II.C.10.a; Cal. Ins. Code 10127.10
A policyowner under 60 returns a nonvariable whole life policy within the free-look period stated on its cover. What must the insurer do?
1. A.Refund the cash value, less a surrender charge, within 60 days
2. B.Refund premiums minus the agent's commission within 10 days
3. C.Convert the policy to reduced paid-up insurance
4. D.Treat the policy as void from the beginning and refund all premiums and policy fees within 30 days of notice
Show answer
Answer: D. Under section 10127.9, returning a nonvariable life policy or annuity during the cancellation period voids it from the beginning, as if it had never been issued, and the insurer must refund all premiums and any policy fee within 30 days after being notified. Surrender charges and commission deductions do not apply to a free-look return, and reduced paid-up insurance is a nonforfeiture option, not a cancellation remedy.
Source: California Life-Only objectives II.D.1.b; Cal. Ins. Code 10127.9
To start the period in which an owner may return a life policy, which delivery method does California Insurance Code section 10113.6 accept?
1. A.Leaving the policy with the agent's office for pickup
2. B.Certified mail
3. C.Emailing the owner a notice that the policy has been issued
4. D.First-class mail without any receipt
Show answer
Answer: B. Section 10113.6 lists registered or certified mail, personal delivery with a signed receipt, first-class mail with a signed receipt, or other means the commissioner finds reasonable. Plain first-class mail without a receipt is not on the list, and if the insurer uses an unlisted method it bears the burden of proving delivery. Separately, a policy is deemed received six months after issue if premiums have been paid.
Source: California Life-Only objectives II.E (policy delivery); Cal. Ins. Code 10113.6
Under California's replacement law, which transaction counts as a replacement of existing life insurance?
1. A.Adding a waiver of premium rider to the existing policy
2. B.Switching the existing policy from annual to monthly premiums
3. C.Buying a new policy and borrowing 40% of the old policy's loan value to pay for it
4. D.Changing the beneficiary on the existing policy
Show answer
Answer: C. Section 10509.2 defines replacement to include pledging or borrowing against existing coverage for more than 25 percent of the loan value in connection with a new purchase, along with lapsing, surrendering, converting to reduced paid-up or extended term, reducing benefits, or reissuing with less cash value. Adding a rider, changing a beneficiary or changing the premium mode does not reduce the existing policy's value and is not a replacement.
Source: California Life-Only objectives II.D.2; Cal. Ins. Code 10509.2
An agent takes an application that will replace a client's existing annuity. When must the agent present the Notice Regarding Replacement?
1. A.No later than at the time of taking the application
2. B.Within 10 days after the new contract is delivered
3. C.Only if the existing insurer asks for it
4. D.Within three working days after the application reaches the home office
Show answer
Answer: A. Section 10509.4 requires the agent to present the notice no later than when taking the application, have it signed by both applicant and agent, leave it with the applicant, list the contracts being replaced and send a copy to the replacing insurer. The three-working-day deadline belongs to the replacing insurer, which must notify the existing insurer under section 10509.6, so it is not the agent's deadline.
Source: California Life-Only objectives II.D.2; Cal. Ins. Code 10509.4
When a replacement is involved, how soon must the replacing insurer send written notice of the proposed replacement to the existing insurer?
1. A.Within 20 days after the new policy is delivered
2. B.Within 30 days after the free-look period ends
3. C.Before the agent may present any sales material
4. D.Within three working days of receiving the application or issuing the policy, whichever is sooner
Show answer
Answer: D. Section 10509.6(b)(2) gives the replacing insurer three working days from receiving the application in its home or regional office, or from issuing the policy if sooner, to notify each existing insurer and send a policy summary, contract summary or ledger statement. Twenty days is the time an existing insurer that attempts conservation has to send the owner a summary of the existing policy.
Source: California Life-Only objectives II.D.2; Cal. Ins. Code 10509.6
A 50-year-old buys a new life policy that replaces an existing one. What return right does California require the replacing insurer to give?
1. A.No return right, because replacement buyers sign a notice
2. B.An unconditional refund of all premiums if returned within 30 days of delivery
3. C.A refund only if the existing insurer refuses to reinstate the old policy
4. D.A refund of premiums less expenses if returned within 10 days
Show answer
Answer: B. Section 10509.6(d) requires a replacing insurer to tell the owner, on the cover page or in a separate document delivered with the policy, that he has 30 days from delivery to return it for an unconditional refund of all premiums (account value plus fees for variable contracts). This applies regardless of age, so the 10-day minimum in section 10127.9 does not apply to a replacement.
Source: California Life-Only objectives II.D.2; Cal. Ins. Code 10509.6
An agent knowingly violates California's life insurance and annuity replacement rules. What administrative penalty applies to the agent for each violation?
1. A.No less than $30,000 and no more than $300,000
2. B.No less than $5,000 and no more than $50,000
3. C.No less than $1,000 and no more than $5,000
4. D.A flat $500
Show answer
Answer: B. Section 10509.9 sets an agent's penalty at no less than $1,000 for a first violation, and $5,000 to $50,000 per violation for a second or later violation or any knowing violation. The $30,000 to $300,000 range applies to an insurer whose violations amount to a general business practice or are knowing; an insurer's first violation is $10,000. The commissioner may also suspend or revoke the license after a hearing.
Source: California Life-Only objectives II.D.2; Cal. Ins. Code 10509.9
An agent recommends that a 68-year-old surrender an annuity, paying a surrender charge, to buy a new annuity that gives her no substantial financial benefit over the life of the contract. Under California law this is:
1. A.Allowed if she signs the Notice Regarding Replacement
2. B.A violation, as an unnecessary replacement annuity sold to a person 65 or older
3. C.Allowed if the new annuity pays a higher first-year bonus rate
4. D.A violation only if the agent earns a higher commission on the new annuity
Show answer
Answer: B. Section 10509.8 makes it a violation to recommend that an insured 65 or older buy an unnecessary replacement annuity, defined as one that triggers a surrender charge on the old annuity and confers no substantial financial benefit over the life of the policy, so a reasonable person would see it as unnecessary. Section 10509.914(c) repeats the ban for producers and insurers. A signed notice or a first-year bonus does not cure it, and no commission comparison is needed.
Source: California Life-Only objectives II.D.2; Cal. Ins. Code 10509.8; Cal. Ins. Code 10509.914
Which item is part of the suitability information California requires a producer to make reasonable efforts to obtain before recommending an annuity?
1. A.The names of the consumer's children
2. B.The consumer's employer and job title
3. C.Whether the consumer intends to apply for means-tested benefits such as Medi-Cal
4. D.The consumer's credit score
Show answer
Answer: C. Section 10509.913(i) lists 14 items of suitability information, including age, annual income, financial situation and needs, risk tolerance, tax status, liquidity needs, whether the consumer has a reverse mortgage, and whether the consumer plans to apply for means-tested government benefits such as Medi-Cal or the veterans' aid and attendance benefit. A credit score, job title or children's names are not on the list.
Source: California Life-Only objectives II.C.9.a; Cal. Ins. Code 10509.913
In judging whether a recommended annuity exchange is suitable, California requires the producer to consider whether the consumer has had another annuity exchange or replacement within the preceding:
1. A.60 months
2. B.12 months
3. C.36 months
4. D.120 months
Show answer
Answer: A. Section 10509.914(a)(4) requires the producer to weigh surrender charges, a new surrender period, lost benefits and higher fees, any product enhancements, and whether the consumer has had another exchange or replacement, in particular one within the preceding 60 months. The same section requires a reasonable basis to believe the consumer would receive a tangible net benefit from the transaction.
Source: California Life-Only objectives II.C.9.d; Cal. Ins. Code 10509.914
A consumer refuses to give an agent the financial information needed to assess an annuity, and the agent does not recommend one. The consumer still wants to buy it. What must the agent obtain at the time of sale?
1. A.A letter from the consumer's tax adviser
2. B.A customer-signed statement documenting the refusal to provide suitability information
3. C.Nothing, because unrecommended sales are outside the Insurance Code
4. D.Written approval from the Insurance Commissioner
Show answer
Answer: B. Section 10509.914(d) relieves the producer of suitability obligations when the consumer refuses to give suitability information and the transaction is not recommended, but section 10509.914(e) requires the producer to obtain a customer-signed statement documenting that refusal (and a signed acknowledgment when a consumer buys an annuity that was not recommended). The insurer's issuance must still be reasonable under the known circumstances, so the sale is not outside the Code.
Source: California Life-Only objectives II.C.9.b; Cal. Ins. Code 10509.914
How long must a California life agent keep the records described in Insurance Code section 10508 at the agent's principal place of business?
1. A.At least one year
2. B.At least five years
3. C.At least three years
4. D.Until the policy matures or the insured dies
Show answer
Answer: B. Section 10508.5 requires each life and disability agent, and each insurer, to keep the applicable records in their possession at the principal place of business for at least five years, in an orderly manner and open to the commissioner at all times. Annuity recommendation records under section 10509.917 are also kept five years. Three years is the minimum for evidence of replacement compliance under section 10509.6(c).
Source: California Life-Only objectives I.C2 (records insurers and agents must maintain); Cal. Ins. Code 10508.5; Cal. Ins. Code 10508
An agent plans a first sales meeting about annuities in a senior's home. Under section 789.10, when must the agent deliver the required written notice?
1. A.At least 24 hours and no more than 14 days before the meeting
2. B.At the door, before the agent enters the home
3. C.Within 3 days after the meeting, with the application
4. D.At least 7 days and no more than 30 days before the meeting
Show answer
Answer: A. Section 789.10 requires anyone meeting a senior at home to sell life insurance or annuities to deliver a stand-alone notice in 16-point bold type no less than 24 hours and no more than 14 days before the initial meeting. The notice gives the agent's name, license number and contact details, says the senior may have others present and end the meeting at any time, and lists everyone attending. Only a same-day meeting requested by a senior with an existing agent relationship allows delivery just before the meeting.
Source: California Life-Only objectives II.C.10 and Ethics (senior citizens, Cal. Ins. Code 785–789.10); Cal. Ins. Code 789.10
A life agent offers an annuity to a 72-year-old who would fund it by cashing in a certificate of deposit. What must the agent tell her in writing under section 789.8?
1. A.That the annuity is guaranteed by the FDIC like her certificate of deposit
2. B.That the agent's commission will be paid out of her first premium
3. C.That selling assets to fund the purchase may have tax consequences, penalties or other costs, and she may want independent advice
4. D.That she must wait 30 days before the agent can accept her application
Show answer
Answer: C. Section 789.8 requires a life agent offering life insurance or an annuity to an elder (65 or older) to advise in writing that selling or liquidating a stock, bond, IRA, certificate of deposit, mutual fund, annuity or other asset to fund the purchase may carry tax consequences, early withdrawal penalties or other costs, and that the elder may wish to get independent legal or financial advice first. Annuities are not FDIC-insured, and the Code imposes no 30-day waiting period before applying.
Source: California Life-Only objectives II.C.10 (seniors 65 and older); Cal. Ins. Code 789.8
An employee covered by group life insurance leaves his job. Under California Insurance Code section 10209, what conversion right must the group certificate give him?
1. A.Convert only if he has been insured under the group for at least five years
2. B.Keep the group coverage for 18 months at the employer's cost
3. C.Apply within 31 days and receive an individual policy, other than term, without evidence of insurability
4. D.Apply within 60 days and receive an individual term policy after a medical exam
Show answer
Answer: C. Section 10209 requires the certificate to let a departing employee apply within 31 days and, paying the premium for his class and attained age, receive any one of the individual forms the insurer customarily issues other than term insurance, with no evidence of insurability, in an amount equal to his group coverage. If he dies during the 31 days, the amount he could have converted is payable under the group policy. If he was not notified at least 15 days before the period ends, he gets extra time, but never more than 60 days beyond it.
Source: California Life-Only objectives II.G.2.g; Cal. Ins. Code 10209
A life agent's appointment limits her to selling policies and annuities designated for funeral and burial expenses. What is the maximum initial face amount for this limited authority?
1. A.$15,000
2. B.$10,000
3. C.$50,000
4. D.$20,000
Show answer
Answer: D. Sections 1676 and 1749.01 describe a life agent limited by written agreement with the appointing insurer to specific policies or annuities with an initial face amount of $20,000 or less designated by the purchaser for funeral and burial expenses. Such an agent takes a narrower exam and is exempt from the general prelicensing and continuing education rules of sections 1749 and 1749.3. The limit was $15,000 before a 2014 amendment, so older study material may show that figure.
Source: California Life-Only objectives, introduction (funeral and burial policies); Cal. Ins. Code 1749.01; Cal. Ins. Code 1676; AB 2279 (2014), enrolled bill text
A California resident owns a $500,000 fixed life policy from an insurer that becomes insolvent. What is the most the California Life and Health Insurance Guarantee Association will cover in death benefits on his life?
1. A.$300,000
2. B.$100,000
3. C.$250,000
4. D.$500,000
Show answer
Answer: A. Section 1067.02(c) limits CLHIGA to the lesser of 80 percent of the insurer's contractual obligation or, per life, $300,000 in life insurance death benefits (no more than $100,000 of that in cash surrender or withdrawal value) and $250,000 in present value of annuity benefits, with a $300,000 aggregate per life. Here 80 percent of $500,000 is $400,000, so the $300,000 cap controls. Portions where the owner bears the investment risk, such as variable subaccounts, are not covered at all.
Source: California Life-Only objectives I.C4 (CLHIGA); Cal. Ins. Code 1067.02

Where these questions come from: California Department of Insurance educational objectives for the Life-Only agent examination, sections II.C (annuities), II.D (replacement and cancellation), II.E (the individual life contract), II.G (group life), I.C2 and I.C4 (records, CLHIGA) and the senior-citizen ethics objective (Cal. Ins. Code 785–789.10). See how we write questions.