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California Life Practice Exam

20 exam-style questions drawn from the same bank as our full California Life course (California Life Agent Exam Prep). Answer all 20, then grade yourself — most state exams require 70% to pass. Explanations for every question are part of the full course.

1. An annuitant elects a life income with 10-year period certain and dies after 4 years of payments. Which statement is true?
Payments stop immediately on the date of the annuitant's death, with no further obligation owed by the insurerThe beneficiary receives a single lump-sum payment equal to the total cumulative premium paid into the contractThe beneficiary continues to receive periodic payments for the entire remainder of the beneficiary's own lifeThe beneficiary receives payments for the remaining 6 years of the certain period
2. Which of the following must an agent possess to sell variable annuities?
A state life producer license alone, issued by the agent's resident state insurance departmentOnly the FINRA Series 7 general securities registration with no state-level life producer licenseA state property and casualty producer license with a personal-lines variable-products endorsementA state life license plus FINRA Series 6 or 7 and a state securities registration
3. Under the 'transfer-for-value' rule, when a life insurance policy is sold to a third party for valuable consideration, the death benefit may become:
Taxable to the new buyer-owner only when the acquiring transferee is a closely held C-corporation or holding entityEntirely income-tax-free under IRC §101(a) regardless of who acquires the in-force life-insurance contractTaxable to the extent it exceeds the buyer's basis (consideration paid plus subsequent premiums)Subject to the IRC §72(t) 10% additional federal tax on premature distributions taken before the insured's age 59½
4. Under the NAIC Standard Nonforfeiture Law (adopted in substantially uniform form by every state), a policyowner who stops paying premiums on a permanent life policy with accumulated cash value generally has which three nonforfeiture choices?
Convert to term insurance, accelerate the death benefit, or assign the contractSurrender for cash, Reduced Paid-Up insurance (RPU), or Extended Term Insurance (ETI)Lump-sum face amount, settlement annuity, or charitable rollover under IRC §170Free-look return, reinstatement under the contract's standard provision, or APL
5. A modified whole life policy differs from straight whole life primarily because:
Premiums are lower in the early years and higher thereafterCash value accumulation is suspended for the first five yearsThe policy converts to term insurance at age 65The face amount steps down after a specified period
6. Premiums paid into a variable annuity are credited to:
A separate account, where the owner allocates among sub-accountsA money market fund managed by the state guaranty associationAn FDIC-insured deposit accountThe insurer's general account, with a guaranteed rate of return
7. Carla is covered under her employer's $50,000 noncontributory group term life plan. The IRS Table I cost for her age bracket is $0.15 per $1,000 per month. Under IRC §79, what amount of imputed income, if any, must her employer report on her W-2 for the year?
$90, the full Table I cost applied to her $50,000 of coverage$50, only the cost above the §79 dollar threshold$0, group term coverage of $50,000 or less is excludable in full under §79$540, the entire premium cost paid by the employer
8. Olivia's husband died at age 60 with a $500,000 401(k) balance naming her as sole beneficiary. Olivia is 58. Which option uniquely available to a SURVIVING SPOUSE allows her to defer RMDs longest and treat the funds as her own?
Roll the 401(k) into HER OWN Traditional IRA (a spousal rollover).Take a lump-sum distribution and pay ordinary income tax now.Establish an inherited IRA in her late husband's name with required distributions.Disclaim the inheritance and let the funds pass to contingent beneficiaries.
9. What is the maximum 2024 employer contribution to an employee's SEP IRA, expressed as a percentage of compensation?
Up to 25% of compensation, capped at the §415(c) annual addition limit.Up to 50% of compensation, capped at the regular §408 individual IRA dollar limit of $7,000.Up to 3% of compensation, matched dollar-for-dollar under the §408(p) SIMPLE-IRA matching rules.Up to 100% of compensation, with no statutory ceiling under §408(k) for the SEP contribution.
10. An insured with a $500,000 policy and a chronic illness ADB rider elects to accelerate $200,000 over two years for chronic-care needs. The policy's cash value at the time of acceleration is $40,000, and total premiums paid are $35,000. How are the accelerated payments most likely treated for federal income tax?
Taxable as a partial surrender to the extent the accelerated payments exceed the policy's investment-in-the-contract basisTax-free only up to $40,000, the policy's cash-value amount at the time of acceleration, and ordinary income thereafterFully tax-free as a §101(g) chronic-illness acceleration, subject to per-diem limits set annually by the IRSFully taxable as ordinary income because the accelerated amounts received by the insured exceed cumulative premiums paid
11. A client exchanges a whole life policy with a $30,000 cash value and a $40,000 cost basis (an unrealized loss) for a new universal life policy under IRC §1035. What carries over to the new contract?
The client may deduct the $10,000 loss in the year of exchangeCost basis is forfeited because §1035 only preserves gain, not lossThe basis is reset to the new policy's $30,000 cash valueThe original $40,000 cost basis carries over to the new policy
12. An owner exchanges one non-qualified deferred annuity for another non-qualified deferred annuity directly between insurers. Which Internal Revenue Code section provides for the tax-free treatment of this exchange?
IRC § 401(k)IRC § 1035IRC § 72IRC § 501(c)(3)
13. Which of the following is a classic AML 'red flag' a life insurance producer should escalate?
Applicant names his spouse of more than ten years as the primary beneficiary and his adult children as equal contingent beneficiaries per stirpesApplicant pays the first annual premium by a personal check drawn from his own routinely used bank account on file with the insurer at issueApplicant requests carrier illustrations for several different permanent and term life-insurance products before making a final selection on the applicationApplicant insists on overpaying premium with multiple money orders just under the reporting threshold and quickly requests partial surrender
14. A non-MEC universal-life policy has $60,000 of cash value and a $40,000 cost basis. The owner takes a $30,000 partial withdrawal. How is it taxed under IRC §72(e)?
Half of the $30,000 withdrawal is treated as cost-recovery basis and half is treated as ordinary-income gain under §72(b)$30,000 is fully tax-free recovery of basis (FIFO), because the withdrawal does not exceed the $40,000 basis.$30,000 is fully taxable to the policyowner as ordinary income under the LIFO/gain-first treatment of §72(e)(10) for life insuranceWithdrawals from any individual life-insurance contract are categorically tax-free regardless of cumulative amount or basis history
15. Universal life insurance is best described as:
A term policy with a guaranteed renewability riderFlexible-premium adjustable life with a separate cash accountA whole life policy issued without medical underwritingAn annuity contract that pays a death benefit
16. Which of the following is most commonly included as an exclusion or limited benefit in a typical individual life policy?
Death while engaged in declared or undeclared war, or in service of the armed forces of any country at war (war exclusion)Death from cancer or heart disease, when the underlying condition arose more than five years after the policy was originally issued and deliveredDeath while traveling as a paid passenger on a scheduled commercial flight, with the aviation exclusion carving out only general-aviation pilots or military aircrewDeath from a motor-vehicle accident where the insured was the at-fault driver in violation of a state traffic law cited on the official police accident report
17. Bob owns a whole life policy with a $40,000 cash value and $25,000 basis. He sells the policy to his unrelated business partner Carol for $40,000. Carol later collects the $200,000 death benefit. Under the transfer-for-value rule of IRC §101(a)(2), how much of the $200,000 is excludable from Carol's income?
$40,000 (the consideration she paid) plus subsequent premiums she paid; the rest is taxable.Nothing, the entire benefit is taxable because the policy was transferred for value.$25,000 (Bob's basis); the rest is taxable.All $200,000, death benefits are always tax-free.
18. On April 1, Walter transfers his $1,500,000 individually-owned life insurance policy to a properly structured Irrevocable Life Insurance Trust (ILIT). He continues paying premiums and dies on March 15 of the following year (about 11½ months later). What amount of the $1,500,000 death benefit is included in Walter's gross estate under IRC §2035(a)?
$0, once a policy is transferred to an ILIT, no proceeds are ever in the estateOnly the premiums paid after transferOnly the cash value at the date of transfer$1,500,000, the full amount, because Walter died within 3 years of the transfer
19. The 'net premium' for a life insurance policy is best defined as the amount needed to cover:
The cash surrender value at maturityAll mortality, interest, and expense loading charges combined into one gross figureMortality and interest assumptions only, before loading for expensesOnly the agent's commission
20. A return-of-premium (ROP) term rider promises to refund premiums if the insured survives the term. Compared with a level term policy of equal face amount, the ROP version will generally:
Be unavailable on any level-premium term longer than 10 yearsCost less because of the survivor refundCost more because the insurer must reserve for the refundCost the same

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