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California Limited Lines Practice Exam

20 exam-style questions drawn from the same bank as our full California Limited Lines course (California Limited Lines Automobile Insurance 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. Comparable cars in Quinn's local market sell for $16,000, and his collision deductible is $1,000. Under 10 Cal. Code Regs. section 2695.8(b), what cash settlement does he receive?
$15,000, with nothing added, because taxes are owed only on a replacement offer$15,000, plus applicable taxes and one-time transfer fees on a comparable automobile$17,000, because the deductible is added back to cover taxes and fees$16,000, because the deductible does not apply when the car is a total loss
2. Ana trades in her listed sedan for a new SUV on the 3rd of the month and does not call her agent. On the 8th she causes an accident in the SUV. Under the ISO PAP, is there Part A coverage?
Yes, because coverage on a newly acquired auto that replaces a listed vehicle begins on the ownership dateNo, because a replacement vehicle has no coverage until the insurer adds it to the declarations pageNo, because a replacement vehicle is covered only for collision and not for liability during the first monthYes, but only at the Financial Responsibility Law minimums until the insurer is notified of the change
3. An agent pays the agency's copier lease from the premium trust account, planning to repay it from next month's commissions. How does Cal. Ins. Code section 1733 treat this?
As permitted commingling, since she will repay it from commissionsAs diversion of fiduciary funds to her own use, punishable as theftAs permitted, because section 1734 sets no deadline for remittanceAs a bookkeeping error excused if repaid before any audit occurs
4. An insurer can pay all of its liabilities and reinsure all of its outstanding risks, but what is left afterward is less than the paid-in capital the Code requires. It has never missed a payment. What is its status under Cal. Ins. Code section 985?
Insolvent, because the required capital must remain after liabilitiesInsolvent only if it has also missed at least one claim paymentSolvent, because it meets all of its obligations when they come dueSolvent until a court enters a liquidation order against the company
5. An agency's ad says, "Our insurers are members of the California Insurance Guarantee Association, so you are protected if they fail." How is this treated under Cal. Ins. Code section 790.03?
An unfair practice, since advertising CIGA membership is barredPermitted, if the insurers are admitted for the class being soldAn unfair practice only if the insurers are actually nonadmittedPermitted, because CIGA membership is a true statement of fact
6. What does a limited lines automobile insurance agent license under Cal. Ins. Code section 1625.55 authorize?
Auto, personal watercraft and residential property insuranceAny personal line of insurance written by an admitted insurerAutomobile insurance and personal umbrellas over auto policiesAutomobile insurance as defined in section 660, and nothing else
7. What is the main purpose of insurance underwriting?
To select and classify risks so that the insurer's actual losses match the losses its rates assumedTo investigate claims after a loss occurs and decide whether the policy covers themTo reject every application that presents any possibility of a loss to the insurerTo set the commission the producer earns on each policy the insurer issues to an applicant
8. An insurer settles a Fresno total loss by paying the local market value of a comparable car less the deductible, with no tax or fees. The insured did not complain. Which conclusion is correct?
The settlement complies, because taxes and fees are owed only when the insurer offers a replacement carThe settlement complies, because an insured who does not object within 35 days waives taxes and feesThe settlement violates section 2695.85, because the insurer must pay the loan balance on a total lossThe settlement violates section 2695.8(b), because a cash settlement must include taxes and transfer fees
9. Which of the following is an example of an intentional tort?
A driver who fails to notice a stop sign and strikes another carA newspaper that publishes a false statement damaging a person's reputationAn employer whose employee is injured while operating a machine at workA dog owner whose dog bites a visitor lawfully on the property
10. Under Cal. Ins. Code section 286, when must an insurable interest in the life of a person insured exist?
When the insurance takes effect, but not thereafter or when the loss occursWhen the insurance takes effect and when the loss occursContinuously from the time the insurance takes effect until the loss occursWhen the loss occurs, whether or not it existed when the insurance took effect
11. An insurer settles Hal's total loss for $12,500. Thirty days after receiving payment, Hal writes that he cannot find a comparable car for that amount. Under 10 Cal. Code Regs. section 2695.8(c), what must the insurer do?
Nothing, because the reopening period under the regulation is 10 business days after paymentReopen the claim only if Hal first returns the settlement payment to the insurerReopen the claim, because he notified the insurer within 35 calendar days after paymentRefer Hal to appraisal, which is the only remedy after a total loss payment is made
12. Ian's family lives temporarily in a camper parked on a lot as their residence. His resident son is injured inside it during a storm. Does Part B of Ian's PAP cover the son?
Yes, because a family member is insured while occupying any vehicle, wherever it is locatedNo, because campers are excluded from every coverage part of the personal auto policyNo, because Part B excludes injury while occupying a vehicle located for use as a residenceYes, because a storm is an accident and Part B pays for any accidental bodily injury
13. A San Diego insured cancels his annual auto policy four months into the term. Which statement correctly uses the terms earned and unearned premium?
The entire annual premium is unearned until the term ends, so the full amount is refunded on cancellationThe four months of premium is earned; the eight months is unearned and is refunded, less any short-rate chargeThe entire annual premium is earned at inception, so nothing is refunded when the insured cancels earlyThe four months of premium is unearned and is refunded; the eight months is earned and is kept by the insurer
14. A city employee driving a city-owned truck is involved in an accident causing $4,000 of property damage. Is a section 16000 report required for the city truck?
Yes, because property damage exceeded $1,000 and the report is required for every driverNo, because no report is required for a vehicle owned or leased by a local agencyYes, but only if the city employee was at fault in causing the accidentNo, because government employees report accidents only to their own employer
15. Ben asks his producer how to insure his new motorcycle and whether the coverage will satisfy the Financial Responsibility Law. What is the best answer?
Buy a named non-owner policy, which covers any motorcycle he ridesUse a specialty motorcycle policy, whose liability coverage satisfies the law for the motorcycleBuy physical damage only, because motorcycles are exempt from liability requirementsRely on his PAP, which covers every vehicle he owns that is registered in California
16. Ugo, who has full PAP coverage, rents a large box truck to move apartments and damages it. Does Part D of his PAP cover the truck?
Yes, because a moving truck used for personal purposes is a private passenger vehicleNo, because a non-owned auto under Part D is a private passenger auto, pickup, van or trailerNo, because Part D never covers any vehicle that Ugo does not ownYes, because any vehicle Ugo rents is a non-owned auto with the broadest listed coverage
17. Under Cal. Ins. Code section 1861.02(b), how must the rate for a Good Driver Discount policy compare with the rate the insured would otherwise be charged?
It must be at least 25 percent below the rate otherwise charged for the same coverageIt must be at least 20 percent below the rate otherwise charged for the same coverageIt may be any amount below the rate otherwise charged, as each insurer decidesIt must be at least 10 percent below the rate otherwise charged for the same coverage
18. A Pasadena life agent wants to hire an assistant to discuss term life coverage with prospects. What license must the assistant hold?
A personal lines license covering individual linesA life agent license, since no life solicitor license existsAn insurance solicitor license under section 1624No license, if the assistant is paid a salary only
19. Omar's listed car is in the shop for a week, and a friend lends him a car to use meanwhile. Omar causes an accident in the borrowed car and the borrowed car is also damaged. How does the ISO PAP classify the borrowed car?
It is not your covered auto for any purpose, because only vehicles shown in the declarations qualify for that definitionIt is a newly acquired auto for the week of the loan, so the 14-day notice rules govern both liability and physical damageIt is your covered auto under the temporary substitute branch for Part A, and Part D treats it under its own non-owned auto definitionIt is your covered auto for every part of the policy, so Part D pays for its damage on the same basis as a listed vehicle
20. A California resident owns a deferred annuity with a present value of $400,000 from a life insurer that becomes impaired. Under Cal. Ins. Code section 1067.02, what is the most CLHIGA will pay on the annuity?
$400,000, the full contractual annuity value$320,000, which is 80 percent of the annuity value$300,000, the aggregate limit for any one life$250,000, the lesser of 80 percent or the limit

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