California licensing, appointments and continuing education

The marketplace section tests the rules every California agent works under: what counts as transacting, the penalty for doing it unlicensed, appointments, fiduciary duty, CE and annuity training.

Questions and answers, explained

All 12 questions above, with the correct answer and why it is correct. Everything here is on california licensing, appointments and continuing education.

1. Under California Insurance Code section 355, when may an applicant alter or withdraw a representation?

   • AOnly with a court's permission
   • BAt any time during the first two years of the policy, before it becomes incontestable
   • CNever, once the application is signed
   • DBefore the insurance is effected, but not afterwardCorrect

   Why: Section 355 allows a representation to be altered or withdrawn before the insurance is effected, but not afterward. Section 358 makes a representation false when the facts fail to correspond with its assertions.

   Reference Cal. Ins. Code 355, 358 — CA objectives I.B.5.c

2. Which federal law sets standards for most private employer-sponsored benefit plans, including fiduciary duties and disclosure to participants?

   • AERISACorrect
   • BThe Pregnancy Discrimination Act, which governs how employers treat pregnancy in benefit plans
   • CThe Fair Credit Reporting Act
   • DMedicare

   Why: The Employee Retirement Income Security Act (ERISA) governs most private employer benefit plans, setting fiduciary standards, reporting and disclosure requirements and claims procedures. COBRA and HIPAA amended it to add continuation and portability rules.

   Reference ERISA; CA A&H objectives III.B.4.a

3. Under Insurance Code section 1626(a)(2), what does an accident and health or sickness agent license authorize?

   • ATransacting auto and homeowners insurance
   • BTransacting life insurance, annuities and variable products without any other license
   • CTransacting coverage for sickness, bodily injury or accidental death, and disability incomeCorrect
   • DAdjusting claims for insurers

   Why: Section 1626(a)(2) authorizes an accident and health or sickness agent to transact insurance covering sickness, bodily injury or accidental death, which may include disability income. Section 1626(a)(1) covers the life agent, who transacts life insurance, annuities and related benefits.

   Reference Cal. Ins. Code 1626(a) — CA objectives I.C2.3

4. Under California Insurance Code section 354, a representation:

   • AIs binding only on the agent
   • BHas the same legal effect as a warranty
   • CCannot qualify an express provision of the policy, but may qualify an implied warrantyCorrect
   • DOverrides any express provision of the policy with which it conflicts, as long as it is in writing

   Why: Section 354 provides that a representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty.

   Reference Cal. Ins. Code 354 — CA objectives I.B.5.c.iii

5. Under Insurance Code section 35, 'transact' as applied to insurance includes all of the following EXCEPT:

   • ASolicitation
   • BTeaching a general consumer class about how insurance worksCorrect
   • CTransacting matters after the contract is executed
   • DNegotiations preliminary to executing a contract

   Why: Section 35 defines transact to include solicitation, negotiations preliminary to execution, execution of a contract of insurance, and transaction of matters subsequent to execution and arising out of it. General education is not transacting.

   Reference Cal. Ins. Code 35 — CA objectives I.C2.4

6. An applicant's representation is false in a material point. Under California Insurance Code section 359, the insurer may rescind the contract:

   • AOnly if the applicant was convicted of fraud
   • BOnly after the policy has been in force for two full years and a claim has been filed
   • CFrom the time the representation becomes falseCorrect
   • DNever; false representations only reduce benefits

   Why: Section 359 entitles the injured party to rescind from the time a representation becomes false, if it is false in a material point, whether affirmative or promissory.

   Reference Cal. Ins. Code 359 — CA objectives I.B.6

7. Under Insurance Code section 1633, what is the penalty for transacting insurance without a valid license?

   • AA misdemeanor: up to $50,000, up to one year in county jail, or bothCorrect
   • BA warning letter for the first offense only, with no fine or jail
   • CA felony with a mandatory five-year prison term
   • DA $500 fine and nothing more

   Why: Section 1631 prohibits transacting insurance without a license, and section 1633 makes it a misdemeanor punishable by a fine of up to $50,000, up to one year in county jail, or both.

   Reference Cal. Ins. Code 1631, 1633 — CA objectives I.C2.4

8. Under California Insurance Code section 16, how do the words 'shall' and 'may' differ?

   • A'Shall' applies only to insurers and 'may' only to agents
   • BThey mean the same thing
   • C'Shall' is mandatory and 'may' is permissiveCorrect
   • D'May' is mandatory and 'shall' is permissive, which is why most required provisions use 'may'

   Why: Section 16 states that 'shall' is mandatory and 'may' is permissive. A requirement written with 'shall' must be followed; one written with 'may' allows discretion.

   Reference Cal. Ins. Code 16 — CA objectives I.C4.10

9. A new hire wants to help a life agent by soliciting life insurance under a 'life solicitor' license. Under California law:

   • ANo such license exists; soliciting life insurance requires a life agent licenseCorrect
   • BHe may solicit without a license for the first 90 days
   • CThe solicitor license lets him solicit life insurance under the supervision of any licensed agent
   • DHe needs only the agent's written permission

   Why: There is no life solicitor license in California (section 1704(d)). An insurance solicitor (section 1624) aids an agent or broker only in lines other than life, disability or health. Soliciting life insurance requires a life agent license.

   Reference Cal. Ins. Code 1624, 1704(d) — CA objectives I.C2.7

10. An applicant completes a life insurance application but does not submit the initial premium with it. Under contract law, which party makes the OFFER in this transaction?

    • AThe applicant, at the moment he signs and dates the application
    • BThe agent, at the moment he solicits the sale from the applicant
    • CThe insurer, when it issues the policy; the applicant accepts by payingCorrect
    • DThe insurer, at the moment it receives the application in the home office

    Why: With no premium attached, the application is only an invitation to the insurer to make an offer; the issued policy is the offer, and the applicant accepts by paying the initial premium (and signing the statement of good health) at delivery. Choice A is correct only in the other fact pattern — when the premium accompanies the application, the applicant is the offeror and the insurer accepts by issuing the policy as applied for. Outline III.D — contract law.

    Reference CA Life and A&H objectives I.A-I.B (Basic insurance concepts and principles; contract law)

11. Under Insurance Code section 1725.5, where must a California licensee print his or her license number?

    • AOnly on policies the insurer issues
    • BNowhere; license numbers are confidential
    • COnly on the license certificate displayed on the wall of the agent's main office
    • DOn business cards, written price quotations and print ads distributed in CaliforniaCorrect

    Why: Section 1725.5 requires the license number on business cards, written price quotations and print advertisements distributed exclusively in California, in type at least as large as any phone number, address or fax number, or 12-point type (8-point on business cards), whichever is larger.

    Reference Cal. Ins. Code 1725.5 — CA objectives I.C2.11.d

12. A California licensee moves to a new residence. Under Insurance Code section 1729, when must the commissioner be notified?

    • AImmediately, using an electronic service the commissioner approvesCorrect
    • BWithin 90 days, by certified mail
    • CAt the next license renewal, which may be up to two years away
    • DOnly if the move is out of state

    Why: Section 1729 requires every licensee and applicant to immediately notify the commissioner, through an approved electronic service, of any change in email, residence, principal business or mailing address.

    Reference Cal. Ins. Code 1729 — CA objectives I.C2.11.b

Drill the whole domain

• Basic Insurance Concepts and Contract Law (17.3%)
• The Insurance Marketplace, Licensing and Ethics (9.3%)
• Group Medical Expense Insurance (5.3%)

Other topics

• California contract law: concealment, representations and warranties
• California's protections for senior insurance buyers
• California free look periods and life insurance replacement
• Covered California and the Affordable Care Act on the exam
• Medicare supplements and California's Medigap rules
• California group health insurance, COBRA and Cal-COBRA
• California's Commissioner, unfair practices and the guarantee association
• Annuities for the California life exam

See all topics · Study Guides · Full practice exam