17 Free California Life & Health Practice Questions: Annuities (2026)

Question 1 (Chapter 4)

Sarah purchases a deferred annuity. For the first 15 years, she makes regular premium payments, and the contract value grows on a tax-deferred basis. After 15 years, she begins receiving monthly income payments for the rest of her life. In this scenario, what are the two distinct phases of Sarah's annuity contract, in chronological order?

• A) The premium phase and the benefit phase
• B) The investment phase and the payout phase
• C) The growth phase and the income phase
• D) The accumulation period and the distribution (annuitization) phase

Question 2 (Chapter 4)

A young professional is looking for an annuity that allows them to make contributions over several years, adjusting the amount based on their fluctuating income. Another client, nearing retirement, wants to use a recent inheritance to fund an immediate income stream. What funding methods would typically be used by the young professional and the client nearing retirement, respectively?

• A) Flexible premium for both
• B) Single premium for both
• C) Single premium for the young professional; flexible premium for the client nearing retirement
• D) Flexible premium for the young professional; single premium for the client nearing retirement

Question 3 (Chapter 4)

A client purchased a deferred annuity five years ago. Due to an unexpected financial emergency, they need to withdraw a significant portion of their accumulated value. The agent reminds them about potential charges. What type of charge is the agent most likely referring to that can reduce the amount the client receives upon early withdrawal from their annuity?

• A) Premium taxes
• B) Administrative fees
• C) Surrender charges
• D) Annuitization fees

Question 4 (Chapter 4)

An agent is meeting with a 62-year-old prospect to discuss a variable annuity. The client decides to purchase the contract but does not provide specific investment instructions. According to California law, how must the premiums be handled during the free-look period?

• A) The premiums must be invested in the S&P 500 index sub-account to ensure immediate growth.
• B) The premiums must be held in a non-interest-bearing escrow account until the free-look period expires.
• C) The premiums are automatically refunded to the client and the contract is voided if no instructions are provided within 48 hours.
• D) The premiums must be held in a fixed or money-market account unless the owner provides specific written direction to do otherwise.

Question 5 (Chapter 4)

An agent identifies that a 70-year-old prospect is planning to fund a long-term annuity using a reverse mortgage. Why should this be a 'red flag' for the agent regarding suitability?

• A) Reverse mortgages are illegal in California.
• B) The annuity will be taxed at a higher rate due to the source of funds.
• C) The high costs of reverse mortgages combined with the long-term nature of an annuity may be unsuitable and financially harmful to the senior.
• D) The insurer will automatically reject any application funded by a reverse mortgage.

Question 6 (Chapter 4)

An agent is recommending a variable annuity to a client. Why is the agent required to hold a FINRA registration in addition to their life insurance license?

• A) Because variable annuities are considered securities due to the investment risk being borne by the owner.
• B) Because the California Insurance Code requires all insurance agents to be FINRA registered regardless of products sold.
• C) Because variable annuities are not regulated by the Department of Insurance.
• D) Because it is a requirement for calculating the death benefit of the annuity.

Question 7 (Chapter 4)

What is the primary difference between a fixed annuity and an equity-indexed annuity?

• A) Fixed annuities are for seniors; equity-indexed are for young investors.
• B) Equity-indexed annuities are securities, while fixed annuities are not.
• C) Fixed annuities have no surrender charges, while equity-indexed annuities do.
• D) Fixed annuities offer a guaranteed interest rate, while equity-indexed annuities link interest credits to a market index, subject to caps and participation rates.

Question 8 (Chapter 4)

A client purchases a 'Life with Refund' annuity. If the annuitant dies before receiving total payments equal to the original premium, what happens?

• A) The beneficiary receives the difference between the premium paid and the payments already made.
• B) The insurer keeps the remaining balance.
• C) The contract is voided and the premiums are returned to the estate.
• D) The payments continue to the beneficiary for the rest of the beneficiary's life.

Question 9 (Chapter 4)

A client has a 'Life with Period Certain' annuity. If the annuitant dies during the period certain, what happens to the remaining payments?

• A) The payments are paid to the beneficiary for the remainder of the specified period.
• B) The payments cease immediately upon the death of the annuitant.
• C) The payments revert to the insurance company's general account as a profit.
• D) The beneficiary receives a lump-sum payment equal to the original premium paid.

Question 10 (Chapter 4)

A 68-year-old client is considering replacing an existing annuity with a new one that offers a higher bonus. Under California law, what is the agent's primary obligation regarding this replacement?

• A) The agent must ensure the replacement is not 'unnecessary' and provides a tangible benefit to the senior.
• B) The agent must wait 30 days to ensure the client does not change their mind.
• C) The agent must inform the client that all replacements are tax-free under Section 1035.
• D) The agent must ensure the surrender charge on the new contract is higher to cover the costs of the replacement.

Question 11 (Chapter 4)

A client is considering a 'Life with Refund' annuity. What is the primary benefit of this option compared to a 'Straight Life' annuity?

• A) It provides a higher monthly income payment.
• B) It guarantees that at least the original premium amount will be paid out, either to the annuitant or the beneficiary.
• C) It allows the owner to withdraw the entire principal at any time without penalty.
• D) It eliminates the need for the annuitant to be the owner of the contract.

Question 12 (Chapter 4)

An agent is recommending an annuity. The client mentions they have a pending Medi-Cal application. Why is this a major suitability concern?

• A) Because the annuity will automatically disqualify the client from receiving Medi-Cal benefits.
• B) Because the purchase of an annuity could be viewed as an improper transfer of assets, potentially delaying or denying eligibility for Medi-Cal.
• C) Because the annuity is considered an exempt asset and the agent must ensure it is clearly documented as such.
• D) Because the agent is legally required to pay for the client's Medi-Cal application fees if they buy an annuity.

Question 13 (Chapter 4)

Which of the following is a 'nonqualified' annuity?

• A) An annuity purchased with after-tax dollars by an individual.
• B) An annuity purchased with pre-tax dollars through a 401(k) plan.
• C) An annuity purchased by a non-profit organization for its employees.
• D) An annuity that is tax-exempt for the entire duration of the contract.

Question 14 (Chapter 4)

A client purchases a fixed annuity with a 10-year surrender charge schedule. In the third year, they withdraw 5% of the account value. The contract allows for a 'free-withdrawal corridor' of up to 10% annually. What is the impact of this withdrawal?

• A) The client will pay a surrender charge on the entire 5% withdrawn.
• B) The client will pay no surrender charge because the withdrawal is within the free-withdrawal corridor.
• C) The client will pay a surrender charge only on the amount exceeding the 10% limit.
• D) The withdrawal will trigger a market value adjustment (MVA) regardless of the surrender charge.

Question 15 (Chapter 4)

An agent is assessing a client's suitability for an equity-indexed annuity. The client has a very short financial time horizon of 2 years. Why might this be unsuitable?

• A) Equity-indexed annuities are only available for those with a 10-year horizon.
• B) The surrender charge period likely exceeds the client's time horizon, potentially leading to significant penalties upon liquidation.
• C) The interest credited is only calculated at the end of a 5-year term.
• D) Equity-indexed annuities are prohibited by California law for clients under age 70.

Question 16 (Chapter 4)

A client purchases a 'Life with Refund' annuity. If the annuitant dies after receiving payments totaling 40% of the original premium, what happens to the remaining 60%?

• A) It is paid to the beneficiary, typically as a lump sum or continued payments.
• B) It is retained by the insurance company as profit.
• C) It is forfeited to the state insurance guaranty fund.
• D) The contract is voided, and the premium is returned to the estate.

Question 17 (Chapter 4)

A client is looking for an annuity that provides a guaranteed interest rate but also includes a feature that adjusts the surrender value based on current market interest rates if the contract is surrendered early. What is this called?

• A) Market Value Adjusted (MVA) annuity.
• B) Equity-indexed annuity.
• C) Variable annuity.
• D) Straight life annuity.