20 California State Law (CDI) Practice Questions & Answers
Every California State Law (CDI) practice question from the Insurance License Practice Test, with the correct answer and a short explanation.
Start practice test →1. Under California law, how does a person come to hold the office of Insurance Commissioner, and how long may that person serve?
- A.Appointed by the National Association of Insurance Commissioners (NAIC) and confirmed by the State Senate
- B.Chosen by a vote of the admitted insurers doing business in California
- C.Appointed by the Governor, serving at the Governor's pleasure with no term limit
- D.Elected by the people at the same time, place and manner as the Governor, for no more than two four-year terms✓ Answer
Proposition 103 (1988) converted the office from appointed to elected: Insurance Code section 12900 provides that the Commissioner is elected by the people in the same time, place and manner as the Governor and may not serve more than two four-year terms, which makes the regulator directly accountable to voters rather than to the Governor or the industry.
Source: California Insurance Code 12900 (as amended by Proposition 103)Report a problem with this question
2. Before the Insurance Commissioner may order a licensee to cease and desist from an act found to be an unfair method of competition or an unfair or deceptive practice, what must occur?
- A.Nothing — cease and desist orders issue without notice and are never subject to a hearing
- B.The Commissioner must first obtain an injunction from the superior court
- C.The Commissioner must serve written charges and hold an administrative hearing, noticed for a date not less than 30 days after service✓ Answer
- D.The insurer that appointed the licensee must first terminate the appointment
Insurance Code section 790.05 builds due process into the Unfair Practices Act: the Commissioner serves a statement of charges together with a notice of hearing set not less than 30 days after service, and only if the charges are proven at that Administrative Procedure Act hearing may an order issue directing the person to pay the statutory penalty and to cease and desist.
Source: California Insurance Code 790.05 (and 790.035)Report a problem with this question
3. Which description matches the California statutory definition of an insurance broker?
- A.A person who, for compensation and on behalf of another person, transacts insurance other than life with, but not on behalf of, an insurer✓ Answer
- B.A person employed by an insurer to investigate and settle claims on the insurer's behalf
- C.A person who may transact any line of insurance, including life, only after being appointed by each insurer
- D.A person authorized by and on behalf of an insurer to transact insurance
Insurance Code section 33 defines a broker as one who transacts insurance other than life on behalf of another person — the client — with but not on behalf of an insurer, in contrast to an agent under section 31, who is authorized by and acts on behalf of the insurer; because life insurance is excluded from the definition, California has no such license as a "life broker."
Source: California Insurance Code 33 (broker) and 31 (agent)Report a problem with this question
4. Why must a property broker-agent or casualty broker-agent file and continuously maintain a bond with the Commissioner before acting in the capacity of an insurance broker?
- A.Because the bond takes the place of the insurer's notice of appointment
- B.Because a broker acts on behalf of the client rather than an insurer, the bond stands as security for the broker's obligations to the public; if no bond is in force, the authority to act as a broker terminates✓ Answer
- C.Because the bond pays the broker's clients' claims whenever an insurer becomes insolvent
- D.Because the bond guarantees the solvency of every insurer with which the broker places business
Insurance Code section 1662 requires the bond to be on file before a person acts in the capacity of an insurance broker and provides that the authority to so act terminates immediately if no bond remains in force; the bond exists because a broker holds itself out as representing the insured rather than an insurer, so there is no insurer standing behind the broker's conduct.
Source: California Insurance Code 1662 (broker's bond)Report a problem with this question
5. A licensed life agent who holds no appointment with Insurer X takes an application from a client and transmits it to Insurer X, which then issues the policy. Which statement is correct?
- A.The transmission is permitted, and the insurer must forward a notice of appointment to the Commissioner not more than 14 days after the agent submitted the application✓ Answer
- B.The agent transacted insurance without authority, and the policy is void from inception
- C.The insurer has 90 days after issuing the policy to decide whether to appoint the agent
- D.No application may be submitted to any insurer until an appointment has already been filed
Insurance Code section 1704.5 lets a life agent present a proposal and transmit an application to an insurer that has not appointed the agent; if a policy is issued, the insurer must forward a notice of appointment to the Commissioner not more than 14 days after the application was submitted, so the appointment paperwork follows the business rather than blocking it.
Source: California Insurance Code 1704.5Report a problem with this question
6. A licensee learns that another state's insurance department has entered an administrative action against them. What does California law require?
- A.Disclosure at the licensee's next license renewal
- B.Telephone notice to the Commissioner within 10 days
- C.Written notice to the Commissioner within 30 days of learning of the change in background information✓ Answer
- D.No notice at all, because the action was taken outside California
Insurance Code section 1729.2 requires an applicant or licensee to notify the Commissioner in writing within 30 days of learning of any change in background information — including convictions, charges, administrative actions and findings of fraud or breach of fiduciary duty — so the Department can evaluate continuing fitness rather than waiting years for a renewal cycle.
Source: California Insurance Code 1729.2Report a problem with this question
7. Where must a licensee display the license number issued by the California Department of Insurance?
- A.Nowhere — publication on the Department's online license lookup satisfies the requirement
- B.Only on the policy delivered to the insured
- C.Only on the licensee's office window or door
- D.On business cards, written price quotations and print advertisements distributed in California, in type at least as large as any telephone number, address or fax number shown✓ Answer
Insurance Code section 1725.5 requires the license number on business cards, written price quotations and print advertisements distributed in California, in type at least as large as any telephone number, address or fax number appearing in the item, so that consumers can verify with the Department that the person soliciting them is actually licensed.
Source: California Insurance Code 1725.5Report a problem with this question
8. An agent wishes to market under the business name "Statewide Insurance Underwriters." What does California law provide?
- A.Only a county fictitious business name filing is needed; the Commissioner has no authority over licensees' names
- B.Any name may be used so long as the license number also appears
- C.Fictitious names are prohibited outright; a licensee may transact only under their true name
- D.The name must be filed with the Commissioner, who may disapprove it if it is too similar to a name already in use, may mislead the public, or states or implies that the licensee is an insurer or an underwriter✓ Answer
Insurance Code section 1724.5 requires every licensee to file its true name and all fictitious names in writing with the Commissioner and authorizes disapproval of a name that interferes with or is too similar to a name already in use, that may mislead the public in any respect, or that states, infers or implies the licensee is an insurer, motor club, hospital service plan or an underwriter.
Source: California Insurance Code 1724.5Report a problem with this question
9. An agent deposits a client's premium check into their own personal checking account and then pays the insurer out of personal funds two weeks later. How does California law characterize this conduct?
- A.Premiums are received and held in a fiduciary capacity, and a licensee who diverts or appropriates fiduciary funds to their own use is guilty of theft✓ Answer
- B.Acceptable so long as the agent maintains a broker's bond
- C.A recordkeeping error that the Department corrects with a written warning
- D.Acceptable, because the insurer was paid before the premium became due
Insurance Code section 1733 provides that all funds received by a licensee as premium or return premium are received and held in a fiduciary capacity, and that a person who diverts or appropriates such funds to their own use is guilty of theft; section 1734 therefore requires the funds to be remitted promptly or kept in a separate trust account rather than commingled with personal money.
Source: California Insurance Code 1733 (and 1734)Report a problem with this question
10. An agent shows a client a knowingly misleading comparison between the client's existing life policy and a policy from a different insurer, in order to persuade the client to surrender the existing coverage. This practice is known as:
- A.Boycott
- B.Churning
- C.Rebating
- D.Twisting✓ Answer
Insurance Code section 781 makes it unlawful to knowingly make a misrepresentation, or a misleading representation or comparison of insurers or policies, for the purpose of inducing a policyholder to lapse, forfeit, change or surrender insurance; the same conduct is called churning when the replacement policy is issued by the same insurer and is typically funded from values in the existing policy.
Source: California Insurance Code 781 (and 790.03(a))Report a problem with this question
11. Which statement accurately describes the rebating of commissions by a California-licensed agent or broker?
- A.Rebating any part of a commission is a criminal offense in every line of insurance in California
- B.Rebating is lawful only during the first policy year and only in commercial lines
- C.Rebating is lawful only when the insurer approves the rebate in writing in advance
- D.Because Proposition 103 repealed California's general anti-rebate provisions, a licensee may rebate part or all of their own commission to a client, although rebating remains unlawful in specified lines such as title insurance✓ Answer
California is an outlier: the voters' 1988 passage of Proposition 103 repealed the anti-rebate prohibitions that most states retain, so an agent or broker may share their own commission with a client, but the carve-outs still bind — the Department treats premium rebating by insurers as unlawful, title insurance rebates and inducements are barred by Insurance Code section 12404, and no rebate may be used to discriminate unfairly between insureds of the same class.
Source: Proposition 103 (1988) repeal of the anti-rebate provisions of Insurance Code Article 5; Insurance Code 750 (rebating carve-out) and 12404 (title insurance)Report a problem with this question
12. An insurer receives notice of a claim. Within how many calendar days must it acknowledge receipt of the notice, provide necessary forms and instructions, and begin any necessary investigation?
- A.40 calendar days
- B.10 calendar days
- C.21 calendar days
- D.15 calendar days✓ Answer
The Fair Claims Settlement Practices Regulations require the insurer to act immediately but in no event more than 15 calendar days after notice of claim; candidates confuse this with the two other clocks in the same regulations — 21 calendar days to respond to a Department of Insurance inquiry, and 40 calendar days after proof of claim to accept or deny.
Source: 10 CCR 2695.5(e) (Fair Claims Settlement Practices Regulations)Report a problem with this question
13. After receiving a properly documented proof of claim, within how many calendar days must an insurer accept or deny the claim, in whole or in part?
- A.60 calendar days
- B.30 calendar days
- C.40 calendar days✓ Answer
- D.15 calendar days
Under the Fair Claims Settlement Practices Regulations the insurer must accept or deny within 40 calendar days of receiving proof of claim, and any denial must be in writing citing the specific policy provision, condition or exclusion relied on; if more time is genuinely needed the insurer must give written notice within that 40 days and update the claimant every 30 calendar days thereafter, and once a claim is accepted payment must be tendered within 30 calendar days.
Source: 10 CCR 2695.7(b), (c) and (h)Report a problem with this question
14. Before an initial in-home meeting arranged with a senior citizen to sell life insurance or annuities, what written notice must the agent deliver?
- A.Any written notice, handed to the senior at the start of the meeting
- B.A stand-alone notice in 12-point type, delivered at least 48 hours and no more than 30 days before the meeting
- C.A notice in 16-point bold type, mailed within 24 hours after the meeting
- D.A stand-alone notice in 16-point bold type, delivered no less than 24 hours and no more than 14 days before the meeting✓ Answer
Insurance Code section 789.10 requires a stand-alone written notice in 16-point bold type, delivered no less than 24 hours and no more than 14 days before the initial in-home meeting, giving the agent's name, license number, address and telephone number and stating that the agent is there to sell insurance; the advance delivery is what gives the senior time to arrange for another person to be present or to decline the visit altogether.
Source: California Insurance Code 789.10Report a problem with this question
15. A 62-year-old buys an individual annuity contract. What is the minimum period California law requires for returning the contract for cancellation?
- A.30 days✓ Answer
- B.20 days
- C.10 days
- D.No return period is required for annuity contracts
Insurance Code section 10127.9 sets the general free-look period for individual life policies and annuities at not less than 10 and not more than 30 days, but section 10127.10 requires at least 30 days whenever the policyholder is a senior citizen, which that section defines as an individual 60 years of age or older on the date of purchase — the trigger is age 60, not 65.
Source: California Insurance Code 10127.10 (and 10127.9)Report a problem with this question
16. What does California law require of fire insurance policies covering property located in the state?
- A.Fire coverage may be written only by the California FAIR Plan Association
- B.Fire policy language is unregulated in California; each insurer drafts its own wording
- C.Each policy must be written on the statutory standard form, or on a form affording coverage substantially equivalent to or more favorable than the standard form✓ Answer
- D.The standard form applies only to commercial property policies
Insurance Code section 2070 requires all fire policies on subject matter in California to be on the standard form, whose text is set out in section 2071, while permitting other forms only where the coverage is substantially equivalent to or more favorable to the insured than the standard form; the point of the statute is a guaranteed statutory floor of fire coverage that no insurer's wording may fall below.
Source: California Insurance Code 2070 (standard form set out in 2071)Report a problem with this question
17. At least how many days before a residential property policy expires must the insurer deliver or mail an offer of renewal?
- A.60 days
- B.20 days
- C.45 days✓ Answer
- D.30 days
Insurance Code section 678(a) requires the insurer to deliver or mail an offer of renewal at least 45 days before expiration, and that offer must identify any reduction of limits or elimination of coverage so the insured has time to shop; a notice of nonrenewal must go out even earlier — at least 75 days before expiration under section 678(c) — and if it is late the existing policy stays in force for 75 days from the date the notice is given.
Source: California Insurance Code 678(a) and 678(c)Report a problem with this question
18. A California-admitted life insurer is placed in liquidation. Which organization pays covered claims of its policyholders?
- A.The California Insurance Guarantee Association (CIGA)
- B.The California FAIR Plan Association
- C.The California Life and Health Insurance Guarantee Association✓ Answer
- D.The California Earthquake Authority
CIGA membership under Insurance Code section 1063(a) is limited to admitted insurers writing property and casualty lines and expressly excludes life and annuity, disability and health, title, surety, mortgage guaranty and ocean marine business, so life and health obligations fall to the separate California Life and Health Insurance Guarantee Association; neither association protects policyholders of non-admitted (surplus lines) insurers.
Source: California Insurance Code 1063(a); 1067.02Report a problem with this question
19. Which statement best describes the California FAIR Plan Association?
- A.An association of admitted insurers acting as an insurer of last resort, making basic property insurance available to applicants who cannot obtain it in the voluntary market✓ Answer
- B.A non-admitted surplus lines insurer approved to write hard-to-place California risks
- C.A reinsurer that assumes earthquake exposure ceded by admitted insurers
- D.A state-funded insurer that writes complete homeowners coverage, including liability and theft, at subsidized rates
Insurance Code sections 10090-10091 create the FAIR Plan as a joint reinsurance association of insurers licensed to write basic property insurance in California, formed to assist persons in securing that coverage and to apportion the risk equitably among insurers; because it writes only "basic property insurance" — essentially the standard fire policy plus extended coverage, vandalism and malicious mischief — insureds commonly pair it with a difference-in-conditions policy to fill the remaining gaps.
Source: California Insurance Code 10090 and 10091(a), (c)Report a problem with this question
20. Which statement correctly describes the California Low Cost Automobile Insurance Program?
- A.Administered through the California Automobile Assigned Risk Plan, it offers income-eligible good drivers a liability-only policy whose limits are lower than the standard limits, yet the policy satisfies the state's financial responsibility requirement✓ Answer
- B.It provides full coverage, including collision and comprehensive, at a state-subsidized premium
- C.It is administered by the California Insurance Guarantee Association for drivers whose insurer became insolvent
- D.It is open to any licensed California driver regardless of income or driving record
Insurance Code sections 11629.7 and following establish the low cost automobile program within the California Automobile Assigned Risk Plan for income-eligible drivers who meet good-driver and vehicle-value criteria; the statute expressly provides that the reduced liability limits it prescribes satisfy the financial responsibility requirements of the Vehicle Code, which is how the program keeps low-income motorists legally insured rather than uninsured.
Source: California Insurance Code 11629.7 and 11629.71Report a problem with this question
Practice questions cover general, uniform insurance concepts. State-specific laws and limits vary — study your state's official exam outline before testing. Insurance info (NAIC) →