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1. Under a group life insurance plan sponsored by an employer, who holds the master contract and who receives a certificate of insurance?

In group life insurance the sponsoring employer (or association) is the policyowner and holds the single master contract. Each insured employee receives only a certificate of insurance summarizing coverage, beneficiary, and conversion rights.

2. An employee with $100,000 of group term life coverage is terminated. How long does she have to convert to an individual permanent policy without proof of insurability?

California group life law requires a 31-day conversion privilege following termination of group coverage. The departing employee may convert to an individual permanent policy at her attained age with no evidence of insurability.

3. Under Internal Revenue Code Section 79, how much employer-paid group term life coverage on an employee is excluded from the employee's taxable income?

Section 79 excludes the cost of the first $50,000 of employer-paid group term life coverage from the employee's taxable income. The cost of coverage above $50,000, calculated from IRS Table I, is imputed income on the employee's W-2.

4. Which federal agency has primary responsibility for enforcing ERISA's fiduciary, disclosure, and reporting rules for employer-sponsored benefit plans?

ERISA is administered chiefly by the U.S. Department of Labor through its Employee Benefits Security Administration. The IRS handles tax qualification of pensions and the PBGC insures certain defined-benefit pensions, but front-line fiduciary and disclosure enforcement is DOL.

5. An annuity is best described as protection against which risk?

An annuity is the mirror image of life insurance. Life insurance insures against dying too soon; an annuity insures against living too long, by converting accumulated savings into a stream of income that the annuitant cannot outlive.

6. In an annuity contract, whose life is used to calculate the periodic payouts during the annuitization phase?

The annuitant is the natural person whose life is the measuring life for the payout calculation. Owner and annuitant are often the same person, but they need not be. The beneficiary receives any remaining value only if the owner dies before annuitization.

7. In a fixed annuity, who bears the investment risk on the funds the owner has paid in?

A fixed annuity credits a declared current rate that is never less than the guaranteed minimum stated in the contract. The insurer bears the investment risk and must credit at least the minimum even if its own investments perform poorly.

8. Which license, in addition to a California life-only license, must a producer hold to sell a variable annuity?

Variable annuity subaccounts are securities, so selling a variable annuity requires a FINRA securities license such as Series 6 (mutual funds and variable contracts) or Series 7, in addition to a state life insurance license.

9. An indexed annuity has a 0% floor and a 6% cap. If the linked index returns negative 12% in a contract year, what interest is credited to the owner's account that year?

The floor prevents loss in a down year. With a 0% floor, the worst that can happen is that no interest is credited; the owner's principal is not reduced because of the index decline. The cap would only matter in an up year, limiting an above-cap gain.

10. Which statement best describes a single premium annuity?

A single premium annuity is purchased with one lump-sum payment. A flexible premium annuity, by contrast, allows the owner to make additional contributions over time within contract limits.

11. By definition, a single premium immediate annuity (SPIA) must begin making payouts to the annuitant no later than:

An immediate annuity, including a SPIA, must begin making periodic payouts within one year of purchase, which is what distinguishes it from a deferred annuity. The 59½ rule is a tax rule about early-withdrawal penalty, not a payout-start rule.

12. Which annuity settlement option produces the largest periodic payment for a given premium, all else equal?

Straight life produces the highest periodic payment because payments end at the annuitant's death, with nothing payable to a survivor or beneficiary. Joint and survivor and any form with a guarantee or refund must cost something, so they lower the per-payment amount.

13. A married couple wants lifetime income that continues to whichever spouse lives longer. Which annuity settlement option is the most common fit?

Joint and survivor pays as long as either annuitant is alive, with the survivor commonly receiving 100%, 75%, or 50% of the original payment. It is the most common payout choice for married couples seeking lifetime income for both.

14. What is the additional IRS penalty (on top of ordinary income tax) for taking a taxable withdrawal from a non-qualified annuity before age 59½?

Internal Revenue Code §72(q) imposes a 10% additional tax on the taxable portion of a withdrawal taken from an annuity before age 59½. This penalty is added to the ordinary income tax on the gain portion of the early distribution.

15. Which of the following exchanges is NOT permitted on a tax-free basis under Internal Revenue Code Section 1035?

Section 1035 permits tax-free exchanges life-to-life, life-to-annuity, and annuity-to-annuity. The one direction not allowed is annuity-to-life, because that would convert taxable annuity gains into a life insurance death benefit and undercut the tax rules.

16. Which statement about a typical annuity surrender charge schedule is correct?

Annuity surrender charges typically follow a declining schedule such as 7%, 6%, 5%, 4%, 3%, 2%, 1%, 0%, ending at zero after the surrender period. The schedule is a contract provision, not an IRS rule.

17. During the accumulation phase of a non-qualified deferred annuity, how is the interest credited inside the contract treated for federal income tax purposes?

An annuity's accumulation phase enjoys tax deferral: interest, dividends, and gains credited to the contract are not taxed each year. They are taxed only when withdrawn, generally as ordinary income on the gain portion.

18. Which of the following is NOT one of the eligible group categories for group life insurance in California?

California law lists employer-employee groups, labor unions, associations, and debtor-creditor groups as eligible categories. A random collection of unrelated individuals with no common organizational tie does not qualify because there is no master sponsor and no objective definition of the group.

19. If the owner of a deferred annuity dies during the accumulation phase, before annuitization begins, who normally receives the contract's remaining value?

During accumulation the named beneficiary receives the contract's remaining value if the owner dies. The annuitant is the measuring life for payouts, not the recipient of a death benefit, and insurers do not keep the value when an owner dies before annuitization.

20. An employee with group life coverage dies 10 days after leaving the job, having not yet applied for conversion. What is the insurer's obligation?

Death during the 31-day conversion window after group coverage ends is paid as if the conversion had already been completed, even if no individual policy was actually issued. This is a statutory protection in California group life law.

21. Which statement BEST describes the difference between a 401(k) plan and a 403(b) plan?

Both 401(k) and 403(b) are qualified, tax-deferred salary-reduction retirement plans subject to ERISA (with limited exceptions for governmental and church 403(b) plans). The key difference is the type of sponsor: 401(k) plans are offered by for-profit employers under IRC §401(k); 403(b) plans — sometimes called TSAs (tax-sheltered annuities) — are offered under IRC §403(b) by public school districts, colleges, hospitals, and 501(c)(3) charitable organizations. Option A is wrong — 457 plans are for governmental and select non-profits; 401(k) is private; 403(b) is education/non-profit. Option C — both are qualified. Option D — both 401(k) and 403(b) plans may now offer designated Roth contributions under IRC §402A.

22. Under ERISA, an employee's own salary-deferral contributions to a 401(k) plan must vest:

ERISA §203 (29 U.S.C. §1053) and IRC §411 require that an employee's own elective salary-deferral contributions to a qualified plan be 100% vested immediately — the employee always owns 100% of what they contributed from their own paycheck. Only EMPLOYER matching or profit-sharing contributions may be subject to a vesting schedule (3-year cliff or 2-to-6-year graded vesting under §411(a)(2)). Option A (3-year cliff) and Option B (6-year graded) describe permissible EMPLOYER-contribution vesting schedules. Option C — 5 years is not a standard schedule under current law (the 5-year cliff was raised to 3-year cliff for matching contributions by PPA 2006). The principle: 'your money vests instantly; your employer's match may take time.'

23. During the ACCUMULATION phase of a deferred annuity, which of the following best describes the contract's status?

A deferred annuity has two distinct phases: ACCUMULATION (or 'pay-in' phase) — premiums earn interest tax-deferred under IRC §72, with no scheduled distributions; and ANNUITIZATION (or 'pay-out' phase) — the contract converts the accumulated value into a stream of income payments. During accumulation the owner may surrender the contract for cash (less any applicable surrender charges and possible 10% IRS penalty if under 59½). Option B describes the annuitization (payout) phase. Option C invents a non-existent payout rule. Option D is wrong — annuity inside-buildup is tax-DEFERRED, not currently taxed, which is the very purpose of the annuity tax shelter.

24. California regulates the surrender-charge schedule on individual deferred annuities sold to seniors. Which statement is correct about a typical compliant surrender-charge schedule?

A typical deferred annuity has a multi-year 'declining' surrender-charge schedule (sometimes called the contingent deferred sales charge, CDSC) — for example, 8% in year 1, declining 1% per year to 0% in year 9. California requires clear pre-sale disclosure of the surrender charge schedule (Insurance Code §10127.13) and applies heightened scrutiny when the buyer is age 65 or older — surrender periods that extend beyond the senior's likely time horizon trigger suitability concerns under §10234.93. Option A is wrong — schedules must eventually drop to zero. Option C is wrong — California regulates, but does not ban, surrender charges. Option D confuses surrender charges with the free-look period.

25. A California employee with $80,000 of group term life coverage is terminated. Under the standard group conversion right, the converted INDIVIDUAL policy:

Under California Insurance Code §10209 and the standard group life conversion provision, a terminating employee may convert group life coverage to an individual permanent policy (whole life, universal life, etc.) — but NOT to another term policy — issued by the same insurer, generally without proving insurability, provided the application and first premium are submitted within 31 days of termination. The face amount cannot exceed the group amount being lost. Option A is incorrect — conversion is to an individual policy, generally permanent, not group. Option B — supplemental riders are not guaranteed on conversion. Option D — the entire purpose of the conversion right is to bypass a new medical exam, making coverage available even to uninsurable workers.

26. A participant in a 401(k) plan has a vested account balance of $120,000 and an outstanding plan loan of $5,000. Under IRC §72(p), the MAXIMUM additional loan this participant may take WITHOUT the loan being treated as a taxable distribution is generally:

Under IRC §72(p)(2), a qualified-plan loan is not treated as a taxable distribution only if it satisfies dollar limits, a 5-year repayment requirement (longer for primary-home loans), and level amortization rules. The DOLLAR limit is the LESSER of (a) $50,000 reduced by the EXCESS of the participant's highest outstanding loan balance during the prior 12 months over the current outstanding balance, or (b) the GREATER of $10,000 or 50% of the participant's vested account balance. Here vested = $120,000 (50% = $60,000) and the highest prior balance is $5,000, so the limit is $50,000 - $5,000 = $45,000, capped by the $60,000 figure (which is larger so does not bind). Option A ignores the $5,000 already out. Option B ignores the dollar reduction. Option D would treat the entire account as withdrawable — incorrect under §72(p).

27. Which statement about required minimum distributions (RMDs) and qualified longevity annuity contracts (QLACs) is correct in 2026?

The SECURE Act of 2019 raised the RMD age from 70½ to 72; the SECURE 2.0 Act of 2022 further raised it to age 73 effective in 2023, and it rises again to 75 in 2033 for those born in 1960 or later (IRC §401(a)(9)(C)). A QUALIFIED LONGEVITY ANNUITY CONTRACT (QLAC) under IRC §401(a)(9)(F) is a deferred income annuity purchased inside an IRA or qualified plan that begins payments no later than age 85. SECURE 2.0 increased the per-person QLAC purchase limit (eliminating the prior 25% of account value cap and raising the dollar cap to $200,000 in 2024, indexed thereafter). The amount used to buy a QLAC is EXCLUDED from RMD calculations until annuitization begins. Option B reflects pre-SECURE law. Option C is wrong; QLACs are expressly authorized. Option D is wrong; there is a statutory dollar limit.