Annuities: CA-LH practice questions

Annuities CA-LH-04-227

A client is concerned about outliving their retirement savings and wants a financial product that guarantees income for the rest of their life, regardless of how long they live. Which of the following financial products is specifically designed to address this concern by providing a guaranteed income stream for life?

A mutual fund A whole life insurance policy An annuity A certificate of deposit (CD)

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The answer is C: An annuity

An annuity is a contract that provides a guaranteed income stream for life or for a fixed period, specifically designed to protect against longevity risk (outliving one's money). Whole life insurance is primarily for death benefit protection. Mutual funds and CDs are investment vehicles that do not typically offer a guaranteed lifetime income stream.

Reviewed in our October 2026 California fact-check.

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Annuities CA-LH-04-228

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?

The accumulation period and the surrender charge period The distribution (annuitization) phase and then the accumulation period The free-look period and the distribution (annuitization) phase The accumulation period and the distribution (annuitization) phase

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The answer is D: The accumulation period and the distribution (annuitization) phase

Annuities have two main phases: the accumulation period, during which premiums are paid and the money grows, and the distribution (annuitization) phase, when the annuity begins paying out income. Sarah pays in for 15 years and then receives income, so accumulation comes first and distribution second. A surrender charge period runs inside the accumulation period, and a free-look period is only a short window after the contract is delivered.

Reviewed in our October 2026 California fact-check.

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Annuities CA-LH-04-229

John buys an annuity for his mother, Mary, who is 70 years old. John pays the premiums and retains the right to make changes to the contract. Mary is the person whose life the payments will be based on, and John's sister, Lisa, is named to receive any remaining guaranteed payments if Mary dies early. In this annuity contract, who is the owner, the annuitant, and the beneficiary, respectively?

Lisa, Mary, John John, Mary, Lisa John, Lisa, Mary Mary, John, Lisa

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The answer is B: John, Mary, Lisa

The owner is the person who buys the annuity and has contractual rights (John). The annuitant is the person whose life expectancy the payout payments are based on (Mary). The beneficiary is the person who receives any remaining benefits if the annuitant dies before all guaranteed payments have been made (Lisa).

Reviewed in our October 2026 California fact-check.

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Annuities CA-LH-04-239

A 72-year-old client whose existing annuity still carries a surrender charge wants to exchange it for a new annuity that offers a slightly higher interest rate. Under California Insurance Code §10509.8, what is the primary concern the agent must address before facilitating this transaction?

Whether the client has completed the mandatory 8-hour annuity training course. Whether the client has a reverse mortgage that would automatically disqualify them from the exchange. Whether the exchange is necessary and confers a substantial financial benefit on the client. Whether the new annuity is a variable product requiring FINRA registration.

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The answer is C: Whether the exchange is necessary and confers a substantial financial benefit on the client.

California Insurance Code §10509.8 makes it a violation to recommend that an insured 65 or older buy an unnecessary replacement annuity: one that replaces an annuity carrying a surrender charge and does not confer a substantial financial benefit over the life of the policy, so that a reasonable person would believe the purchase unnecessary. For recommendations made since 1/1/2025, the best-interest care obligation also makes the agent weigh surrender charges, a new surrender period and lost benefits (§10509.9204(a)(1)(K)).

Reviewed in our October 2026 California fact-check.

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Annuities

Why not ?

Why not ?

Why not ?

A 72-year-old client whose existing annuity still carries a surrender charge wants to exchange it for a new annuity that offers a slightly higher interest rate. Under California Insurance Code §10509.8, what is the primary concern the agent must address before facilitating this transaction?

Why not ?

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