State RegulationsCA specific✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A producer offers to give every customer who buys a policy a 'free' $500 life insurance policy. Under California Insurance Code Section 777.1, this practice is:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 777.1 prohibits offering, promising, or giving insurance as an inducement or as compensation in connection with any other transaction. Giving away a 'free' policy to entice a purchase is precisely the conduct the statute targets — it distorts competition and can mislead consumers about value.
Why the other options are wrong
- B) The prohibition is not limited by line of insurance; any free coverage as an inducement violates the statute.
- C) Charging a nominal fee does not cure the violation; the arrangement still amounts to free insurance as an inducement.
- D) There is no de minimis face-amount exception in Section 777.1.
Memory hook
Free insurance is never free — it is an illegal lure. Section 777.1 bans giving coverage as a sales bribe.