C/E Prep #4

The insurance code definition of an ''insurance broker'' is: A. Someone paid to transact insurance on behalf of another person, but not on behalf of the insurer B. Someone appointed by a fire & casualty broker/agent, receiving commissions from their employer for placing business with the insurer the employer represents on behalf their clients C. Any agent that writes more difficult-to-place business with the specialty insurers who have appointed him D. Someone appointed to transact insurance with admitted insurers and receives commissions from them, but acts on behalf of the clients

A Rationale: A broker transacts on behalf of the insured, not the insurer and is NOT appointed.

A person in the business of financing real or personal property it is lawful for them to verbally recommend that insurance be placed through a particular agent or insurer, only if: A. The recommendation is also put in writing B. Never C. The insurers cannot require insurance be placed through a particular agent or insurer, however are allowed to make verbal recommendations D. The insurers can make verbal or written recommendations to place business through a particular agent or insurer

A Rationale: Lenders cannot require a person to place their insurance with a particular agent or insurer as a condition of a loan. They can make a verbal recommendation if they also put the recommendation in writing.

Section 770 of the insurance Code refers to which of the following? A. An entity engaged in financing real or personal property cannot demand that insurance be placed with a particular agency B. No free insurance as an inducement to complete transaction of a sale C. Penalties for having an insured co-sign a loan for you D. Penalties for aiding, assisting, or advertising for a non-admitted

A Rationale: Lenders cannot require, as a condition to get financing, that insurance be placed with a particular agent or insurer. However they are not prevented from making a written recommendation as long as it is not a condition to get the loan.

Which is one would be considered a main factor used by the Insurance Commissioner to determine whether a rate is excessive, inadequate or unfairly discriminatory? A. Whether the rate mathematically reflects the insurance company's investment income B. How long the insurer has been admitted to do business in the state and their annual financial statement filed each year with the department of insurance C. Complaint history of the insurer by insured's D. The degree of competition and what other insurers are charging for the same class of insurance

A Rationale: Whether the rate mathematically reflects the insurance company's investment income

A company that negotiates and binds ceding reinsurance on behalf of an insurer is considered: A. An insurance administrator B. A managing general agent C. An insurance solicitor D. An insurance specialist

B Rationale: A MGA manages all or part of an insurer's business in a given territory, or separate division and has the authority to negotiate and bind ceding reinsurance on behalf of the insurer.

When an agent qualifies for more than one type of license they are said to be: A. Multi-licensed B. Concurrently licensed C. Fully licensed D. Simultaneous licensed

B Rationale: Concurrently licensed

The policy holder makes a premium payment to the agent and the agent fails to remit that premium to the insurer. Which statement is correct? A. The agents license will be automatically revoked B. The policy will lapse since the premium was not received by the insurer C. The policy will not lapse since payment to the agent is the same as payment to the insurer D. The premium will be taken out of the Guarantee Association Funds

C Rationale: Payment to the agent is the same as payment to an insurer. Agents represent the insurer by being appointed.

An agent: A. legally represents the principal B. can make payment to the principal C. can be assumed to have the knowledge of the principal D. None of these statements are false

D

he incorrect statement concerning the California Insurance Guarantee Association (CIGA) is: A. The Association exists to protect members of the insuring public B. Not all claims are fully covered by the association C. Agents may not use the existence of the association in a sales presentation D. All insurers are members of the California Insurance Guarantee Association

D Rationale: Life and Health insurer's belong to the California Life and Health Guarantee Association (CLHGA)

Concerning agents, which of the following is incorrect? A. The agent no duty to an insurer if the agent is part of the field force B. The agent is a licensed producer C. The agent is considered a field underwriter D. A property & casualty broker/agent cannot act as a broker with an insurer if he/she holds an active agent appointment with that insurer

A Rational This is the incorrect/false statement. Agents whether in the office or part of the field force are appointed as representatives of the insurer and owe the duty of loyalty, obedience, competence, honesty, and disclosure to the insurer.

How is an insurance broker defined according to the California Insurance Code? A. An individual who is appointed to transact insurance business with admitted insurance companies, receives commissions from these companies, but acts on behalf of the clients B. An individual who is appointed by specialty insurance companies to transacts excess lines C. An individual who received compensation for transacting insurance on behalf of another person, but not on behalf of an insurance company D. An individual, who is appointed and employed by a licensed fire and casualty broker/agent, transacts insurance on behalf of the client

C Rationale: Brokers transact on behalf of another means they represent the client. Transacting on behalf of an insurer is an Agent

Hans Hoffer received his fire and casualty broker/agent license on January 1, 2000 and will only be selling long term care (LTC) policies to his prospects and customers. Which statement is correct? A. During the year 2001, the only continuing education requirement that he will have is that he will be required to complete 8 hours of continuing education for LTC B. During the year 2001 he will have to complete 8 hours of continuing education in addition to his required 25 hours C. During the year 2001 he will have to complete 25 hours of continuing education which would include the 8 hours required for LTC D. During the year 2001 he will have to complete only 25 hours and may choose to take 8 hours of long term care as he has to only complete 8 hours of LTC per renewal

C Rationale: During your first 4 years 8 hours of LTC must be completed every 12 months. After 4 years it is 8 hours per renewal. LTC continuing education is included in the total of hours required not in addition to.

Although there are variations from one state to another, generally three conditions must be met before surplus lines insurance may be obtained from an unauthorized insurer. Which is not a condition? A. The business must be obtained through a licensed surplus lines broker B. The insurance is not available from authorized insurers C. Coverage is obtained solely to obtain a better contract or lower premium D. Premium taxes are assessed by the state against the insurer or surplus lines broker

C Rationale: Insurance is not to be obtained from an unauthorized insurer just to get a better contract or a lower premium if there is an authorized insurer (admitted) that will write the business.

The Insurance Information and Privacy Protection Act: A. To minimize intrusiveness and eliminate disclosure B. To eliminate the limits on disclosure of information being collected in connection with insurance transactions C. To increase the disclosures that must be given to prospective insured's regarding sources of underwriting information that an insurer may access D. Requires reinvestigation of information if the insured challenges it as being incorrect

C Rationale: The privacy act protects client's privacy concerning the industries need to know. It states what can be collected, who it can be shared with, that the insurance company information gathering practices are revealed, and what are the prospective insured's rights

Which of the following statement is true regarding insurers with admitted status in California? A. They may use race, color, religion or national origin as a condition to use higher rates B. They may use any rating methods that are proven to be actuarially sound in rating the policy C. They may not use race, color, religion or national origin as a condition to use higher rates D. They must file for an exemption with the insurance commissioner if they wish to use race, color, religion or national origin as a rating condition and wait for the commissioner's approval

C Rationale: They may not use race, color, religion or national origin as a condition to use higher rates

In California, excess and surplus lines coverage needs to be placed through: A. An admitted insurer B. An excess and surplus lines solicitor C. Lloyds of London D. A surplus lines broker

D

What is the minimum number of required continuing education hours that a Personal Lines agent must meet? A. Those whose date of the original license is prior to 1/1/92 are required to complete more than those licensed after 1/1/92 since they were not required to complete the 52 hour pre-licensing course B. 25 hours for each 12-month period following the date of the original license if licensed after 1/1/92 for the first 48 months for a total of 50 hours for the first two renewals C. 25 hours for each 24-month period following the date of the original license if licensed after 1/1/92 D. 24 hours per license term.

D

An applicant for an agent/broker license, or agent license must complete in addition to their specific pre-licensing course which of the following? A. A diversity awareness course provided by the State of California B. A contract law course at any approved college location C. A sales training course provided by the insurance department called ?Ethics and the Insurance Professional? D. A 12-hour course on ethics and California code

D Rationale: 12 hours of Ethics and Code must be completed. This course is only required once regardless of the number of licenses the producer is qualified for.

Continuing Education hours for renewal of your license will require which of the following to be included as part of your required hours: A. At least 4 hours of ethics training each license term before the license can be renewed for all licenses except limited auto and personal lines which only requires 2 hours of ethics training per renewal B. Those licensed more than 4 years and selling long term care, 8 of your 24 hours must be in long term care C. Those selling annuities who have already completed the required 8 hours of annuity training must complete 4 hours of annuity training per renewal as part of their continuing education hours if they sell the product D. All of these statements are correct concerning the requirement for continuing education

D Rationale: All of these statements are correct concerning the requirement for continuing education.

Which of the following would not be considered an unethical practice? A. Not staying abreast of current issues in the industry and economy that effect insurance B. Using the sales strategy of requesting that prospects hold their questions until the end of the presentation theorizing that if the prospect has forgotten the question it was not important in the first place C. Divulging that a person or entity is a client of the agent or broker D. Not using insurance terminology instead use simply language that a layman can understand

D Rationale: It is an ethical practice to use simple language that a layman can understand whenever possible.

A form of coverage designed to place a risk for which no market is available through the original broker or agency system is called: A. Non-admitted insurance coverage B. Unauthorized insurance coverage C. Catastrophic insurance coverage D. Surplus or excess lines coverage

D Rationale: Surplus and excess lines are used when there is no ready market or a risk is difficult to place. Excess and surplus lines coverage is written by Surplus lines brokers

According to California Insurance Code (CIC) with respect to an inspection for private passenger vehicles that are being added to the insured's personal auto policy: A. Vehicles must be inspected to be issued or amended to add collision or other than collision B. Only vehicles that have not be formerly insured by the current insurer must be inspected C. Only vehicles that were not previously insured for physical damage and now the insured wants to add the coverage D. The California Insurance Codes does not require vehicles to be inspected

D Rationale: The California Insurance Codes does not require vehicles to be inspected. This could be an underwriting requirement of the insurer.

Most insurance is regulated by the states however the Federal government sometimes exercises its authority in certain areas. An example of this would be under Title 18 of the United States federal law imposes penalties for: A. Fraud and false statements overstating financial reports presented to insurance regulatory authority B. An insurance officer, director, or agent who will embezzles, abstracts, purloins, or misappropriates any funds or property of an insurer C. Punishments can consist of substantial fines and/or periods of imprisonment up to 10 or 15 years D. All of the statements are correct

D Rationale: This is the best answer

According to the California Insurance Code (CIC) it is acceptable to limit, refuse, or impose a different rate for anyone who has a physical mental handicap: A. As long as the insurer bases its practices and underwriting decision on sound actuarial principles B. Reasonably anticipated experience C. Actual experience D. All of these are acceptable reasons

D Rationale: This is the best answer and the most complete. This applies to the class of life (which includes annuities) and the class of disability (all your accident and health policies)

The act of making a false entry in any book, statement or report of any insurer with the intent to deceive any agent, examiner lawfully appointed to examine the affairs of the insurer would be considered: A. An act of violating ?utmost good faith? B. An action considered to be an error or omission C. An act of omission D. An unfair practice

D Rationale: This would be a violation under Unfair Practices. If this action caused an insurer to become financially unstable it would also fall under the federal law Title XVIII and there would be mandatory prison sentences of 10 or 15 years as well as civil penalties.