North Carolina Regulations for Life

Credit Life Insurance

-A special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor -It insures the life of the debtor

Which of the following statements is TRUE concerning whole life insurance?

-Lump-sum death benefits are NOT taxable -Premiums are NOT tax deductible -Policy loans are NOT tax deductible -Dividend interest IS taxable

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, is the benefit received tax free OR received as taxable income?

-The benefit is received tax free -Should a key person die, the benefit is treated as a reimbursement to the business for the loss of services from that key person

Key Person Insurance

-There is no limitation on the number of key employee plans in force at any one time -The employer is the owner, payor, and beneficiary of the policy -The key employee is the insured -The plan CAN be funded by ANY type of life insurance

All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT:

1) Stocks, securities, or bonds 2) An offer to share in commissions generated by the state 3) Dividends from a mutual insurer 4) An offer of employment Correct Answer: (C)

What are the 3 most common penalties for violations of insurer statutes?

1. A cease and desist order 2. A fine 3. A license suspension or revocation

What must a producer do when delivering a new policy to the insured?

1. Collect any premium due 2. Explain the rating procedures if the policy is rated differently than applied for 3. Explain the policy provisions, riders, and exclusions 4. Have the insured sign the statement of continued good health

Within how many months must a person be expected to die from a sickness in order to be classified as terminally ill for the purposes of a viatical settlement?

24 months or less

To attain currently insured status under social security, a worker must have earned at least how many credits during the last 13 quarters?

6 credits in order to be currently (or partially) insured

Buy-Sell Agreement

A buy-sell agreement is simply a contract that establishes what will be done with a business in the event that an owner dies. They are normally funded with a life insurance policy

A person who knowingly obtains information about an individual from an agent or the insurer under false pretenses has committed a(an) what?

A class 1 misdemeanor

Business Entity

A corporation, association, partnership, limited liability company, limited liability partnership, or other legal entity

Any person who violates a cease and desist order of the commissioner pertaining to consumer information privacy may be subject to which of the following penalties

A monetary fine up to 10k ($10,000) for each violation

an employer has sponsored a qualified retirement plan for its employees

A profit sharing plan

Who is considered a non-resident agent?

An agent who resides and is licensed in another state, but who is authorized to transact insurance in this state

Contract of Insurance

An agreement by which the insurer is bound to pay money or its equivalent or to do some act of value to the insured upon, and as an indemnity or reimbursement for the destruction, loss, or injury of something in which the other party has an interest

Domestic Insurer

An insurance company that conducts business in the state of incorporation.

Foreign Insurer

An insurance company that is incorporated in another state, the District of Columbia, or a territorial possession

Alien Insurer

An insurance company that is incorporated outside the United States

Alien Insurer

An insurer formed under the law of another country

Inducement

An offer that attempts to influence the other party

Subpoena

An order for someone to appear as a witness or submit testimony or evidence

Fraternal Benefit Society

An organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government.

how often must the commissioner examine domestic insurers

At a minimum, they must conduct a financial examination of every domestic insurer not less frequently than once EVERY 5 YEARS.

If an insurer holds a Certificate of Authority, it is known as what type of insurer?

Authorized or Admitted

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Authorized or admitted

What type of license represents the insured?

Broker

If the Commissioner/Superintendent finds a licensee engaging in an unfair method of competition or an unfair practice, what order will be issued?

Cease and desist order

Commissioner

Commissioner of Insurance of North Carolina

An insurance institution or agent that discloses information in violation of the information privacy and disclosure statutes of North Carolina will be liable for what?

Damages sustained by the individual to whom the information relates

If a producer makes maliciously critical statements about another insurer, what is this illegal practice called?

Defamation

Department

Department of Insurance of North Carolina

Two individuals who are in the same risk and age class are charged different rates for their insurance policies due to an insignificant factor. What is this called?

Discrimination

For what reason can a temporary license be issued?

For continuation of business in case the licensed producer dies or becomes disabled

Coercion

Forceful act or threat aimed to influence a person to act against his or her will

When doing business in this state, an insurance company that is formed under the law of another state is know as which type of insurer?

Foreign

What term would you use to refer to an insurer who devises an intimidation strategy in order to corner a large portion go the insurance market?

Illegal (because it's illegal to participate in a boycott, coercion, or intimidation that is intended to restrict fair trade or create a monopoly

Authorized Insurer

Insurer who has received a Certificate of Authority from the department of insurance to transact insurance in this state

Home office

Insurer's headquarters, principle place of business

If a licensee is convicted if a criminal violation, what happens to the licensee's license?

It is automatically suspended

Insurance companies are classified according to what?

Location of incorporation (domicile)

On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. What is the company guilty of?

Misrepresentation

What illegal act does a producer commit when the producer represents a policy in a more favorable light than the policy really is?

Misrepresentation

NAIC

National Association of Insurance Commissioners

Exempt

Not subject to obligation

Who can usually be granted a temporary license?

Producer's spouse or designee in case the licensed producer dies or becomes disabled

An agent offers a client free tickets to a sporting event in exchange for the purchase of an insurance policy. What is the agent guilty of?

Rebating

Restitution

Restoration to the original condition or repayment

Disclosure

Revealed information to help someone make an intelligent and educated decision

An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy?

She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan

Who must be notified of a producer's change of address?

The Department of Insurance (Commissioner/Director/Superintendent)

What type of licensee represents the insurance company?

The agent

Who is responsible for the costs associated with the examination of insurers?

The insurer who is being examined

In terms of parties to a contract, what describes a competent party?

The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires both parties to be: 1. Of legal age 2. Mentally competent to understand the contract 3. Not under the influence of drugs or alcohol

Who pays if the Commissioner does an examination on an agent or broker of record?

The person examined

What happens to someone who intends to defraud an insurer?

They may be ordered to pay restitution (aka pay back what was paid out based on a fraudulent claim) upon the discovery and conviction

To whom may a certificate of authority be issued?

To an insurer authorized to transact business in this state

What is the purpose of a cease and desist order?

To prevent a producer or insurer from further violating laws for transacting insurance

Cease and desist

To stop or discontinue

Viatical Settlement

allows an insured with a life-threatening condition to sell the existing policy in order to receive benefits when they are most needed. Viator's typically receive a percentage of the policy's face value from the person who purchases the policy.

Statute

A formal written law enacted by legislature; insurance statutes can be found in the state Insurance Code

What are the producers required to do in order to renew their license?

Complete continuing educational hours and pay a renewal fee

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is what?

Conditional

Contracts that are prepared by one party and submitted to the other party on a take it or leave it basis are classified as what?

Contracts of Adhesion

Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose plan?

HR-10 (Keogh Plan) because they are specifically for self-employed and their employees

An insurer devises an intimidation strategy in order to corner a large portion of the insurance market. Which og the following best describes this practice?

Illegal or Misrepresentation

Person

Individual, partnership, firm, association, corporation, joint-stock company, or any similar entity

In general, who can be excluded from producer licensing and examination requirements?

Insurance company officers, directors, or any other employees who do not transact insurance and who do not receive commissions for their services (usually, their responsibilities include administrative, executive, or clerical)

Surplus Lines

Insurance not available from authorized insurers; placed with non-admitted insurers who specialize in offering insurance to the high risk market

Which of the following situations is it legal to limit coverage based on marital status?

It is never legal to limit coverage based on marital status

What is a domicile?

It refers to the location where an insurer is incorporated, not necessarily where the insurer conducts business

An employee is joining a group insurance plan. In order to avoid having to prove insurability, what must the employee do?

Join during the open enrollment period. If one applies for coverage after the open enrollment period, proof of insurability may be required in order to avoid adverse selection

An agent is completing an insurance application for a client. The agent is required to provide the client with a "notice of information practices" at all of the following times EXCEPT

No notice is EVER required at the initial completion of an application

Which of the following must be provided to the policy owner or applicant during policy replacement?

Notice Regarding Replacement

Commission

Payment to the agent by the insurance company for placing insurance, usually a percentage of the policy premium

Agents who persuade insureds to cancel a policy in favor of another one when it might not be in the insureds best interest are guilty of what?

Twisting

What type of misrepresentation persuades an insured, to his or her detriment, to cancel, lapse, or switch policies from one to another?

Twisting

Insolvent

Unable to meet financial obligations

What process do insurance companies use to determine whether or not a particular application is insurable, and if so, what premium to charge?

Underwriting

When can the Commissioner or Director examine insurers?

Whenever deemed necessary, but at least once every few years (check state regulations for specific time requirements)