Life Insurance: The Insurance Marketplace
Obtaining information under false pretenses is a violation. What would be the maximum fine for any agent found guilty?
$10,000
Which of the following is the closest term to an authorized insurer?
Admitted
According to the Law of Agency, a principal is represented by a/an
Agent
The public official in charge of the Insurance Department is the
Insurance Commissioner.
Acting as an agent for a nonadmitted insurer (unless a surplus line broker) is considered a/an
Misdemeanor.
Any person who engages in any unfair method of competition or deceptive act is liable to the state for a civil penalty and a fine of $5,000 for each act. In addition, if it is determined that the act is willful the fine will NOT exceed
$10,000.
An insurance company that is NOT authorized to do business in the State of California is known as a(n)
Nonadmitted company.
A licensee is NOT required to comply with continuing education requirements in the state of California if which conditions are met?
The licensee has been in good standing for 30 continuous years, and is at least 70 years old.
On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are
Not taxable since the IRS treats them as a return of a portion of the premium paid.
In a life settlement contract, whom does the life settlement broker represent?
Owner Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners.
When a group coverage replacement sale has occurred, which normal provision of the new policy cannot be applied as usual?
Pre-existing condition
Which of the following best describes an agent's fiduciary capacity?
Promptly forwarding premiums to the insurer. The term fiduciary describes both the responsibility inherent in handling another person's financial affairs, and the individual with such responsibility. Handling premiums for the insurer is the agent's fiduciary capacity.
Which of the following can an insured submit to the insurer that would provide evidence of a claim and illustrate how severe the loss is?
Proof of claim
An insurance partnership can continue with new partners as long as
The partnership files notice with the Department within 30 days and the change is approved.
What is the purpose of the California laws regulating production agencies?
To provide protection for the clients by requiring producers to maintain professional standards of conduct
How often must every insurer doing business in California report its financial condition to the Commissioner?
Each year, on or before March 1
A man has HIV and was hospitalized for several weeks. His insurance company has delayed paying his claim for 120 days, saying that he is not covered due to a pre-existing condition exclusion in his policy. The insurance company is guilty of which of the following?
Unfair claims settlement practice Delaying payment in regard to hospital, medical, or surgical claims for persons with AIDS or HIV, for more than 60 days after filing a claim for the purpose of attempting to invoke a pre-existing condition exclusion is an unfair claims settlement practice.
When can earned surplus be returned to the policyholder?
Whenever it exists and is not needed for other expenses
When agents are acting within the scope of their contract, their actions will be assumed to be the acts of the
insurer
After cancellation or expiration of a policy, insurance agents are required to keep detailed bank and financial records about the transaction for a minimum of
5 years.
A new insurance must be treated as a replacement if a new insurer sells a policy to a group which discontinued its group medical insurance within how many days?
60
What is a foreign insurer?
An insurer with a home office in another state
In order to become an admitted, authorized insurer, what is the primary body of law about which an applicant company must be concerned?
California Insurance Code
The types of policies that are covered under the terms of the Association include
Direct, nongroup life, health, annuity and supplemental policies.
Which of the following is true regarding free insurance issued in this state?
It is illegal.
An agent has completed 30 hours of continuing education by the end of a license period instead of the required 24 hours. What will happen to the 6 hours in excess?
They will be carried over into the next licensing period.
When is an insurance license considered inactive?
When no company appointment is in effect for the license
An agent solicited a policy for a client who originally qualified for standard premiums. During the underwriting process, the applicant was rated as a substandard risk and assigned a higher premium. Upon policy delivery, the agent failed to mention that the premiums would be higher, and the client filed a lawsuit against the insurer. This is an example of
An omission and will be covered by an Errors & Omissions policy.
The Commissioner of Insurance supervises and regulates the insurance affairs in the State of California, and is chosen by
the people.
An agent may satisfy the continuing education requirement by attending any course approved by the Commissioner, as long as
The course satisfies the minimum time requirements for continuing education credit.
An agent's role to act in the insured's best interest, based on the good faith and trust placed on the agent by the public is known as
The fiduciary duty. An agent has a fiduciary duty to the insured. The term "fiduciary" describes the responsibility inherent in handling another person's financial affairs.
What is the purpose of the California Life and Health Guarantee Association?
To protect life and health policyholders and/or insureds should a member insurer become insolvent
An agent has been hired by a local businessowner to determine what type of personal and professional coverage he needs. The agent has determined the businessowner's needs and recommended policies from 3 possible companies. The agent does NOT have an agency contract with any of these companies. The agent is acting as
An insurance broker.
Which of the following provisions requires an insurer to document all correspondence with an insured?
Errors and omissions
The authority granted to an agent through the agent's contract is referred to as
Express authority.
An insurance company has published a brochure that inaccurately portrays the advantages of a particular insurance policy. What is this an example of?
False advertising
Who is responsible for equitably evaluating insurable risks and selecting and distributing to the insurer those that are profitable to the insurer?
Underwriter
What is described as the termination of a plan of insurance between the insurer and the entire group of employees?
Discontinuance
What are the continuing education requirements for life-only agents in California?
24 hours every 2 years All agents are required to complete 24 hours of continuing education, including 3 hours in ethics education, during each 2-year license term.
Every insurer is required to provide all records requested by the Commissioner within
A period of 30 days following a written request.
An individual wants to transact business as a life agent in this state. In addition to obtaining a life agent license, what else must the applicant have?
Appointment In order to represent an insurance company, the agent must have an appointment on file with the Commissioner's office. This appointment authorizes the agent to transact business on behalf of the insurance company.
Discontinuance
Described as the termination of a plan of insurance between the insurer and the entire group of employees. It does not refer to the termination of benefits with regard to an individual employee whose employment is terminated or whose eligibility under the group plan has been affected because of a reduction of work hours or other qualifying factor.
Martha claims to have injured her back at work. She tells the doctor that she cannot bend, lift, or even sit comfortably without great pain. Based on Martha's statements, the doctor certifies her disability and she begins to receive disability benefits from the insurer. If it can be shown that Martha did not suffer the injury she has claimed or that she is not suffering the effects she is claiming, she will be charged with
Insurance fraud.
What documentation grants express authority to an agent?
Agent's contract with the principal
The Commissioner performs all of the duties dictated by the CIC and
Enforces the execution of all provisions and laws.
In order to determine whether to test an insurance applicant for HIV or AIDS, the insurer may do which of the following?
Establish minimum uniform standards for testing all applicants for insurance. Every insurer is required by the Code to establish uniform minimum standards of testing life insurance applicants for HIV or AIDS risks, and may not discriminate in its decision to test. (CIC 799 and CIC 10140(e))
An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming?
Foreign A foreign insurer is domiciled in one state and transacts insurance in another. A domestic insurer transacts insurance in the domicile state (in this case, Montana). An alien insurer is domiciled in one country and transacts insurance in another.
Which entity pursues liquidation of an insolvent insurer?
The state government Insurance companies are specifically exempted under federal bankruptcy laws, which means that any liquidation of an insolvent insurer is strictly a matter for the state to pursue.
What is the minimum fine for acting as an agent for a nonadmitted insurer in the transaction of insurance business?
$500 In addition to any penalty given for committing a misdemeanor, a person violating any provision of the Insurance Code pertaining to Certificates of Authority will be fined $500, along with a $100 fine for each month or part of a month during which the person continues the violation.
An agent whose license is due to expire may submit an application for renewal and pay applicable fees and continue operating under the expired license for a period of
60 days In accordance with CIC 1720, the agent may continue to operate under the expired license for a period of 60 days as long as the application for renewal has been filed and renewal fee paid.
For senior agents, the requirement for continuing education for California Partnership for long-term care policies is
8 hours each reporting period. Once the initial training requirement has been met, the agents are required to complete an 8-hour classroom CE course on the Partnership every 2-year licensing period.
Which of the following departments is responsible for developing mortality and morbidity tables?
Actuarial The actuarial department concerns itself with the statistics involved in insurance. It is responsible for developing mortality and morbidity tables, calculating premiums and dividends, and preparing annual reports.
If the information is used only for identification and not for underwriting purposes, which of the following information about the applicant may be listed on a life insurance application?
Birthplace
Accident and health agents may transact all of the following types of insurance EXCEPT
Endowments. Only life-only agents are authorized to transact insurance that includes benefits from endowments.
What is the term for a sales campaign conducted through the mail?
Direct-response
An insurer publishes intimidating brochures that portray the insurer's competition as financially and professionally unstable. Which of the following best describes this act?
Illegal under any circumstances
The California Insurance Code is
Statutes established by the State Legislature.
Which of the following best defines the owner in a life settlement contract?
The owner of the life insurance policy
What is the main role of a solicitor of insurance?
To aid insurance agents in transacting insurance. An insurance solicitor is a natural person employed to aid insurance agents and insurance brokers in transacting insurance other than life insurance.
An insurance agent who diverts premiums held in a trust capacity for his or her own use
Will be considered guilty of theft and be punished to the extent of the law.
Transacting insurance without a license is considered a/an
Misdemeanor.
An agent has how many days in which to receive an appointment after the issuance of an insurance contract?
14 days According to CIC 1704-1705, the insurer must forward to the Commissioner a notice of appointment no more than 14 days after the life agent submits an application for insurance to the insurer.
An insurer, by filing a notice of appointment on behalf of an applicant, shall be deemed to have declared that the applicant has had experience or instruction in insurance or that the necessary instruction will be given within
30 days after issuance of license.
An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an
Authorized insurer.
The Department of Insurance contacts an agent about a claim that was settled two months ago. Within what timeframe must the agent issue a complete response?
21 days
In a conservation or liquidation effort, what powers does the Commissioner have?
The Commissioner has the power to sue the company's officers. The Commissioner has the power to sell the company's assets until all of its creditors are paid. The Commissioner has complete control over the assets of the insolvent company.
A dependent who is covered under a group medical policy files multiple claims for a single loss, thereby committing fraud. To what extent can the insurer deny benefits?
Only for that person who committed the fraud
Insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policyholders is
A mutual insurer.
When a producer was reviewing a potential customer's coverage written by another company, the producer made several remarks that were maliciously critical of that other insurer. The producer could be found guilty of
Defamation. A producer or broker who makes oral or written statements intended to injure another producer or insurer is guilty of the unfair trade practice of defamation.
Rebate
A rebate is an illegal act which involves returning something of value to the client as an inducement to buy, such as the commission. Rebates are only allowed if specifically stated in the policy. Insurance dividends are not considered rebates as the IRS considers it as a return of overpaid premium.
The authority to transact disability insurance given by an insurer to a person acting as an agent by appointment shall be effective
As of the date the notice of appointment is signed by the insurer. According to CIC 1673, 1704-1705, the authority to transact disability insurance is effective on the date of appointment is determined.
When the California Insurance Code needs to be changed, the legislature must design and pass a bill. Once the bill is passed, it is presented to the Governor and becomes law if not returned to the legislature within what time frame?
CA specified period of 12-30 days
Fraud
Occurs when a person intends to benefit from his/her unlawful act or action at the expense of another person. It may involve a misrepresentation, but could simply result when an agent takes money from a client and diverts it to personal use, as an example.
When a discontinued policy contained a death benefit, what term is used in the CIC to describe the length of the applicable extension of benefits?
Reasonable
A life agent may use the name of corporation or association on any stationery or advertisement to identify the relationship in all of the following ways EXCEPT
"Contracted by _______________"
According to Insurance Code, it is an unfair or deceptive act in the business of insurance for an insurer to advertise insurance that it does not market. Such action is a violation of the code and will result in a fine up to
$10,000
When transacting business in this state an insurer formed under the laws of another country is known as a/an
Alien insurer.
The Code defines the term "transact" as all of the following EXCEPT
Analyzing a contract of insurance. Solicitation of insurance, negotiations prior to a contract of insurance, executing a contract of insurance, and any transactions that later result from the operation of the contract are the four actions specifically mentioned in the Code. Analyzing a contract of insurance is not part of transacting insurance.
An agent may continue operating under an expired license for a period of 60 days provided that the agent has
Filed an application for renewal and paid the renewal fee on or before the expiration date.
The insurance solicitor is only found in which field of insurance?
Fire and Casualty
In which distribution system must the potential client take the initiative and respond to an advertisement through a telephone or mail contact with the insurer?
Direct response system
In order to be paid for his or her services, a Life and Disability Insurance Analyst must do which of the following?
Disclose the fee in writing to, and have it approved by, the client in advance
When twin brothers applied for life insurance from Company A, the company found that while neither of them smoked and both had a very similar lifestyle, one of the twins was in a much stronger financial position than the other. Because of this, the company charged him a higher rate for his insurance. This practice is considered
Discrimination.
Which of the following insurance providers must be nonprofit and sell insurance only to its members?
Fraternal To be characterized as a fraternal benefit society, the organization must be nonprofit, have a lodge system that includes ritualistic work and maintain a representative form of government with elected officers. Insurance may only be sold to members of the society.
"Discontinuance" is a term used to describe the termination of what type of insurance?
Group.
Under California law, an insurance solicitor is a natural person employed to aid a(n):
Insurance agent or broker.
What happens to a corporation's license if the corporation is dissolved?
It terminates.
When a replacement carrier has a question regarding the prior carrier's coverage, from which of the following can they demand a clarification?
The prior carrier Section 10128.3(d) of the CIC requires the prior carrier to provide the clarification.
On all printed documents placed before the public, what size print should be used for the agent's license number?
The same size print as the agent's address or telephone number
An applicant has submitted an application for a Life agent license in the state of California. Five years ago, the applicant was charged with, but not convicted of, a felony in another state. The California Commissioner could deny the license on the grounds that the applicant
There are no grounds for which license could be denied based on the information provided. According to CIC 1668, actual conviction precludes licensure. In this example, no conviction was made.
When an agent does not hold any active appointments with insurers, what happens to the agent's license?
It becomes inactive.
According to California Insurance Code, all licensees must prominently display their individual license numbers on all of the following EXCEPT
Motor club advertisements. The individual license number is not required to be distributed over phone transaction, only on printed, published items. Motor club advertisements are exempt from this regulation.
The Commissioner has the right and responsibility to investigate all applications for licensure to assure that
Applicants meet all prerequisites for their selected license.
Your client wants to buy a par policy to supplement his retirement savings program. Which of the following does your client need to understand about insurance policy dividends?
Dividends are considered a refund of unused premiums.
Which of the following entities is not an insurer but an organization formed to provide insurance benefits for members of an affiliated lodge or religious organization?
Fraternal benefit society Fraternal insurers operate on the basis of a lodge or charitable organization, but they may also sell formal insurance plans for the benefit of their members. Reciprocal insurers are also associations that provide insurance for their members, but they are formed only for the purpose of providing insurance.
What will happen if an agent submits an application to an insurance company to which he is not appointed?
If the insurer accepts the policy, it must appoint the agent. If an insurance company approves an application submitted by a nonappointed agent, the company must appoint the agent within 14 days. In doing so, the insurer accepts responsibility for all the actions of the agent as they pertain to that policy as if the agent had been properly appointed for the insurer.
An insurer devises an intimidation strategy in order to corner a large portion of the insurance market. Which of the following best describes this practice?
Illegal
In 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. Availability of insurance benefits or coverage may not be denied based on sex or marital status. Marital status may be considered for the purpose of defining persons eligible for dependent benefits.
After an insurance contract has been delivered to an insured who is under 60 years of age, if any changes to the coverage are being made, a notice of the changes
Must be in writing, signed by an officer of the insurer, and may be mailed to the insured's last known address.
Who might receive dividends from a mutual insurer?
Policyholders
Giving a client an inducement to a sale not stated in the policy is an unlawful practice known as
Rebating.
An agent decides that he no longer wishes to be licensed in this state. What should the agent do with his license?
Return it to the Commissioner
An insurance agent is planning to give out his business cards to prospective clients to solicit some insurance business. On the business card, the agent's name appears in font size 16, the phone number is in font size 14, and the business address is in font size 10. What font size should be used for the agent's license number?
10 To assure that the number is not minimized and perhaps missed by a prospective insurance purchaser, the license number must be printed at least as large as the smallest address or telephone number on the same document.
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. The company is guilty of
Misrepresentation.
An applicant for insurance is requesting more information from her agent about a claim that is currently being settled. Within what time period must the agent respond?
15 days Upon receiving any communication from a claimant (regarding a claim) that reasonably suggests that a response is expected, every licensee must furnish the claimant with a complete response within 15 days.
Arnie worked for Evermore Life Insurance for many years and became their top-selling agent. However, while Arnie was out of the country enjoying his earnings, he forgot to send in his renewal for his life license and his license expired. In addition to Arnie's license expiring, what else will happen to Arnie?
His appointment will expire.
According to California Insurance Code, the term "shall" describes what kind of actions?
Mandatory
Any person who knowingly and willfully obtains information about an individual from an insurance company, agent or organization supporting insurance under false pretenses shall be fined
Not more than $10,000, imprisonment not to exceed one year or both.
The maximum penalty for failure to print an individual agent's license number on printed documents is
$1,000 The penalty for failure to print an individual agent's license number on documents is $200 for the first offense, $500 for second offense, and $1,000 for the third or subsequent offenses. The maximum fine for any one offense is $1,000. (CIC 1725.5)
A natural person that is employed to aid an insurance agent or insurance broker in the transacting of insurance business other than life insurance transactions is called
An insurance solicitor.
Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?
Apparent
The set of regulations issued by the California Insurance Commissioner that identifies the standards for the insurance code and how it is to be administered is
California Administrative Code of Regulations.
A banker is ready to close on a customer's loan. The bank is prepared to offer the loan but only if the customer purchases a life insurance policy from the bank in the amount of the loan. This is an example of
Coercion.
A producer who fails to segregate premium monies from his own personal funds is guilty of
Commingling.
When can an insurer insert information into an application without first obtaining the consent of the applicant?
For administrative purposes only, as long as it is clear that the insurer made the note Insurers may make notes on the application, strictly for administrative purposes. The insurer must also indicate that the remark was not made by the insured. Any other modifications to the application could result in criminal litigation.
An agent with an active license CANNOT act as a broker unless
He does not have an appointment with the company that he is brokering.
Which of the following is NOT a license in the state of California?
Life Broker
A licensed insurance agent overhears a conversation that leads him to believe a person is committing fraud. If the agent makes a written report to a law enforcement agency and the person is investigated, but it turns out that it was an erroneous accusation, what charge will the agent face?
No charges; the Insurance Code gives the agent legal immunity. Because every agent has a responsibility to combat fraud, the state grants immunity from lawsuits for an agent's "good faith" report of suspected fraud. (CIC 1877.5)
The term "administrator" under California Insurance Codes refers to any person who
Collects any charge or premium from, or who adjusts or settles claims on, life and health insurance policies or annuities.
The insured provides a proof of claim to the
Insurer An insured can submit a proof of claim to the insurer after a loss has occurred. This helps to notify the insurer of the loss and provide information on how large or severe the loss was.
Which operating division of an insurer is responsible for advertising, promoting, and distributing the insurer's products to the public?
Marketing and Sales
Insolvency
Means any impairment of minimum "paid-in capital" required of an insurer by the provisions of the Insurance Code for the class, or classes, of insurance that it transacts anywhere; or an inability of the insurer to meet its financial obligations when they are due.
An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?
Mutual
When can a life-only agent transact disability insurance on behalf of an authorized insurer?
Upon obtaining a signed by the insurer notice of appointment. A person licensed as a fire and casualty broker-agent or a life-only agent may transact disability insurance on behalf of any insurer which is authorized to transact disability insurance if he/she has filed a notice of appointment for the purpose of transacting disability insurance.
If a licensee would like to terminate his license and has it in his possession, what would he have to do?
Send the license to the Commissioner for termination. Licensees can terminate their licenses at any time, either by sending the license to the Commissioner or, if the license is in their employer's possession, by sending a written request to the Commissioner.
Which of the following types of agent authority is also called "perceived authority"?
Apparent Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.
Which of the following must an insurer obtain in order to transact insurance within a given state?
Certificate of authority
An insurer may discriminate against a person through underwriting if that person has
A physical handicap that could result in an actuarially predictable loss.
An insurance agent explains to his client the difference between two disability income insurance policies and then offers to fill out an application with the client's personal information and history. Upon completion of the application, the agent informs his client that he will "shop around" to find the company with the most favorable rates. If the agent presents the client's application to an insurer, he will be acting in which of the following capacities?
An insurance broker By definition, a broker represents the client's interest in a contract of insurance. A broker may not be, at the same time, appointed as an agent with the same company.
A deceptive act or practice committed by a person with the intent to secure an unfair advantage or unlawful gain is known as
Fraud
In the state of California, who selects the Insurance Commissioner and for how long?
General election, for no more than two four-year terms.
In insurance transactions, fiduciary responsibility means
An agent's fiduciary responsibility includes handling insurer funds in a trust capacity.
An exclusive agent
Has a contract with one company. The exclusive agent, also known as the captive or career agent, chooses to have a contract with one company.
No person can act as an administrator in this state unless he or she
Holds a certificate of registration issued by the Commissioner.
According to the California Insurance Code, every applicant must notify the Commissioner in writing of any change of address
Immediately.
During a sales presentation a producer intentionally makes a statement which may mislead the insurance applicant. This describes
Misrepresentation.
The Claims Department would be responsible for investigating which of the following?
Possible fraudulent claims by an insured The Claims Department may employ or contract with adjusters or other investigators to assist in the evaluation of claims or to seek evidence of false or fraudulent claims.
An insurance agent, who has been in a sales slump for the last 6 months, has decided that she will offer complimentary health insurance for the first year on every life insurance policy she sells for the next 12 months. This practice is an example of
A violation of the Code. No policy for which there is not a separate charge can be used as an inducement to purchase or rent real or personal property (CIC 777.1).
Applicants for insurance who are blind may be rated substandard for life insurance
Only on the basis of information unrelated to their blindness. Blindness from any cause may not be used as the basis to refuse to insure, refuse to continue to insure, or limit the amount of coverage available, or use as the basis for a different rate. (CIC 10145)
What are the consequences of a failure to comply with the Commissioner's office while it is executing a seizure order?
Failure to comply with a seizure order is a misdemeanor crime punishable by a fine of $1,000, one-year imprisonment, or both. (CIC 1013)
Twisting
A form of misrepresentation in which an agent persuades an insured/owner to cancel, lapse, or switch policies, even when it's to the insured's disadvantage.
Which of the following entities or individuals evaluates requests for payment by insureds after a loss has occurred?
Claims department
What is the main difference between a life agent and a life analyst?
The way each is compensated A primary difference between a life agent and a life analyst is how each receives payment: a life analyst is not paid a commission by a life insurer either directly or indirectly for any insurance transacted by an analyst. An agent, on the other hand, acts on behalf of an insurer and received commission for insurance transactions.
An insurance agent collected policy premiums from his clients and before remitting the funds to the insurer, borrowed some for personal use. This act would be legally considered
Theft Agents act in a fiduciary capacity. If a licensee uses customers' funds for his or her own personal needs, the law sees such an act as a theft.
Which type of misrepresentation persuades an insured, to his or her detriment, to cancel, lapse, or switch policies from one to another?
Twisting
Any person who transacts insurance without a license
May be guilty of a misdemeanor. No person may transact insurance without a license, unless otherwise exempted by the Code. (CIC 1631 and CIC 1633)
Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as
Coercion.
Any person willfully engaging in an unfair method of competition may be liable for a fine of up to
$10,000 The civil penalties which may be assessed for violations of unfair trade practices are $5,000 for each act in violation of the Code, whether intentional or not. However, if the act or practice is determined to be a willful violation - in other words, a general business practice - the penalty increases to a maximum of $10,000 per violation.
An insurance company assures its new policyholders that their premium costs will not increase for a period of at least five years. However, due to increasing financial strain, they plan to raise premium costs for all insureds by 10% over the next two years. What term best describes this act?
Fraud According to Title 18, Sections 1033 & 1034 of the US Code, any oral or written statements by any person engaged in the business of insurance that are false or any omissions of material fact are considered unlawful insurance fraud. This includes statements made on an application for insurance, renewal of a policy, claims for payment or benefits, premiums paid, and financial condition of an insurer.
The Commissioner MAY deny an application for license for any applicant who
Has been convicted of a felony. Is not qualified to accomplish the duties to be performed. Does not have a good business reputation.
Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?
Implied
After a cease and desist order is final, if the Commissioner finds that the person has continued to willfully violate the insurance code, what penalty may be applicable in addition to initial penalties?
Maximum $55,000 If the Commissioner has reason to believe that a person has violated a cease and desist order after the order has become final, the Commissioner may, after a hearing at which it is determined that the violation was committed, order that person to pay a sum not to exceed $5,000 which may be recovered in a civil action. If the violation is found to be willful, the amount of the penalty may be a sum not to exceed $55,000.
An insured who signs a fraudulent claim form may be guilty of
Perjury.
The continuing education requirement for the California Partnership for Long-Term Care policies
Is part of an agent's regular continuing education requirements.
Applications for insurance may contain information about a person's race, religion, ancestry, or color
Never It is prohibited by law for any application for insurance to identify race, color, religion, national origin, or ancestry as a basis for underwriting insurance risks. (CIC 10141)
A person applying for an insurance license in California was previously found guilty in a trial in which he entered a plea of "nolo contedere." What does "nolo contendere" mean?
No contest In California, even if a person pleads no contest, or "nolo contedere," to charges, if the person is found guilty, they will be considered convicted.
An agent is a legal person who acts on behalf of
the principal (insurer)
Anyone convicted of committing an insurance fraud may be fined up to the greater amount of double the value of the fraud or
$150,000. The Insurance Code sets the maximum penalty at $150,000 or double the amount of the fraud, whichever is greater.
The Commissioner has the authority to issue a cease and desist order against any person acting as an insurance agent or broker without being licensed. The Commissioner may also impose a penalty for each day the order is violated in what amount?
$5,000
Without obtaining dual licensing, life-only agents may transact all of the following types of insurance EXCEPT
24-hour care coverage.
An insurance company and its agents must notify all applicants and policyholders of information-gathering processes utilized for written application transactions
At the time of delivery of the policy when personal information is only collected from the applicant, an insured under the policy, or public records. & At the time of application for the policy when information is collected from sources other than the applicant, persons under the policy, or public records.
In order for the California Insurance Code to be changed in any way, what is required?
A bill must be approved by both houses of the California legislature. Once approved by both houses, the bill goes to the Governor for approval or veto, or it may also become law without action, positive or negative, by the Governor.
Which of the following is a TRUE statement concerning an insurer's Earned Surplus?
Earned Surplus are unassigned funds that are required to be reported on the insurer's annual statement. Stock Insurance Company's dividends are paid from its Earned Surplus - unassigned funds that are required to be reported on the insurer's annual statement. It can only be returned to the policyholder once it has been realized/earned and is not needed for expenses, reserves, liabilities, etc.
Which of the following terms is defined by the California Insurance Code as unassigned funds that must be reported on a stock insurer's annual statement?
Earned surplus
An insurance policy that protects an insurance agent from financial losses that might be incurred if an insured files a lawsuit as a result of that agent either giving incorrect advice or not informing the client of important information is called
Errors & Omissions Coverage. An Errors & Omissions policy covers an agent against incorrect advice ("errors") and noncommunicated advice ("omissions") as well.
Which of the following are the authorities that an agent can hold?
Express and implied
All insurers doing business in California must maintain a department to investigate possible
Fraudulent claims by insureds. Every agent licensed by the state of California has a responsibility to help combat insurance fraud, and every insurer must have a fraud prevention unit. (CIC 1874.4 and CIC 1875.20)
Al tells a client that she is guaranteed to be approved for LTC insurance if she pays the full year's premium at the time of application. The client applies for LTC insurance and writes a check for the annual premium to Al's agency. Al issues a Binder of Insurance but does not send the application to the insurer, and intentionally uses the premium for personal expenses instead. Al is guilty of
Fraud When an agent intends to secure an unlawful gain at the expense of a client, he has committed fraud. Additionally, special regulations apply to LTC insurance transactions. (CIC 790 and CIC 10234.8)
An insurer received a claim on May 1st. On May 31th, the claim was approved in its entirety. By what date can the claimant expect the payment?
June 30th Upon acceptance of the claim, insurers are required to provide payment within 30 days.
An example of "adverse underwriting decisions" in a policy involving individually underwritten coverage would be
Placing coverage with a residual marketing mechanism such as an unauthorized insurer that offers other than preferred and standard rates. Coverage that is placed with an other-than-standard insurer constitutes an adverse underwriting decision. (CIC 791.02)
The Commissioner may suspend an applicant's license without a hearing if the applicant has had another professional license suspended or revoked within what time period?
5 years
What is the major difference between a stock company and a mutual company?
Ownership Mutual companies are owned by policyholders, while stock companies are owned by stockholders.