Basics of Common Insurance Law

As an insurance producer, you represent: A. Insurers B. Insureds C. The public D. The State

A. Insurers -Producers represent insurers. Producers do not represent insureds or their agency

Producers must notify the Director of a change of address within: A. 10 days B. 20 days C. 30 days D. 60 days

C. 30 days -The general rule requires that all producers, whether individually licensed or agency (entity) licensed, notify the Director (Commissioner) of a change of address within 30 days

The Commissioner may examine (audit) an authorized insurer: A. Every 3 years B. Every 5 years C. Every 7 years D. Whenever necessary

D. Whenever necessary -Make sure to carefully read the question! The Insurance Commissioner may examine insurers at any time, whenever necessary

All are true regarding company producer appointments EXCEPT: A. The producer must be appointed at the time business is placed with an insurer B. A producer may only hold an appointment with one insurer C. Companies may appoint either individual producers or agencies D. A producer must hold at least 1 appointment

B. A producer may only hold an appointment with one insurer -A producer may hold just one appointment and be known as a 'captive agent' or can represent multiple insurers, therefore holding multiple appointments. A producer must hold at minimum one appointment, but may hold as many as he or she would like

Which of the following is correct regarding a producer's license? A. A producer's license is good for one year and then must be renewed B. A producer's license is perpetual, subject to payment of renewal fees and continuing education C. A producer's license is good for 3 years and then must be renewed D. A producer's license is good for 4 years and then must be renewed

B. A producer's license is perpetual, subject to payment of renewal fees and continuing education

You need an insurance license to sell all EXCEPT: A. Credit life B. Universal life C. Prepaid legal D. AD&D

C. Prepaid legal -Selling prepaid legal does not require an insurance license

Which of the following is not considered an unfair method of competition? A. Coercion B. Commingling C. Rebating D. Defamation

B. Commingling -is not considered an unfair method of competition; it is a breach of fiduciary duty. A producer who violates his fiduciary responsibility to his client or the insurer (mishandles premium or refund checks) is guilty of commingling

In authorizing an insurer to transact business in a state, the Commissioner/Director is: A. Approving that company B. Setting rates of that company's products C. Allowing that company to legally do business in this state D. Designing products for that company to sell this state

C. Allowing that company to legally do business in this state -The Insurance Commissioner issues Certificates of Authority to insurers allowing them to legally do business in a specific state. The Insurance Commissioner does not set rates, approve companies or design products for an insurer

The main duty of the Insurance Director/Commissioner is to: A. Set rates B. Pass statutes C. Enforce insurance laws D. Protect producers and insurers

C. Enforce insurance laws -The main duty of the Director/Commissioner is to enforce state insurance rules and regulations for the protection of the public. Insurers set their own rate levels and it is the state legislature who passes insurance statutes, or laws

Which of the following is not one of the duties of the Commissioner? A. Enforcing provisions of the insurance code B. Examining and licensing individual producers and agencies C. Making rates D. Holding hearings and issuing administrative "orders"

C. Making rates -Insurers make their own rates. The Commissioner simply considers if rates are excessive, inadequate or unfairly discriminatory

You must be licensed to sell all of the following EXCEPT: A. Whole life B. Variable life C. Travel accident D. An annuity

C. Travel accident -Selling travel accident does not require an insurance license

Which of the following persons would be required to hold a producer's license? A. A clerical staff person who does not solicit insurance or receive commissions B. The manager of the insurer's training department C. An underwriter responsible for risk classification D. A company employee who sells on commission

D. A company employee who sells on commission -Any person who solicits insurance or receives a commission for selling insurance must be licensed as a producer

No insurer shall transact insurance in this state without a: A. Producer's license B. Surplus lines license C. Agency license D. Certificate of Authority

D. Certificate of Authority -is a license issued by the Insurance Commissioner to insurers who meet the requirements to do business in a state

Clark's credit union refused his application for an auto loan unless he agreed to purchase credit life insurance from them. This is an example of: A. Defamation B. Unfair discrimination C. Misrepresentation D. Coercion

D. Coercion -is using any business practice that results in unreasonable limit of trade. In this example, the credit union is allowed to require Clark to purchase credit life insurance as a condition to the auto loan, this is perfectly legal. What made it coercion is the fact that they required him to purchase the credit life from them specifically (restraint of trade), and would use his failure to purchase from them as a reason to refuse his application

The producer cannot ask about which of these on the application? A. Sexual orientation B. Age C. Gender D. Address

A. Sexual orientation -It would be considered unfair discrimination to ask an applicant for their sexual orientation, as well as using sexual orientation as a rating factor to determine insurability

A license for an insurance company is called which of the following? A. A resident producer license B. A certificate of authority C. A limited lines license D. A letter of clearance

B. A certificate of authority

A person appointed by an insurer to solicit or sell insurance on their behalf in this state is known as a(n): A. Broker B. Agent C. Adjuster D. Solicitor

B. Agent -s must be 'appointed' by each insurer that they represent. An agent represents the company, not the customer. An agent must have at least one appointment

Which of the following would not be considered an unfair clams settlement practice? A. Failure to respond promptly to claims communications B. Offering a claimant a much lower settlement than they are later able to win in court C. Refusing to pay a claim after conducting a proper investigation D. Requiring a claimant to submit to arbitration

C. Refusing to pay a claim after conducting a proper investigation -Denying a claim after conducting a proper investigation is perfectly legal, but without the proper investigation the denial would be considered " unfair claims settlement practice"

All of the following are true about the insurance continuing education (CE) requirements in this state EXCEPT: A. Producers must complete at least 24 hours prior to license renewal B. Producers must keep their records of course completion for 3 years C. CE providers must report hours to the Director D. Excess hours may never be carried over

D. Excess hours may never be carried over -Before license renewal, many states require producers to complete CE. The most common CE requirement is 24 hours of CE course study, of which 2 to 3 (depending upon the state) must be in ethics. The approved CE provider reports the completed hours to the state. Producers must also keep copies of their CE course completion certificates for the time period required by law. Some states allow for excess hours earned to carry forward, some don't

A producer's false statement on an application regarding insurance is: A. Misrepresentation B. Twisting C. Defamation D. Coercion

A. Misrepresentation -A producer's false statement on an application regarding insurance would be considered a misrepresentation and would be grounds for license suspension or even revocation

Which of the following would be considered rebating? A. Offering a valuable consideration, other that that which is offered in the contract, as an inducement to purchase a policy B. Across the board reductions in premiums by class of individuals C. Readjustments in group rates based upon loss or expense experience D. Offering a child restraint system to policyholders

A. Offering a valuable consideration, other than that which is offered in the contract, as an inducement to purchase a policy -Rebating is the offering of a valuable consideration, other than that which is offered in the contract, as an inducement to buy

Which of the following is producer's fiduciary duty? A. Selling insurance B. Making a commission C. Handling premiums D. Signing an application

C. Handling premiums -A fiduciary is someone whom the client has placed financial trust in. Producers have the fiduciary duty to handle clients' premiums and insurer's unearned refunds in a trusted manner. This money must not mingle with producers' personal funds, but instead be kept in a fiduciary capacity. Producers who own their own insurance agencies must maintain a separate trust account for the depositing of client premiums

The Director may deny, suspend or revoke a producer's license for all of the following reasons EXCEPT: A. Having been convicted of a felony B. Failing to comply with an order imposing a child support obligation C. Placing customer or insurer funds in a Premium Fund Trust Account D. Committing an unfair trade practice

C. Placing customer or insurer funds in a Premium Fund Trust Account -Any time a producer holds customer or insurer funds in excess of the time allowed by state law, they are required to deposit the funds in a Premium Fund Trust Account

All of the following are true regarding the guarantee of future dividends EXCEPT: A. The minimum monetary fine is $200 B. It is considered to be a form of misrepresentation C. The maximum monetary fine is $10,000 D. It is considered to be rebating

D. It is considered to be rebating -Making a guarantee of future dividends is considered to be a form of misrepresentation, not rebating. Rebating involves offering an inducement to the sale that is not stated in the policy, usually the return of premiums paid or commissions

Of $10,000 in premiums producer Smith wrote over the past year, $3,000 came from sales to a business which employs Smith's spouse. This is: A. Coercion B. Rebating C. A violation of the "controlled business" regulations D. Perfectly legal

D. Perfectly legal -Coercion is known as an unreasonable restraint of trade. Rebating is giving a future insured anything of value is an inducement to purchase. Controlled business is selling policies to the producer's spouse, family members, employees or business partners. Controlled business is allowed as long as the policies sold to control persons do not exceed the percentage allowed in the state. The percentage allowed varies by state

To obtain a producer's license, an applicant must be at least age: A. 18 B. 20 C. 21 D. 25

A. 18

Falsifying an application for insurance is: A. Misrepresentation B. Defamation C. Rebating D. Coercion

A. Misrepresentation -is defined as the use of written or oral statements of the insured or insurer misrepresenting the risk, terms, coverages or benefits of any policy

You represent a large insurer who does business in all 50 states. All of the following are true EXCEPT: A. You must obtain a producer's license in all 50 states B. The insurer must obtain a Certificate of Authority in all 50 states C. You must obtain a producer's license only in the states you sell in D. If the insurer's home office is in Illinois, the insurer would be considered a "foreign" insurer in Colorado

A. You must obtain a producer's license in all 50 states -Just because the insurer you represent is licensed in all 50 states, doesn't mean you need to be licensed in all the same states. Producers only need a license in the sate they reside in and any state they conduct insurance business in

Making false or malicious statements about an insurer or producer is what type of unfair trade practice: A. Deceptive advertising B. Defamation C. Intimidation D. Coercion

B. Defamation -means making any oral or written statement which is false, or maliciously critical, or derogatory to the financial condition of any person or insurer, and which is calculated to injure such person or insurer

Circulating deceptive sales material to the public is what type of Unfair Trade Practice? A. Misrepresentation B. Misleading advertising C. Defamation D. Coercion

B. Misleading advertising -This is considered to be false, deceptive or misleading advertising. Misrepresentation, for example, would be making a misleading statement concerning past or future dividends to be paid. Dividends may never be guaranteed

Rebating is considered to be a: A. Class 'A' Misdemeanor B. Class '4' Felony C. Class 'B' Misdemeanor D. Class '3' Felony

C. Class 'B' Misdemeanor -In most states, rebating is considered a Class 'B' misdemeanor

All of the following are considered to be misuses of fiduciary funds EXCEPT: A. Remitting a return premium to an insured 7 months after the producer received it from the insurer B. Reflecting a premium received as a business asset on the producer's financial statement C. Collecting interest on customer balances held in a producer's trust account D. Using balances in customer accounts as collateral for a loan to a producer

C. Collecting interest on customer balances held in a producer's trust account -Producers who act in agency capacity are required to maintain a separate trust account for premiums. Any interest earned in a trust account belongs to the producer. Trust accounts may not be used as a personal asset or as collateral for a loan to a producer; operating expenses may not be paid out of the trust account. Producers must remit a return premium to an insured within a certain period of time (as specified by state law) after the producer received it from the insurer

Forcing a client to buy insurance from a particular producer as a condition to a loan is defined as: A. False advertising B. Misrepresentation C. Controlled business D. Coercion

C. Controlled business -Requiring a person to buy insurance as a condition to a loan is a common practice, and by itself not illegal. What would make this requirement coercion is the condition that the insurance must be purchased from a specific producer or insurer. Coercion is considered an illegal act of unfair competition

Which of the following would likely be the first penalty for acting as an "unauthorized entity"? A. Jail time B. License suspension C. Fines D. License revocation

C. Fines -An unauthorized entity is an entity that should be licensed, but is not. License suspension or revocation would not be the right answer, since that is what is creating this illegal act-- lack of license

Under Unfair Claims Practices regulations, all would be considered violations EXCEPT: A. Failing to settle when liability is clear B. Offering claimants lower settlements than they could win in court C. Requiring claimants to submit proof of loss D. Attempting to base settlements on altered applications

C. Requiring claimants to submit proof of loss -is perfectly legal. Insurers need a proof that a loss actually occurred before a claim is considered valid

If a producer or insurer is found to have violated an insurance law, the Commissioner may do all of the following EXCEPT: A. Notify the district attorney B. Impose a monetary fine C. Revoke the violator's license D. Impose time in jail

D. Impose time in jail -An Insurance Commissioner does not have the power to sentence anyone to jail time

Which of the following inducements to the sale of insurance is permitted? A. An offer of employment B. A return of premium or commission C. Any advantage in age or effective date of coverage D. The payment of a bonus out of surplus to the policyholders of a non-participating policy

D. The payment of a bonus out of surplus to the policyholders of a non-participating policy -Rebating is defined as the giving of something of value in order to induce the client to purchase an insurance policy, usually part of the premium paid or the commission received. However, it is not considered to be rebating when an insurer readjusts premium rates based on claims or expense experience or pays an insured who has a non-participating policy a bonus out of surplus

You need a license to sell all of the following types of policies EXCEPT: A. Pre-paid legal B. Endowment C. Pre-paid funeral D. Group life

A. Pre-paid legal -Selling pre-paid legal or travel accident does not require a producer's license

Which of the following is true regarding an unauthorized insurer? A. An unauthorized insurer will be held liable for all policies sold in this state B. An unauthorized insurer will not be held liable for any policies sold in this state C. Unauthorized insurance is perfectly legal D. Persons selling insurance for an unauthorized insurer have no legal liability

A. An unauthorized insurer will be held liable for all policies sold in this state -because they are insurers that should be licensed

Refusing to make a loan unless the customer also buys insurance from the lender is an unfair trade practice known as: A. Coercion B. Rebating C. Defamation D. Controlled business

A. Coercion -is known as an unreasonable restraint of trade. For example, refusing to make a loan unless the customer also buys insurance from the lender. It's the "from the lender" that makes it coercion

Unfair claims practices will be assumed to be intentional if: A. They occur with such frequency as to indicate a general business practice B. They are reported to the Commissioner C. The insurer has been reported for a similar practice in other states D. The insured has to file a lawsuit in order to collect

A. They occur with such frequency as to indicate a general business practice -Unfair claims practices, such as the denial of a claim without conducting a reasonable investigation, are only considered to be unfair if they occur with such frequency as to indicate a general business practice

Insurance Continuing Education law most commonly requires: A. 24 credit hours every 2 years for each license held B. New licensees to obtain 24 hours prior to their first renewal date C. 24 credit hours every 2 years regardless of the number of licenses held D. Exemptions for those holding professional designations (CLU or CPCU)

C. 24 credit hours every 2 years regardless of the number of licenses held -The most common continuing education insurance law requires a producer to complete 24 hours of continuing education every 2 years. The requirement is 'per person', not 'per license'. Producers with multiple authorities (licenses) are still only required to complete 24 hours every 2 years total. CE requirements are set state by state

A foreign insurer doing business in this state must have which of the following? A. A letter of clearance B. A reciprocal agreement C. A license in their home state D. A license in this state

D. A license in this state -A foreign insurer means an insurer with home office in another state, that has obtained a license (Certificate of Authority) from this state's Insurance Commissioner. A foreign insurer has at least two licenses- one in this state and one in their home state, plus licenses in any other states they want to conduct business in

All of the following entities fall under the Insurance Commissioner's jurisdiction EXCEPT: A. Domestic insurers B. Premium finance companies C. Alien insurers D. Auto loan companies

D. Auto loan companies -do not fall under the Insurance Commissioner's jurisdiction

To renew your producer's license, you must: A. Pay your fees and do 24 hours of CE annually B. Pay your fees and do 24 hours of CE every 3 years C. Pay your fees every 4 years D. Pay your fees and complete the required CE hours

D. Pay your fees and complete the required CE hours -Most commonly producer's licenses must be renewed every 2 years by paying a renewal fee and complying with the state's continuing education requirement

All of the following are true regarding warranties and representations EXCEPT: A. Warranties are guaranteed to be true B. Representations are the truth to the best of your knowledge C. Insurers require insureds to make warranties on a life and health application D. Insurers require insureds to make representations on a life and health application

C. Insurers require insureds to make warranties on a life and health application -Life and health insurers require insureds to make representations on the application, not warranties. A warranty is a guarantee of truth. No one can guarantee his or her health

An insurance producer using an assumed name is required to file the name with the Insurance Commissioner when? A. Within 5 days of use B. Within 30 days of use C. Prior to use D. Within 15 days of use

C. Prior to use -The Insurance Commissioner requires that filing of an assumed name to be used by a producer prior to use

Which of the following statements concerning clerical and administration personnel who do not solicit or get commission is true? A. Need not be licensed B. Must be licensed C. Only need to be licensed after they have been employed as a CSR for over 6 months D. Must be licensed within 1 year of hire date

A. Need not be licensed -Clerical and administration personnel who not solicit insurance or get commission do not need to be licensed as insurance producers

The purpose of insurance regulations is to: A. Protect the insurance buying public B. Protect the insurance companies C. Protect insurance producers D. Achieve uniformity with the regulations of other states

A. Protect the insurance buying public

Which type of government is primarily concerned with regulating insurance? A. State B. Federal C. County D. City

A. State -Insurance is regulated on a state level

The type of government primarily concerned with the regulation of insurance and insurance companies is: A. State government B. Federal government C. County government D. City government

A. State government -The states regulate insurance. the federal government only gets involved if the states fail to do so

All of the following are true regarding claims EXCEPT: A. The insurer may require the insured to submit to a polygraph test B. The insurer may require the insured to submit proof of loss C. The insurer may deny a claim after conducting a reasonable investigation D. The insurer may not require duplicate information to delay processing

A. The insurer may require the insured to submit to a polygraph test -Insurers must affirm or deny liability on a claim within a reasonable time. In most states, insurers may not require that an insured submit to a polygraph test as a condition to claim payment

Unfair claims practices will be assumed to be intentional if: A. They occur with such frequency as to indicate a general business practice B. They are reported to an insurer by the policyholder C. The licensee has been reported for a similar practice during the preceding 3 years D. The licensee fails to promptly submit a required report

A. They occur with such frequency as to indicate a general business practice -The Commissioner keeps track of complaints regarding the handling of claims, and if it appears that the insurer violates the Unfair Claims Practices regulations with frequency, they could be penalized

The definition of 'controlled' business does not include insurance written on: A. A producer B. A producer's parents or children C. A producer's spouse D. A producer's employer

B. A producer's parents or children -State law prohibits a producer from obtaining a license to sell insurance only to 'controlled' persons, such as themselves, their spouse or their employer. However, a producer is not in violation of this law unless the premiums they receive from the sale of controlled business exceeds the premiums they receive from the sale of non-controlled business over a period of time

A producer who procures a license for the principal purpose of obtaining insurance for herself, her family members or employees is violating the regulations concerning: A. Exclusive business B. Controlled business C. Discriminatory business D. Coerced business

B. Controlled business -Writing controlled business is illegal only if the total amount of premiums written on controlled business during any 12 month period exceeds the amount allowed under state law

An agent who procures a license for the principal purpose of obtaining insurance for themselves, for family members or employees, violates the regulations prohibiting: A. Exclusive business B. Controlled business C. Captive business D. Fraud

B. Controlled business -is insurance you write on yourself, your family or your employees. You can write some controlled business, but you cannot get a license to principally do so

Making false or malicious statements about persons engaged in the business of insurance that are designed to injure their reputation is an unlawful practice known as: A. Misrepresentation B. Defamation C. Coercion D. Boycotting

B. Defamation -is defined as making statements which are false or malicious with the intent to injure an insurer's business reputation

Making false or malicious statements about the financial conditions of an insurer or agent is what type of Unfair Trace Practice? A. Deceptive advertising B. Defamation C. Intimidation D. Coercion

B. Defamation -is making oral or written statements which are false or maliciously critical of or derogatory to the financial condition of an insurer which are intended to injure any person engaged in the business of insurance

To which of the following could a producer pay part of her commission without violating any insurance regulations? A. A relative who bought insurance from her B. An employee who bought insurance from her C. A partnership of which the producer is a member D. Any client who buys insurance from her

C. A partnership of which the producer is a member -Producers are allowed to share their commission with a partnership of which they are a member. Most states consider it to be illegal to share commission with an unlicensed individual

All of the following are correct regarding misrepresentation EXCEPT: A. Misrepresentation includes the guarantee of future dividends B. Misleading advertising is considered misrepresentation C. Fines for misrepresentation vary depending upon the state D. Misstating the terms of a policy or benefits to be paid is misrepresentation

C. Fines for misrepresentation vary depending upon the state -Misrepresentation is considered to be an unfair trade practice, including making misleading statements, illustrations or advertisements and/or the guarantee of future dividends. The fines for those found guilty of misrepresentation vary from state to state. Additionally, a person may be subject to license suspension or revocation

Which of the following correctly defines an 'alien' insurer doing business in State B? A. One formed under the laws of another country B. One formed under the laws of another state C. One formed under the laws of the State B D. One formed under the laws of another country, but holding a Certificate of Authority in State B

D. One formed under the laws of another country, but holding a Certificate of Authority in State B -An alien insurer is a company based in another country that has obtained a Certificate of Authority admitting it to do business in State B

Under Unfair Claims Practices regulations, when denying a claim an insurer must do all of the following EXCEPT: A. Indicate to the claimant which section of the policy they are relying upon B. Respond promptly to claims communications C. Conduct a reasonable investigation D. Pay a claim that occurs after the grace period has ended

D. Pay a claim that occurs after the grace period has ended -A claim that occurs during a grace period of a policy is covered, the insurer will simply deduct premium owed from the claim and pay the rest up to a limit, if one is indicated on the policy. Once the grace period ends, a policy expires and no further claims are valid

All of the following are considered misrepresentation, EXCEPT: A. Misstating policy provisions B. False advertisements C. Projecting a dividend on a non-participating policy D. Projecting a dividend on a participating policy

D. Projecting a dividend on a participating policy -You cannot project future dividends on non-participating policies, since only participating policies issued by mutual insurers may pay future dividends to policy owners. Remember, you are not allowed to quote future dividends. Dividends are never guaranteed

Giving a customer an inducement to the sale that is not stated in the policy is an unlawful practice known as: A. Twisting B. Inducing C. Bribery D. Rebating

D. Rebating -is defined as the giving of something of value in order to induce the client to purchase an insurance policy, usually part of the premium paid or the commission received. However, it is not considered to be rebating when an insurer readjusts premium rates based on claims or expense experience or pays an insured who has a non-participating policy a bonus out of surplus

Which of the following is not considered controlled business? A. Selling insurance to your own family B. Selling insurance to your own company C. Selling insurance to your employees D. Selling insurance to your friends and neighbors

D. Selling insurance to your friends and neighbors -Controlled business includes insurance sold to yourself, your spouse, family member, your business, your employees and your business partners. Insurance sold to friends and neighbors would not be considered controlled business

The minimum age requirement to qualify for a license is: A. 18 B. 19 C. 21 D. There is no minimum age

A. 18

It is not unfair to deny a claim in which of the following situations? A. An excluded claim B. Always C. Without a valid reason D. For misstatement of age or gender

A. An excluded claim -It is perfectly legal to deny an excluded claim, meaning a claim regarding coverage which is excluded on the policy

All of the following may examine (audit) an insurer in this state EXCEPT: A. A legal representative of the insurer's holding company B. The Director of Insurance C. A Deputy Director of Insurance D. A designated representative of the Director

A. A legal representative of the insurer's holding company -The Director/Commissioner has the power to issue subpoenas and to examine (audit) any company or person engaged in the business of insurance. The Director/Commissioner may delegate his authority to conduct audits to his deputies or others within the Department of Insurance, but not to representatives of the company that owns the insurer

The Commissioner does all of the following EXCEPT: A. Grant prior approval of auto insurance rates B. Audit insurers C. Protect the public D. Issue cease and desist orders

A. Grant prior approval of auto insurance rates -The Commissioner does look at auto insurance rates, but prior approval of auto insurance rates is not required

To obtain a producer's license as a nonresident, you must: A. Have a similar license in your home state B. Take the insurance licensing examination of the nonresident state C. Have a part-time residence in the state you want to be a nonresident licensee in D. Have attained the professional designation of either CLU or CPCU

A. Have a similar license in your home state -Only 'like licenses' are issued to nonresident producers wanting to do business in a state. That means a producer of another state with only an L&H resident license cannot be granted a nonresident P&C license in this state without first obtaining a P&C license in her home state

All of the following are true regarding the principle of indemnity EXCEPT: A. Life insurance policies follow this principle B. Property policies follow this principle C. Dread disease policies do not follow this principle D. Health insurance policies follow this principle

A. Life insurance policies follow this principle -The principle of indemnity states that you cannot profit from having insurance, the insurance policy is designed to make you whole again. Life insurance policies do not follow this principle. If an insured has 10 life insurance policies in force at his time of death, all 10 policies will pay in addition to each other, there is no maximum amount of life insurance that will be paid out. Property policies, dread disease policies and health insurance policies all follow the principle of indemnity

An example of defamation, which is an unfair trade practice, is: A. Misstating the financial condition of an insurer or producer B. A producer using a trade name that implies he is an insurer C. Sharing commissions with someone who is not licensed D. Paying part of your commissions back to the client as an inducement

A. Misstating the financial condition of an insurer or producer -Defamation means making any oral or written statement which is false, or maliciously critical, or derogatory to the financial condition of any person or insurer, and which is calculated to injure such person or insurer

All of the following would be prohibited EXCEPT: A. Offering a client a multi-policy discount B. Quoting future dividends C. Making a distinction in premium for auto insurance solely based upon a physical disability D. Making a distinction in premium for life insurance solely based upon blindness

A. Offering a client a multi-policy discount -is perfectly legal. Other common discounts include good driver, multi-policy and good student discounts

Which of the following is NOT considered unfair practice? A. Paying dividends to policyholders out of a surplus accumulated from participating policies B. Requiring any person to buy insurance through a specific insurer as a condition to lending money for the purchase of property C. Using misleading advertising D. Charging a higher premium than the one filed

A. Paying dividends to policyholders out of a surplus accumulated from participating policies -Mutual insurers issue "participating policies", which might pay a dividend as stated in the policy. Dividends may never be guaranteed

Insurers must complete claims investigations: A. Promptly B. Within 15 days C. Within 30 days D. Within 45 days

A. Promptly -Claims investigations must be completed promptly

All of the following are possible requirements for obtaining a producer's license EXCEPT: A. Completion of pre-license training B. Attaining age 21 C. Being competent and trustworthy D. Applying for a license within the time period required by state law, often within 3-12 months of passing the state exam

B. Attaining age 21 -Candidates for an insurance producer's license must be at least 18 years of age

Which of the following statements is correct concerning the Commissioner's authority to revoke a license? A. May do so at any time B. Cannot do so without hearing and order C. The Commissioner doesn't have the power to revoke a license D. Does not have to deem it to be in the public's best interest

B. Cannot do so without hearing and order -The Insurance Commissioner has the power to suspend or revoke a producer's license, but only after a hearing and prompt notification to the licensee

When a lender requires an applicant for a loan to buy insurance from them as a condition to loan approval, it is an unfair trade practice known as: A. Rebating B. Coercion C. Intimidation D. Defamation

B. Coercion -Lenders may require that applicants buy insurance as a condition to a loan, but they cannot require it as a condition to loan approval. Further, customers may buy the required coverage from any authorized insurer or licensed producer, rather than one specified by the lender

A producer who procures a license for principal purpose of obtaining insurance for herself, relatives or employees is violating the regulation prohibiting: A. Exclusive Business B. Controlled Business C. Rebating D. Coercion

B. Controlled Business -Selling "controlled business" is allowed as long as the policies sold to control person do not exceed the amount allowed by state law. The % allowed varies by state

Which of the following is not a violation? A. Depositing client premiums in your personal account B. Paying premiums to insurer from trust account within the time period required by law C. Paying premiums to insurer from trust account within 60 days of receipt D. Commingling funds

B. Paying premiums to insurer from trust account within the time period required by law -Producers have to remit premiums they have collected from clients to the insurer within the time period required by state law

Discrimination based upon physical handicap is: A. Permitted, if based upon verifiable actuarial data B. Prohibited C. Lawful, if based upon individuals of the same class D. Permitted in rating, but not eligibility

B. Prohibited -It is prohibited to discriminate against individuals with physical handicaps or disabilities

Giving a customer a stock option on the insurer's stock as inducement to buy is considered which one of the following unfair trade practices? A. Misrepresentation B. Rebating C. Coercion D. Controlled business

B. Rebating -is giving a future insured anything of value (such as a stock option or return of a part of the commission) to a client as an inducement to purchase. The only time this is allowed is when it's stated in a policy that everyone purchasing this type of a policy will receive the same something of value

Which of the following would constitute unfair discrimination? A. Charging women less than men for life insurance B. Refusing to make available coverage for persons of the same class C. Charging men and women an equal rate for health insurance D. Charging young men more than young ladies for auto insurance

B. Refusing to make available coverage for persons of the same class -would be considered an unfair discrimination. Clients in the same risk classification cannot be charged different rates based on their religion, race or national origin

Which of the following is not one of the duties of the Insurance Commissioner? A. Determining solvency of insurers B. Requiring insurers to maintain adequate staffing levels C. Issuing Certificates of Authority D. Enforcing insurance laws to protect the public

B. Requiring insurers to maintain adequate staffing levels -is not one of the duties of the Insurance Commissioner

Which of the following would be prohibited? A. Using sky-diving as a rating factor B. Selling insurance for an unauthorized company C. Charging married people less than single people for auto insurance D. Selling insurance under an assumed name

B. Selling insurance for an unauthorized company -An unauthorized company is one that should be licensed (Certificate of Authority), but is not. Unauthorized entities are illegal

An insurer with their home office in another state may do business in this state if: A. They register as a domestic company in this state as well B. They obtain a Certificate of Authority in this state C. They are granted an exemption by the Insurance Commissioner D. Only domestic companies may do business in this state

B. They obtain a Certificate of Authority in this state -Insurers with home office in another state may conduct business in this state as long as the Insurance Commissioner grants them a Certificate of Authority. They will then become a foreign insurer (one admitted to do business in this state, but based in another state)

Most commonly, the continuing education requirements entails? A. 24 hours every 2 years, plus 3 additional hours of live ethics B. 24 hours every 2 years, per license held C. 24 hours every 2 years, of which 3 hours must be in ethics D. 48 hours every 2 years, per person

C. 24 hours every 2 years, of which 3 hours must be in ethics -The most common CE requirement is that the producer must accrue 24 hours of continuing education credits every 2 years. Of the 24 hours, 3 hours must be in ethics. The actual states rules vary

Which of the following would be considered to be a rebate? A. Basing group insurance rates on claims experience B. Paying dividends out of surplus as stated in the policy C. Offering to give part of the commission to a customer as an inducement to buy D. Paying another licensed producer for a referral

C. Offering to give part of the commission to a customer as an inducement to buy -Rebating is giving a future insured anything of value (such as stock option or return of a part of the commission) to a client as an inducement to purchase. The only time this is allowed is when it's stated in a policy. That would ensure that everyone purchasing this type of a policy would receive the same something of value

When can a producer keep property or funds of a customer? A. When the client owes them for another account B. Always C. Only if state law allows it D. If necessary

C. Only if state law allows it -Producers are only allowed to keep property or funds of their clients to pay off another debt owed by the client to the insurer when state law allows it. Premiums received from customers must be passed on to the insurer as soon as possible, but are often allowed to be held in a separate trust account for a period of time as allowed under state law

Which is not prohibited under unfair trade practice regulations? A. Misleading or false statements about dividends previously paid out B. False statements about the financial condition of an insurer C. Readjusting group premiums based on loss or expense experience D. Discriminating between individuals of the same class

C. Readjusting group premiums based on loss or expense experience -is not an illegal practice

Which of the following accurately describes the ability of a licensed State C resident producer to become licensed in other states? A. The producer can get a license in all other states B. The producer can only get a license in another state by passing an examination C. The producer can get a non-resident license in all reciprocal states D. The producer can only get a non-resident license in other states where the producer maintains a part-time residence

C. The producer can get a non-resident license in all reciprocal states -A reciprocal agreement between State C and other states allows State C resident producers to obtain a non-resident license in those states without the need of passing a state exam

All are true about 'foreign' insurance companies doing business in State A EXCEPT: A. Their home office is in another state B. They need a Certificate of Authority in their home state C. They do not need a Certificate of Authority in State A D. They are not domiciled in State A

C. They do not need a Certificate of Authority in State A -A foreign insurer is a company based in another state that has obtained a Certificate of Authority admitting it to do business in this state (State A)

Which of the following factors would be allowed in setting premiums for insurance? A. Race B. Gender C. Tobacco usage D. Sexual orientation

C. Tobacco usage -An insurance company can use tobacco use as an underwriting factor

All are true regarding renewing a producer's license EXCEPT: A. Commonly, licenses are due to be renewed at the end of the month of the producer's birthday every 2 years B. Commonly, licensees must inform the Commissioner of a name or address change within 30 days C. In some states, an expired license may be renewed for up to 12 months w/o reexamination D. A producer may continue to sell for up to 12 months on an expired license

D. A producer may continue to sell for up to 12 months on an expired license -It is against the law for a producer to continue doing business using an expired license

Rates may be based upon all of the following factors EXCEPT: A. Health B. Gender C. Hobbies D. Past lawful travel experiences

D. Past lawful travel experiences -It is unfair to surcharge an applicant, fail to renew, or deny coverage to an applicant solely due to their past lawful travel experiences

Which type of insurer may pay dividends to policyholders? A. Stock B. Mutual C. Fraternal D. Reciprocal

B. Mutual -Mutual insurers may provide dividends to policyholders; dividends are never guaranteed. Stock insurers pay dividend to policyholders, thus the policies they sell are called non-participating policies

All could be considered rebates EXCEPT: A. Dividends B. Employment C. Securities D. Commissions

A. Dividends -paid to policyholders of a mutual insurer are not considered to be a rebate because the policy specifies that they might be paid

Which of the following is unlawful? A. Giving the insured a rebate B. Projecting dividends C. Paying a dividend D. Charging young men more than young women for auto insurance

A. Giving the insured a rebate -is an example of an unlawful action known as unfair trade practice or unfair method of competition. Projecting dividends is legal as long as dividends are not guaranteed. It is also legal for mutual insurers to pay dividends to their policyholders. Charging young men more than young women for auto insurance is allowed in most states since it's been justified by actuarial statistics

Which properly describes an authorized insurer? A. One that has been approved B. One that can legally conduct business in the state C. One that is exempt from insurance laws D. One that promises to provide coverage that is better than law requires

B. One that can legally conduct business in the state -An authorized (admitted) insurer is one who can legally do business in this state. This insurer has received a Certificate of Authority from the Insurance Commissioner/Director

Which of the following need to be licensed? A. An insurance company officer B. A third party administrator C. A life and health producer D. Salaried employees of producers

C. A life and health producer -Persons selling life and/or health insurance policies must be properly licensed as producers. Salaried insurance company officers, 3rd party administrators and salaried employees of producers or agencies who are clerical are not required to hold an insurance license