Chapter 5 Quiz
An insurance agent wants for a client to replace her current annuities plan with another one. He presents the new one in an incomplete and dishonest way, which makes the new contract seem far more appealing than the original one. The policyowner ends up surrendering her original contract and replacing it with the new one. Which term best describes what the agent did? A Fraud B Rebating C Twisting D False advertising
C Twisting Correct! Twisting is an illegal act, in which an agent misrepresents the terms of an insurance or annuities contract or draws incomplete comparisons, in a way that would compel the insured to surrender the contract for the new one.
To become a Texas insurance agent, an individual must A File a personal financial statement with the Commissioner for the previous 3 years. B Have resided in Texas for at least 1 year. C Post a $25,000 bond. D Have passed a licensing exam within the 12 months before applying.
D Have passed a licensing exam within the 12 months before applying. Correct! Applicants for an insurance producer license must pass a state exam, apply for a license and pay the required nonrefundable fees. Note that passing the exam does not constitute a license. Applicants cannot transact insurance until their license is issued.
Which of the following must an insurer obtain in order to transact insurance within a given state? A Certificate of authority B Producer's certificate C Business entity license D Insurer's license
A Certificate of authority Incorrect! All insurers (domestic, foreign, or alien) must obtain a certificate of authority before transacting insurance within a given state.
When an individual obtains an insurance license for the primary purpose of writing insurance on him- or herself, or for members of his or her immediate family, or business, this is called A Controlled business. B Personal insurance. C Rebating. D Self-insurance
A Controlled business. Correct! When producers sell policies on themselves, their family, or their coworkers, this is called "controlled business." In this state, at least 25% of a licensee's total volume of premiums in a calendar year must be from business other than controlled business.
What is the major difference between a stock company and a mutual company? A Ownership B Amount of benefits C Number of producers D Types of policies issued
A Ownership Incorrect! Mutual companies are owned by policyholders, while stock companies are owned by stockholders.
Which of the following is another term for an authorized insurer? A Legal B Admitted C Certified D Licensed
B Admitted Incorrect! Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.
The Commissioner has full power and authority to do all of the following EXCEPT A Issue cease and desist orders. B Draft insurance laws. C Issue Certificates of Authority. D Enforce the Insurance Code.
B Draft insurance laws. Correct! The Commissioner enforces the Insurance Code, but does not write insurance laws.
What is a foreign insurer? A An insurer with licensed agents doing business in other countries B An insurer with licensed agents who are citizens in more than one country C An insurer with a home office in another state D An insurer with a home office in another country
C An insurer with a home office in another state Incorrect! A domestic insurer's home office is in this state, a foreign insurer's is in another state, and an alien insurer's is in another country.
Which of the following best describes a misrepresentation? A Making a maliciously critical statement that is intended to injure another person B Discriminating among individuals of the same insuring class C Issuing sales material with exaggerated statements about policy benefits D Making a deceptive or untrue statement about a person engaged in the insurance business
C Issuing sales material with exaggerated statements about policy benefits Correct! Misrepresentation is issuing, publishing or circulating any illustration or sales material that is false, misleading or deceptive as to policy benefits or terms, the payment of dividends, etc. This includes oral statements.
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? A A legal advertising strategy B Unfair Discrimination C Defamation D Illegal
D Illegal Correct! It is illegal to participate in any boycott, coercion, or intimidation that is intended to restrict fair trade or create a monopoly.
How many hours of continuing education can be carried over from one licensing period to the next? A 5 B Any excess hours C 0 D 2
C 0 Correct! All CE hours must be completed during the reporting period; licensees are not allowed to carry over excess hours to the next reporting period.
No one whose license has been revoked can receive another license in Texas for A 1 year. B 2 years. C 5 years. D 6 months.
C 5 years. Correct! No one whose license has been revoked can receive another license in Texas for 5 years.
The Insurance Commissioner may examine the affairs of any insurer as often as necessary, but not less frequently than once every A Year. B 2 years. C 3 years. D 5 years.
D 5 years. Incorrect! The Insurance Commissioner must examine each insurer at least once every 5 years.
Which of the following is NOT true regarding a Certificate of Authority? A It is issued to group insurance participants. B It may be necessary for transacting business in a specific state. C It is equivalent to an insurance license. D It is issued by the state department of insurance.
A It is issued to group insurance participants. Correct! Before insurers may transact business in a specific state, they must apply for a license or Certificate of Authority from the state department of insurance and meet any financial (capital and surplus) requirements set down by the state.
An applicant properly notifies her insurer of a straightforward claim, but the insurer waits an exceedingly long time to process it. Which of the below terms best describes the behavior of the insurer? A Unfair claims settlement practice B There is nothing wrong with this incident; there is not a specified deadline for insurers to process a claim. C Misrepresentation D Fraud
A Unfair claims settlement practice Correct! If an insurer knowingly or frequently commits an act that neglects or deceives an insured, its behavior falls under the category of unfair claim settlement practice. In this instance, there is no reason why the insurer was warranted in waiting to process the claim.
An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming? A Alien B Domestic C Unauthorized D Foreign
D Foreign Correct! 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.
What is the minimum percentage of a licensee's total volume of premiums in a calendar year that must come from business other than controlled business? A 60% B 25% C 80% D 50%
B 25% Correct! During any calendar year, at least 25% of a licensee's total volume of premiums must be from business other than controlled business.
An agent discovers his newest client was the result of a referral. To show his thanks to the referring customer, the agent could A Return the customer's first premium of a new policy. B Send the customer a gift as a token of appreciation. C Offer the customer money for every referral she brings in. D Thank the customer.
D Thank the customer. Incorrect! Unless the customer is also an insurance agent or was formerly an agent, it is illegal for the agent to pay or offer to pay for referrals.
For which of the following actions can an agent's license be suspended or revoked? A Misstatements on the application B Rebates of premiums C Misdemeanors D Unintentional violations of state laws
B Rebates of premiums Correct! The Commissioner will suspend or revoke an existing license, or deny a new license for any of the following reasons: willful violations of state insurance laws, intentional material misstatements in the license application, and rebates of insurance premiums, among other offenses.
Which of the following is an example of a producer's fiduciary duty? A A duty to base all transactions upon the principle of Utmost Good Faith. B The obligation to tell the truth to the best of one's knowledge C The trust that a client places in the producer in regard to handling premiums. D An obligation to state every known fact about the policy the producer is selling.
C The trust that a client places in the producer in regard to handling premiums. Correct! An agent acts in a fiduciary capacity, based upon trust and confidence, when handling the financial affairs of their customers, including the handling of premiums.
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? A Mutual B Reciprocal C Nonprofit service organization D Stock
A Mutual Correct! Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid.
All of the following would be considered rebating EXCEPT A An agent offers tickets to a baseball game as an inducement to buy insurance. B An agent misrepresents policy benefits to convince a policyowner to replace policies. C An agent offers the use of his lake house to a client as an inducement to buy an insurance policy from him. D An agent offers to share his commission with a policyholder.
B An agent misrepresents policy benefits to convince a policyowner to replace policies. Correct! Rebating occurs when an insured is offered something of value in order to induce the sale of an insurance product. Both the offer and acceptance of a rebate are illegal.
On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are A Guaranteed. B Not taxable since the IRS treats them as a return of a portion of the premium paid. C Paid at a fixed rate every year. D Taxable as ordinary income.
B Not taxable since the IRS treats them as a return of a portion of the premium paid. Correct! With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are nontaxable because they are considered a return of excess premiums.
A temporary license holder can receive a commission from a sale made to all of the following EXCEPT A The license holder's spouse's best friend. B An accountant at a rival insurance company. C The license holder's family doctor. D The license holder's sister-in-law.
D The license holder's sister-in-law. Incorrect! A temporary license holder sale to a family member or an individual the temporary license holder has an employment or business relationship with will not pay commission.
An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen? A Because the insured is currently not a drug user, his policy will not be affected. B The policy will not be affected. C The policy will be voided. D The insurer will sue the insured for committing fraud.
B The policy will not be affected Incorrect! In insurance, fraud is the intentional misrepresentation of material information that is crucial when deciding whether or not to write a contract for an applicant. If an insurer finds that an applicant has committed fraud, it can void the contract, provided that the discovery occurs within the first two years of the effective policy date. In this particular instance the applicant did not commit intentional fraud.
The Commissioner of Insurance issues a Cease and Desist Order and immediately receives a request for the charges to be reviewed in a hearing. Within what number of days must the hearing be held? A 10 B 14 C 30 D 60
A 10 Incorrect! If the recipient of a Cease and Desist Order wants to contest or review the charges in court, the request must be made within 30 days of the order. After the Commissioner receives the request, a hearing must occur within 10 days.
What percentage of continuing education hours must be in a classroom setting? A 25% B 50% C 75% D 100%
B 50% Correct! At least 50% of all required continuing education hours must be completed in a classroom setting or a classroom equivalent setting approved by the department.
In Texas, the Commissioner of Insurance is A Appointed by the Governor. B Appointed by the Insurance and Industry Committee of the state legislature. C Elected by the state legislature's Banking and Insurance Committee.
A Appointed by the Governor. Incorrect! The Commissioner is appointed to office by the Governor, with the advice and consent of the Senate, for a 2-year period. The Commissioner's appointment ends on February 1 of each odd numbered year.
After filing a claim, an insured tells the insurer that there is more than one insurance policy in force. That insurer sets aside the claim until it hears what the other company will pay. The insurer's action will be classified as A Unfair. B Prudent. C Coordinated. D Proactive.
A Unfair. Correct! Unfair settlement practices include refusing or delaying a settlement solely because there is other insurance available to partially or entirely satisfy the claim loss. The claimant who has a right to recover from more than one insurer has the right to choose the coverage from which to recover and the order in which payment is to be made.
Which of the following will NOT be considered unfair discrimination by insurers? A Cancelling individual coverage based on the insured's marital status B Assigning different risk classifications to applicants based on gender identity C Discriminating in benefits and coverages based on the insured's habits and lifestyle D Charging applicants with similar health histories different premiums based on their ethnicity
C Discriminating in benefits and coverages based on the insured's habits and lifestyle Correct! Discriminating between individuals of the same class with equal life expectancies, or by reason of race, nationality, or ethnic group would be considered unfair discrimination. Insurers are also not allowed to cancel individual coverage due to a change in marital status. Discriminating in benefits based on the insured's habits and lifestyle (such as smoking or dangerous hobbies) is acceptable.
In which of the following situations is it legal to limit coverage based on marital status? A Legal separation during the application process B Divorce within the last six months of applying for insurance C It is never legal to limit coverage based on marital status. D Excessive number of divorces, as defined by the Insurance Code
C It is never legal to limit coverage based on marital status. Correct! 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.
All of the following would be considered an insurance transaction EXCEPT A Advising a policyholder regarding a claim. B Negotiating coverage. C Obtaining an insurance license. D Soliciting a policy.
C Obtaining an insurance license. Correct! An insurance transaction means the carrying on of business in insurance, which could include the solicitation of a policy, advising, negotiation, or inducement related to coverage or claims. Obtaining an insurance license is a prerequisite to transacting insurance.
Which of the following insurers are owned by stockholders? A Reciprocal B Fraternal C Stock D Mutual
C Stock Incorrect! Only stock insurance companies are owned and controlled by stockholders.
A participating insurance policy may do which of the following? A Provide group coverage B Pay dividends to the stockholder C Require 80% participation D Pay dividends to the policyowner
D Pay dividends to the policyowner Correct! A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.
Which of the following occupations would NOT directly help to qualify someone for the office of Commissioner of Insurance? A Insurance agent B Certified public account C Executive in business administration D Practicing attorney
A Insurance agent Correct! The Commissioner must have at least 5 years of experience in one of the following occupations: an executive in the administration of business or government, a practicing attorney, or a certified public accountant.
An applicant for a license in Texas must include a statement with his application that provides information about all the following EXCEPT A Intending to apply for another license. B Being refused a license. C Having held a license before. D Having had a license revoked.
A Intending to apply for another license. Correct! A statement with an application must contain information as to whether the individual has ever been refused a license, held a license or has had a license revoked. The intent to apply for another license is not required.
The Commissioner of Insurance issues a Cease and Desist Order to an agent. If the agent wishes to contest the charges in court, how many days after the order was issued does the agent have to make the request? A 10 days B 30 days C 60 days D 90 days
B 30 days Correct! If the recipient of a Cease and Desist Order wants to contest or review the charges in court, the request must be made within 30 days of the order.
All of the following are requirements for an individual to be licensed EXCEPT A Pay the appropriate fees. B Provide a financial statement. C Be at least 18 years of age. D Pass the licensing examination.
B Provide a financial statement. Correct! An applicant for a license must be at least 18 years old, pass the state exam (within the last 12 months), pay the appropriate fees and provide an application before a license can be issued. A financial statement of the individual is not a requirement to be licensed.
All of the following are true regarding rebates EXCEPT A Dividends are not considered to be rebates. B Rebates are allowed if it is in the best interest of the client. C Rebates are only allowed if specifically stated in the policy. D Rebating can be anything of monetary value given as an inducement to purchase insurance.
B Rebates are allowed if it is in the best interest of the client. Correct! 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.
An agent receives an Emergency Cease and Desist Order for chronically misrepresenting his insurance policies. The agent knows that he did not commit the violations stated in the Emergency Cease and Desist Order. He wants to contest the charges in a court hearing. Which of the following is true? A The hearing must be set for exactly 10 days after the request is made. B The hearing must be held within 10 days of receiving a request, unless both parties agree to a later date. C The judge will determine when the hearing will be held. D The hearing date can be set for any time within the next year, unless both parties agree to a later date.
B The hearing must be held within 10 days of receiving a request, unless both parties agree to a later date. Correct! The hearing to show cause why the cease and desist order should not be affirmed or modified shall be held not later than the 10th day after the date of Commissioner receives the request for a hearing unless the parties mutually agree to a later date. (The cease and desist order remains in effect until the hearing is held.)
All of the following are considered unfair or deceptive acts in connection with the sale of insurance EXCEPT A Delaying a settlement because there is other insurance that will satisfy any portion of the loss. B Lacking standards for the investigation of an insured's claims. C Attempting to settle a claim in which liability is clear. D Stating facts or provisions in a way that misrepresents the true nature of the policy.
C Attempting to settle a claim in which liability is clear. Correct! Misrepresenting the nature of a policy, delaying a settlement solely because there is a another policy that may pay part of the loss, and lacking standards for the investigation of an insured's claim are considered unfair or deceptive acts.
In insurance transactions, fiduciary responsibility means A Being liable with respect to payment of claims. B Commingling premiums with agent's personal funds. C Handling insurer funds in a trust capacity. D Maintaining a good credit record.
C Handling insurer funds in a trust capacity. Correct! An agent's fiduciary responsibility includes handling insurer funds in a trust capacity.
An agent explains the details of a life insurance policy to a client. The agent does not realize, however, that the state has recently rewritten two of the provisions. As a result, the agent inadvertently misrepresents the policy, making it more attractive than it really is. What best describes this situation? A Misrepresentation B Deceptive claim settlement practice C There is no misconduct D Fraud
C There is no misconduct Incorrect! Although the agent misrepresented the insurance policy, in order to be charged with conducting a deceptive claim settlement, the agent would have had to misrepresent knowingly and/or chronically.
C Mobile equipment during transportation to and from the job site Incorrect! The contractors equipment floater is an unfiled inland marine coverage form used to insure mobile equipment and contractor's equipment owned, rented, or borrowed by contractors (as opposed to dealers). Which of the following applicants will be able to obtain an adjuster's license without taking the state examination? A An applicant who has been engaged in the adjustment of losses in the past 5 years B It is not possible; all licensees must pass the examination. C An applicant who holds a CLU designation D An applicant who is renewing a license
D An applicant who is renewing a license Correct! Applicants who are applying for a renewal license or those whose license has expired for a period no longer than 1 year are not required to take the examination.
