Code and Ethics

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.

Bob owns an insurance company. How many names (real or fictitious) may his business have?

2 -Any insurance business is allowed two names, real or fictitious. These names must be filed with the Commissioner when they are created or changed.

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

Authorized

Which of the following terms is associated with a mutual insurer becoming a stock insurer?

De-mutualization - When a mutual insurer becomes a stock company, this is called "de-mutualization."

What is the term for a sales campaign conducted through the mail?

Direct-response

Intentionally misrepresenting or concealing a material fact to induce an insurance company to make a contract is known as

Fraud. - Fraud is the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party.

Which type of life insurance is usually written for small amounts and requires frequent premiums that are collected by the agent?

Industrial life insurance - Industrial or home service life insurance is written for small amounts (under $1,000) and premiums are collected each week or month. Industrial life insurance is written as whole life, limited pay life, or endowment. Family members covered by this type of insurance are covered from birth to age 65 or 70.

Which of the following is NOT true regarding a Certificate of Authority?

It is issued to group insurance participants.

Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting?

Stock - Only stock insurance companies are owned and controlled by stockholders.

An agent is a legal person who acts on behalf of

The principal - An agent is a legal person who acts on behalf of the principal (insurer).

Which entity pursues liquidation of an insolvent insurer?

The state government

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.

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.

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.

A participating insurance policy may do which of the following?

Pay dividends to the policy owner - A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.

Giving a client an inducement to a sale not stated in the policy is an unlawful practice known as

Rebating - Rebating is defined as any inducement offered to the insured in the sale of insurance products that is not specified in the policy. Both the offer and acceptance of a rebate are illegal.

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.

Any risk retention group must submit to an examination upon the request of the Commissioner within

60 days

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

According to the California Insurance Code, all of the following are general powers and duties of the Commissioner of insurance EXCEPT

To delegate the power to approve a settlement. The Commissioner cannot delegate his/her authority to approve settlements. CIC 12921

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

During a house fire, an insured moves an antique chair listed on the policy to a storage unit. In the Standard Fire Policy, how many days will the antique chair be covered at the new location?

5 days In the Standard Fire Policy, if a covered property is removed from a location to protect it from an insured peril, the property will be covered at the new location for 5 days.

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act?

Direct response marketing - A direct response marketing system effectively bypasses the insurance agent. Business is conducted over the phone, through the mail, or online. This is a perfectly legal approach to selling insurance. It is not mandatory in all situations for the insured to physically sign any documents in order for coverage to go into effect.

An insurer submits a rate plan to the Commissioner's office on the first of the month and immediately implements this new rate plan the next day prior to receiving the Commissioner's approval. This type of rate plan is known as

File and use. File-and-use laws require that the rate plan be filed prior to marketing the plan; however, such laws provide that once the plan is filed, the insurer does not have to wait for Commissioner approval to begin marketing the plan.

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

Foreign

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. A person cannot act as a broker for any insurer for which that person holds an active agent's appointment.

When a long term care policy is replaced after it has been in effect for at least six months, the new policy may

Not exclude pre-existing conditions that would have been covered by the original contract. -Replacement policies must cover any claim that would have been paid by the original policy. If the insured was still within the six month exclusion period at the time of replacement, only the "unsatisfied portion" of the exclusion period may be excluded. (CIC 10233.3)

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. 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.

All of the following are marketing arrangements used by insurers EXCEPT

Reinsurance System. - Reinsurance is a method used by insurers to protect against catastrophic losses. The rest are marketing arrangements.

In a conservation or liquidation effort, what powers does the Commissioner have?

The Commissioner has all of these powers. In a conservation or liquidation effort, the Commissioner may do all the above.

Even though the Standard Fire Policy is a named peril contract, under which of the following circumstances would the policy provide "all risk of loss" coverage on insured property?

When the loss is to insured property that has to be removed because of endangerment by a peril insured against under the policy - Property that has been removed to protect against a possible pending loss by a peril covered by the policy is covered for up to 5 days at another location for virtually any type of loss.