Chapter 10 life insurance test
What is the minimum age that a person can obtain a life insurance license?
18
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 policyholder is
A mutual insurer ( Mutual companies are owned and controlled by their policy-holders. any surplus money is returned to the policyholders as dividends)
Which of the following is true regarding the agent's appointments?
A person may hold several appointments at one time. (at any one time, the individual agent may hold any or all categories of appointments for which he or she is qualified or licensed. however, an agent must have a separate appointment for each insurer)
What is a foreign insurer?
An insurer with a home office in another state
If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?
Authorized (Insurers who meet the states financial requirements an are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer)
An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an
Authorized insurer ( insurers who meet the state's financial requirements and hold a certificate of authority to transact business in the state considered authorized or admitted)
How are state Insurance Guaranty Associations funded?
By their members- authorized insurers ( Guaranty associations are funded by their members: all authorized insurers are required to contribute to a fund to provide for the payment of claims for insolvent insurers)
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
What is churning?
It is defined as replacing insurance policies for the sole purpose of making commissions
When an insurer terminates an agent's appointment, the insurer must do all of the following EXCEPT A) provide 60-day advance notice to the agent B) file a written notice with the department of insurance within 30 days of termination C) make sure that the agents contract rights are not violated D) Provide 30-day advance notice to the commissioner
Provide 30-day advance notice to the commissioner (An appointing entity may terminate an agent's appointment at any time, subject to an appointee's contract rights and with a 60-days advanced notice. once the appointment is terminated, the appointing entity must file a written notice with the department of insurance within 30 days)
If an agent is in the military, which of the following is true?
The agent cannot sell a policy to another active military person who is of a lower rank (agents are not allowed to sell insurance policies, contracts of certificates to any active duty military person or their families if the buyer or proposed insured is of lower rank or pay grade)
When an insurer appoints an agent?
The insurer is bound by the agent's acts. (insurer will certify that it is willing to be bound by the acts of the agent, adjuster, service representative, customer representative, or managing general agent, within the scope of his/her employment)
Which of the following is an example of a producers fiduciary duty?
The trust that a client places in the producer in regard to handling premiums (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 agent transacts business for Insurer A and Insurer B, both selling life insurance, and for Insurer C, selling health insurance. How many appointments must the agent hold?
Three- one for each insurer (An agent must have a separate appointment for each insurer)
Under what circumstance can an agent's appointments be transferred to another person?
Under no circumstances (any issued appointment is valid only for the person named and is not transferable to another person)
If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered
An unfair trade practice (it is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of an insurance guaranty association. though it is illegal to advertise, the statement is true, and would not be considered misrepresentation)
All of the following are true regarding rebates EXCEPT? A) Rebating can be anything of economic value; given as an incentive to buy B) Dividends are not considered to be rebates C) Rebates are allowed if its in the best interest of the client D) rebates are only allowed if specifically stated in the policy
Rebates are allowed if its in the best interest of the client ( a rebate is an illegal act which involves returning something of value to the client as an incentive to buy, such as 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)
Which of the following would NOT be a violation of state insurance regulations? A) Agent A uses her license to write only insurance for herself and her immediate family B) Agent B charges his clients a consulting fee; in addition to the premium for placing a policy C) Agent C uses her license to only write business other than controlled D) Agent D collects premiums due on policies and deposits the funds in his own personal account
Agent C uses her license to only write business other than controlled (the purpose of a licence is to primarily write business other than controlled business)
All of the following are the general qualifications for an agents license EXCEPT A) Pass a criminal background check B) Have a high school diploma C) be found competent and trustworthy D) be a state resident
Have a high school diploma (A high school diploma is NOT required)
Which of the following is the closest term to an authorized insurer?
Admitted (insurers who meet the states financial requirements are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer)
When transacting business in this state an insurer formed under the laws of another country is known as a/an
Alien insurer
How often must domestic insurance companies be examined by the chief of financial office in Florida?
At least every 5 years (Examinations must be conducted at least once every 5 years, or as frequently as deemed appropriate by the office)
An insurance producer just sold an insurance policy to his sister. what kind of business is this?
Controlled (when producers sell policies on themselves, their family, or their coworkers, this is called controlled business. Controlled business is legal as long as premiums paid on these policies do not exceed the premiums that the producer write for other businesses)
Which of the following terms describes making false statements about the financial conditions of any insurer that are intended to injure any person engaged in the business of insurance?
Defamation
When a producer was reviewing a potential customer's insurance coverage that is written by another company, the producer made several oral statements 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)
All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT? A) Dividends from a mutual insurer B) An offer of employment C) stocks, securities, or bonds D) An offer to share in commission generated by the sale
Dividends from a mutual insurer (dividends paid to policyholders of a mutual insurer are not considered to be rebate because the policy specifies that they might be paid)
Which of the following best describes an insurance company that has been formed under the laws of this state?
Domestic
The agent in charge of an agency must hold which of the following licenses?
General lines (the agent in charge of the agency requires general lines, life, or health license)
The office of insurance regulation is responsible for all of the following insurer activities EXCEPT? A) Viatical settlements B) Policy forms C) Premium financing D) Issue of securities
Issue of securities (The officer of financial regulation is responsible for all activities of the financial services commission relating to the regulation of banks, credit unions, finance companies and the security industries.all other listed activities are responsible for the office of insurance regulation)
In accordance with the code of ethics, agents must provide a completed application to?
The prospective insured and the insurer (licensed agents should submit applications to the insurer with which he or she is appointed and to the prospective insured)
What is a fiduciary?
someone in a position of trust
What is defamation?
the action of damaging the good reputation of someone; slander or libel.
An insured submits proof of loss form within 10 days of loss. The insurer however does not acknowledge the form for 3 months. Which of the following violations has the insurer committed?
Unfair claims settlement (failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements are completed and submitted by insureds is an example of unfair claims settlement)
in insurance transactions, fiduciary responsibility means?
handling insurers funds in a trust capacity (an agents fiduciary responsibility includes handling insurer funds in a trust capacity)
The office of insurance regulation is responsible for all activities concerning_____?
insurers, including licensing and certificates of authority
Agents are required to maintain a copy of all rebate schedules for the most recent___ years?
5 years
If an agent advises a policyholder to replace an insurance policy but only does so for the purpose of making commissions, the agent has committed an act of
Churning
Which of the following would be an example of an unfair claims settlement practice? A) Denying a claim within the 10 day of receipt of proof of loss B) Failing to acknowledge a claim within 30 days C) Offering a quick settlement of a claim D) Suggesting negotiations in setting the claim
Failing to acknowledge a claim within 30 days ( Insurers must either affirm or deny a claim within a reasonable amount of time, but no later than 30 days)
Which of the following would be considered false advertising?
Implying that the agent is the insurer
Which of the following entities protects policyholders, insureds, and beneficiaries under insurance contracts when insurers fail to perform contractual obligations due to financial impairment?
Insurance guaranty association (guaranty associations are created to protect policyholders, insureds, and beneficiaries under life insurance policies, health insurance policies, annuity contracts, and supplemental contracts when insurers fail to perform contractual obligations due to financial impairment)
Which of the following is NOT true regarding a certificate of authority? A) It is issued by the state department of justice B) It is issued to group insurance participants C) It may be necessary for transacting business in a specific state D) It is equivalent to an insurance license
It is issued to group insurance participants ( 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)
which of the following best describes the unfair practice of defamation?
Making derogatory oral statements about another insurers financial condition
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)
What office is responsible for issuing licensing and certificates of authority, rates, premium financing,claims solvency, viatial settlements, policy form and insurance code?
the office of insurance regulation
An applicant for a life agent's license may obtain a temporary license for a maximum period of?
6 months
Which of the following persons is required to hold a producer license?
A person who negotiates insurance contracts (persons who perform clerical tasks that are not relating to soliciting or negotiating insurance contracts are not required to be licensed)
What is reinsurance?
An agreement between a ceding insurer and assuming insurer (the originating company that procedures insurance on itself in another insurer is called the ceding insurer. the other insurance is called assuming insurer)
What is controlled business?
Any coverage written on a producer's own life, health or property, and/or that of the producer's immediate family or business associates
Which of the following will NOT be considered unfair discrimination by insurers? A) Charging applicants with similar health histories different premiums based on their ethnicity B) Cancelling individual coverage based on the insureds marital status C) Assigning different risk classifications on applicants based on gender identity D) Discriminating in benefits and coverage's based on the insured's habit and lifestyle
Discriminating in benefits and coverage's based on the insured's habit and lifestyle
Two individuals are in the same risk and age class; yet, they are charged two different rates for their insurance policies due to an insignificant factor. what is this called?
Discrimination
The agent represents the?
Insurer not the insured
In which of the following situations is it legal to limit coverage based on marital status? A) Excessive number of divorces, as defined by the insurance code B) Legal separation during the application process C) Divorce within the last 6 months of applying for insurance D) It is never legal to limit coverage based on marital status
It is never legal to limit coverage based on marital status
Which of the following is true regarding a risk retention group?
Its a liability insurance owned by its members ( A [RRG] risk retention group is a liability insurance company owned by its members. the members are exposed to similar liability risks by virtue of being in the same business or industry).
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 ( funds not paid out after paying claims and other operating costs are returned to the policyholders in the form of a dividend. If all funds are paid out, no dividends are paid)
what method do insurers use to protect themselves against catastrophic losses?
Reinsurance (insurers use reinsurance to protect themselves from catastrophic losses. this is a method where the re-insurer indemnifies the ceding insurer for part or all of the losses it sustains relating to a policy issued previously)
Which of the following is INCORRECT? A) it is illegal to be involved in any boycott, coercion, or intimidation that is intended to restrict fair trade or to create a monopoly B) Discrimination in rates, premium, policy benefits, etc. for persons within the same class or with the same life expectancy is illegal C) Replacing insurance policies for the purpose of making commission is legal D) Misrepresenting the true nature or facts of a policy or its benefit to induce a policyholder to surrender one policy and replacing it with another is illegal
Replacing insurance policies for the purpose of making commission is legal (this is an example of churning)
If a person accumulates more continuing education hours than is necessary to fulfill the requirements of the 2 year period which of the following will occur?
The extra hours may be continued into the next period (excess classroom hours accumulated during any 2-year period may be carried forward to the next 2-year period)
If an agent does not notify the insurer of an address change, what is the maximum penalty that can be imposed for a one-time offense?
$250 ($250 for 1st time offense, $500 for subsequent offenses and license may be revoked or suspended)
An agent offers his client free tickets to a sporting event in exchange for the purchase of an insurance policy. The agent is guilty of
rebating
If a licensee changes his or her residence address, within how many days must the department be notified?
30 (Every licensee in Florida must notify the department in writing within 30 days after a name change, residence address, principal business street address, or mailing address)
An agent's client needs additional insurance which the agent's own insurer cannot provide. The agent has to solicit additional coverage from another authorized insurer. This coverage is known as
excess (a licensed life agent may place excess or rejected risks within the agent's licensing authority with another insurer without being required to have an appointment with that insurer. excess business is the portion of a risk above the limits of which the agent's own insurer will accept)
A licenses agent must complete how many hours of continuing education in the agent's line of authority every licensing period?
5 (out of the 34 CE hours, agents are required to complete a 5 hour update course specific to the license held)
Pertaining to insurance, what is the definition of a fiduciary responsibility?
promptly forwarding premiums to the insurance company (fiduciary refers to a position of trust. when the agent is handling the premium that belongs to the insurance company, they are acting in fiduciary capacity)
Which of the following is an agreement between an insured and an insurer, where the insurer agrees to indemnify the insured for specific losses in exchange for a premium
The insurance contract (agreements made between the insured and the insurer, where the insurer promises to indemnify the insured for losses
Circulating deceptive sales material to the public is what type of Unfair Trade Practice?
false advertising (this is considered to be false, deceptive or misleading advertising)
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 (permitting individuals of the same class to be charged a different rate for the same insurance is the unfair trade practice of discrimination)
A producer who fails to segregate premium monies from his own personal funds is guilty of
commingling (it is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds)
On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for payment of losses or claims. the company is guilty of?
Misrepresentation (issuing or circulating any sales material that is false or misleading would be considered misrepresentation and is illegal)
Which of the following may NOT be included in an insurance companies advertisement? A) The name of a specific agent B) An identification of a limited policy as a limited policy C) That its policies are covered by a state guaranty association D) The policies' limitations or exclusions
That its policies are covered by a state guaranty association (it is illegal for insurers to state that their policies are guaranteed by the existence of a guaranty association)
Who examines the books and records of insurance companies in Florida?
The chief financial officer (The CFO and office of insurance regulation have the right to examine the affairs of every person or entity authorized to transact insurance in this state. examinations must be conducted at least once every 5 years)
all of the following can be described as twisting EXCEPT? A) embellishing the terms of the proposed policy in order to convince the insured to switch B) making an incomplete comparison between an existing and proposed policies C) explaining to client the advantages of permanent insurance over term and suggesting changing policies D) Misrepresenting the terms and conditions of the existing policy to make a new one more attractive
explaining to client the advantages of permanent insurance over term and suggesting changing policies (Twisting is a misrepresentation, or incomplete or fraudulent comparison of insurance policies that persuades an insured/owner, to his or her determent, to cancel, lapse or switch policies from one to another)
Who might receive dividends from a mutual insurer?
policyholders ( A mutual insurer has no stock and is owned by policyholders. Since they may receive a dividend [not guaranteed], such policies are known as participating policies. Dividends received by policyholders of mutual insurer is NOT taxable)
Continuing education requirements must be met every ?
2 years (24 hours of continuing education courses every 2 years)
Under special circumstances, continuing education requirements may be extended beyond the 2-year period for a maximum period of
12 months (excess classroom hours accumulated during a 2 year period may be carried forward to the next 2-year period. if good cause is shown, the department may grant an extension for to exceed 1 year)
In order to maintain an insurance license, an agent will need to satisfy Florida's continuing education requirement of?
24 hours of continuing education in every 2- year period (in order for an agent to maintain his/her license, 24 hours continuing education credits must be earned every 2 years)
What office is responsible for all activities of the financial services commission relating to the regulation of banks, credit unions, finance companies and the security industry?
The office of financial regulation
What are the 2 offices of the financial services commission?
The office of financial regulation and the office of insurance regulation (the following 2 offices are established within the commission; the office of fraternal regulation and the office of insurance regulation, which specifically regulated the business of insurance in the state)
An insurance application cannot ask about which of the following information about an application? A) Sexual orientation B) Age C) gender D) Address
Sexual orientation
An agent's appointment has been denied. Which of the following is true?
State taxes may be refunded upon a written request (Appointment fees are nonrefundable. however if the applicant submits a written request within 60 days after the denial or disapproval of an appointment, the department will refund any state or county taxes received in connection with the application for the appointment)
Which of the following activities would be sufficient violation to warrant rejection, revocation, or suspension of an insurance agent's license?
Forgery (under a conviction of a felony, an agent's license will be revoked by the commissioner)
In order for an insurer to legally transact insurance, it must obtain which of the following?
Certificate of authority (a certificate of authority is required in order to transact insurance)
Which of the following insurance providers must be nonprofit and sell insurance only to its members?
Fraternal (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)
Which of the following is true regarding a risk retention group?
It is a liability insurance company owned by its members ( a risk retention group( RPG) is a liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry)
In what way can an agent demonstrate a high standard of ethics?
Putting the client's best interests before their own (the needs of the client are the priority to a highly ethical agent)
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 individual applies for a life policy. Two years later he suffered a heady injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He also has been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues a policy and learns of his history one year later. what will probably happen?
The policy will not be affected (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 the insurer finds that the applicant has committed fraud, it can void the contract, provided that the discovery occurs within the first 2 years of the effective policy date. In this particular instance, the applicant did not commit intentional fraud)
Which of the following is true regarding branch agency licensing?
Agent in charge must be licensed (each branch location established by an agent, agency,firm corporation, or association must be in the active full-time charge of a licensed lines, or life/and or health agent who is appointed to represent one or more insurers)
Applications to an insurer must include all of the following EXCEPT A) Name of the agent B) License identification number of the agent C) Name of the insurer D) Credit history report
Credit history report (Licensed agents may not submit applications to an insurer or furnish a copy of an application to a prospective insured unless the name of the insurer is legally typed or printed on the first page of the application form at the time coverage is bound or the premium is quoted. the application must also disclose the name and license identification number of the agent as shown on the agent's license)
which of the following is NOT a responsibility of the office of insurance regulation? A) issuing certificates of authority B) Instituting legal proceedings C) Enacting new insurance laws D) Enforcing the insurance code
Enacting new insurance laws (new laws are enacted by the state legislature)
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)
Who might receive dividends from a mutual insurer?
Policyholders
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 (it is illegal to be involved in any activity of boycott, coercion, or intimidation that is intended to restrict fair trade or to create a monopoly)
Insurance contracts are agreements between which two parties?
insurer and insured
The office of insurance regulation is responsible for all of the following insurer activities EXCEPT A) Viatical settlements B) Policy forms C) Premium financing D) Issue of securities
issue of securities
What is a Ceding Insurer?
it cedes or gives the risk to the insurer
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 and products that is not specified in the policy. both the offer and acceptance of a rebate is illegal)
An agent has been convicted of a crime punishable by a 1-year imprisonment. Within how many days must the agent notify the department of insurance?
30 days (agents must notify the department of insurance in writing 30 days after being found guilty of a felony or a crime punishable by imprisonment of 1 year or more)
What is a life agent?
A person representing an insurer as to life insurance and annuity contracts, or acting as a viatical settlement broker
An insurance agent B likes to add additional coverage's to applicants' policies and charge them for such coverage's without their knowledge. the agent is guilty of
sliding (charging an applicant for a specified additional coverage or product, in addition to the cost of coverage applied for, without the applicants knowledge or consent)
Which of the following is an example of a producer being involved in an unfair trade practice of rebating? A) Charging a client a higher premium for the same policy as another client in the same insuring class B) making a deceptive statement about a competitor C) Telling a client that his first premium will be waived if he purchased the insurance policy today D) Inducing the insured to drop a policy in favor for another one when its in the insured best interest
telling a client that his first premium will be waived if he purchased the insurance policy today
Rebating is an unfair trade practice and is regulated by law. All of the following would be considered to be rebating EXCEPT A) An agent offers to share his commission with a policyholder B) an agent offers tickets to a baseball game as an inducement to buy insurance C) An agent misrepresents policy benefits to convince a policyholder to replace policies D) An agent offers to use his lake house to person as an incentive to buy
An agent misrepresents policy benefits to convince a policyholder to replace policies (using misrepresentation to convince a person to cancel an existing policy and buy a new one is called "twisting")
Which of the following authorities grants and revokes licenses?
Department of financial services ( The department is responsible for issueing, reissuing, and terminating licenses)
Which of the following best describes a misrepresentation?
Issuing sales material with exaggerated statements about a policy benefits (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)
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 lodge or charitable organization, but they may also sell formal insurance plans for benefit for their members. Reciprocal insurers are also associations that provide insurance for their members., but they are formed only for the purpose of providing insurance)
In the state of Florida, it is illegal for a licensee's commissions from controlled business to exceed what percentage of the total for the year?
50% ( 50% for a 12 month period)
Which of the following would be required to be licensed as an insurance producer?
A salaried employee who advertises and solicits insurance (a person whose not require an insurance producer license if he or she only advertises without intent to solicit insurance. However once there is solicitation, a license is required)
What level of authority is given to the Office of Insurance Regulation with respect to examination of insurer's activities to determine compliance Unfair Trade Practice laws?
Absolute (Florida statutes provide the office of insurance regulation with an absolute right to examine the affairs of every person(insurers and licensees) involved in the business of insurance to see if they are engaged in any unfair trade practices)
Failure of license to maintain an appointment with an insurance company within 48 months after the date the license will became effective will result in?
Expiration (licensees who are not appointed within 48 months of licensing will be required to qualify as A FIRST TIME APPLICANT)
The requirement that agents not commingle insurance monies with their own funds is known as?
Fiduciary responsibility (money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker)
No insurance policy form can be issued, delivered or used in this state unless it has been
Filled with and approved by the office of insurance regulation. ( prior to the use of any policy or contract form, application form, rider, or endorsement, insurers must submit the forms and all charges to the office and have the forms approved)
An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurers classification in Wyoming.
Foreign.
On participating insurance policies issued by a mutual insurance company, dividends paid to policyholders are?
Not taxable since the IRS treats them as a return of portion of the premium paid. ( With participating policies, policy-owners are entitled to dividends, which, in the case of mutual companies, are not taxable because the are considered a return of excess premiums)
All of the following would be considered an insurance transaction EXCEPT A) Soliciting policy B) Advertising a policyholder regarding a claim C) Negotiating coverage D) Obtaining an insurance license
Obtaining an insurance license
An insurance agent X has been found guilty of a felony and was sentenced to 3 years in prison. What would be the appropriate plan of action?
Send a written notification to the department of insurance
Which of the following entities is responsible for agent licensing and administrative supervision?
the office of insurance regulation (responsible for all activities concerning insurers, including licensing and certificates of authority, rates, policy forms, claims, solvency, administrative supervision)
An applicant for an insurance agent's license must
Complete a prelicensing education course (Applicants for an agent' license must complete a 40 hour prelicensing education course)