Life & Health Insurance Exam Life & Health Insurance Insurance Regulation and Ethics 2 — Questions and Answers
Question 1: An agent who knowingly submits a false application to obtain a policy for a client is guilty of:
- Misrepresentation (Correct answer)
- Defamation
- Twisting
- Churning
Correct answer: Misrepresentation
Submitting false information on an application constitutes misrepresentation, which is both unethical and illegal.
Question 2: Which regulatory body primarily oversees insurance company solvency in the United States?
- Federal Reserve
- State Insurance Department (Correct answer)
- SEC
- FINRA
Correct answer: State Insurance Department
Insurance is regulated at the state level, and each state's insurance department is responsible for monitoring insurer solvency.
Question 3: The purpose of the NAIC (National Association of Insurance Commissioners) is to:
- Issue federal insurance licenses
- Coordinate regulatory standards among states (Correct answer)
- Collect insurance premiums nationally
- Approve all policy forms nationwide
Correct answer: Coordinate regulatory standards among states
The NAIC is an organization of state insurance regulators that promotes uniformity and coordination of insurance regulation across states.
Question 4: A producer who convinces a client to replace a life insurance policy primarily to earn another commission is engaging in:
- Twisting (Correct answer)
- Rebating
- Defamation
- Sliding
Correct answer: Twisting
Twisting is the unethical or illegal practice of inducing a policyholder to drop an existing policy and buy a new one primarily for the agent's benefit.
Question 5: Under state insurance law, which of the following is generally considered an unfair claims settlement practice?
- Requesting a medical examination of the claimant
- Denying a claim without a reasonable investigation (Correct answer)
- Requiring proof of loss documentation
- Paying a claim within 30 days
Correct answer: Denying a claim without a reasonable investigation
Denying claims without conducting a reasonable investigation is a defined unfair claims settlement practice prohibited by state law.
Question 6: An insurance agent's fiduciary duty to a client means the agent must:
- Always recommend the lowest premium product
- Place the client's interests above their own (Correct answer)
- Disclose their commission on every policy
- Obtain three competing quotes before recommending
Correct answer: Place the client's interests above their own
A fiduciary duty requires the agent to act in the best interest of the client rather than their own financial interests.
Question 7: Which of the following best describes 'sliding' in insurance sales?
- Reducing premiums without authorization
- Adding unrequested coverages to a policy without disclosure (Correct answer)
- Sliding a policy from one insurer to another
- Gradually increasing policy premiums after issue
Correct answer: Adding unrequested coverages to a policy without disclosure
Sliding occurs when a producer adds coverage to an application without the applicant's knowledge or informed consent.
Life & Health Insurance Exam Life & Health Insurance Insurance Regulation and Ethics 2
An agent who knowingly submits a false application to obtain a policy for a client is guilty of: