Life & Health Insurance Exam Life & Health Insurance Insurance Regulation and Ethics 3 — Questions and Answers
Question 1: A cease and desist order issued by a state insurance commissioner requires a producer to:
- Pay a fine immediately
- Stop engaging in a specified prohibited activity (Correct answer)
- Surrender their license permanently
- Appear before a federal court
Correct answer: Stop engaging in a specified prohibited activity
A cease and desist order is an administrative directive requiring the recipient to stop a particular practice that violates insurance law.
Question 2: The concept of 'indemnity' in insurance means:
- The insurer guarantees a profit to the insured
- The insured is restored to the same financial position as before the loss (Correct answer)
- Premiums are refunded if no claims are filed
- The policy pays regardless of actual financial loss
Correct answer: The insured is restored to the same financial position as before the loss
Indemnity is the principle that insurance should restore the insured to their pre-loss financial position, not result in a gain.
Question 3: Which of the following would most likely constitute an unfair trade practice under state insurance law?
- Offering a group discount to employees
- Charging different rates based on actuarial data
- Making false statements about a competitor's financial condition (Correct answer)
- Issuing a policy with a 30-day free-look period
Correct answer: Making false statements about a competitor's financial condition
Making false or misleading statements about a competitor's financial condition is a form of defamation and an unfair trade practice.
Question 4: Under the concept of utmost good faith (uberrimae fidei), both the insurer and insured are required to:
- Agree on the policy premium before issuance
- Disclose all material facts relevant to the insurance contract (Correct answer)
- Use an independent broker for all transactions
- Accept arbitration for all disputes
Correct answer: Disclose all material facts relevant to the insurance contract
The doctrine of utmost good faith requires both parties to disclose all material information that could affect the insurance agreement.
Question 5: A producer's license may be suspended for failing to:
- Meet continuing education requirements (Correct answer)
- Sell a minimum number of policies per year
- Recommend term life insurance to all clients
- Report sales totals to the state quarterly
Correct answer: Meet continuing education requirements
Most states require licensed producers to complete continuing education credits periodically, and failure to comply can result in license suspension.
Question 6: Which law governs the privacy of individual health information held by insurers and requires safeguards for protected health information?
- ERISA
- HIPAA (Correct answer)
- McCarran-Ferguson Act
- COBRA
Correct answer: HIPAA
HIPAA (Health Insurance Portability and Accountability Act) establishes federal standards for protecting individually identifiable health information.
Question 7: An agent who gives a portion of their earned commission back to a policyholder as an inducement to purchase insurance is engaging in:
- Twisting
- Defamation
- Rebating (Correct answer)
- Churning
Correct answer: Rebating
Rebating is the illegal practice of returning part of the agent's commission or offering other valuable consideration as an inducement to purchase insurance.
Life & Health Insurance Exam Life & Health Insurance Insurance Regulation and Ethics 3
A cease and desist order issued by a state insurance commissioner requires a producer to: