Life & Health Insurance Insurance Regulation and Ethics Questions and Answers

Question 1

An agent persuades a policyholder to surrender their existing whole life policy from Company A and purchase a new policy from Company B by falsely claiming the new policy has significantly better cash value accumulation. This illegal practice is known as:

Accepted Answer

Twisting

Answer

Twisting is the unfair trade practice of making false or misleading comparisons of policies to induce a policyholder to lapse, forfeit, surrender, or exchange their current insurance for another, to their detriment. Rebating involves offering a valuable consideration not specified in the policy as an inducement to purchase. Coercion involves intimidation or force. Defamation is making false statements about another insurer or agent.

Question 2

Which federal law affirmed the right of states to regulate the business of insurance, establishing that continued state regulation is in the public interest?

Accepted Answer

The McCarran-Ferguson Act

Answer

The McCarran-Ferguson Act of 1945 is a U.S. federal law that gives states the authority to regulate the business of insurance. It specifies that federal laws will not preempt state insurance laws unless the federal law specifically relates to insurance.

Question 3

An insurer denies a life insurance application based in part on information from a consumer reporting agency. Under the Fair Credit Reporting Act (FCRA), what is the insurer required to do?

Accepted Answer

Notify the applicant of the adverse action and provide the name and contact information of the consumer reporting agency.

Answer

Under the FCRA, when an insurer takes an adverse action based on a consumer report, it must provide the consumer with an adverse action notice. This notice must include the name, address, and phone number of the agency that supplied the report, a statement that the agency did not make the decision, and notice of the consumer's right to obtain a free copy of the report and dispute its accuracy.

Question 4

An agent offers a prospective client a cash payment from their commission as an incentive to purchase a life insurance policy. This is an illegal and unethical practice known as:

Accepted Answer

Rebating

Answer

Rebating is the practice of offering a potential buyer an inducement, such as a portion of the agent's commission or another item of value, that is not specified in the insurance contract to encourage the purchase of a policy. This is illegal in most states as it can lead to unfair discrimination among policyholders.

Question 5

What is the primary function of the National Association of Insurance Commissioners (NAIC)?

Accepted Answer

To serve as a standard-setting and regulatory support organization for state insurance regulators.

Answer

The NAIC is a support organization created and governed by the chief insurance regulators from all 50 states, the District of Columbia, and five U.S. territories. Its primary role is to establish standards, develop model laws and regulations, conduct peer reviews, and coordinate regulatory oversight to promote consistency and protect consumers. It does not have direct regulatory authority over insurers.

Life & Health Insurance Exam Practice Test

Life & Health Insurance Exam Practice Test

Life & Health Insurance Insurance Regulation and Ethics Questions and Answers