CHAPTER 4 (Part 2) Flashcards
TRUE OR FALSE?
The interests of the client cannot be placed ahead of those of the life insurance agent.
FALSE
The interests of the client must be placed ahead of those of the life insurance agent
[Ref. 4.2.2.1]
What are the best practices for determining product suitability during a typical individual life insurance sales process with a client?
- Disclosure to client;
- Client expectations;
- Fact finding;
- Needs assessment;
- Recommendations and advice;
- Product information.
Name six unfair or deceptive practices that agents must avoid?
- Tied Selling
- Churning & Twisting
- Premium Rebating
- Trafficking in insurance
- Fronting
- Unnecessary delay in delivering policies
- Misrepresentation
- Misappropriating client funds (commingling of funds)
- Making a false document (forgery)
- Holding out improperly
- Misusing company-provided illustrations
- Defamation
Ethics Terminology
Tied Selling
Making a purchase of one product conditional on the purchase of another.
Example;
- Annick, a life insurance agent representing a single insurer, tells Gary, her client, that he qualifies for a registered retirement savings plan (RRSP) loan.
- However, Annick tells Gary the loan is conditional on Gary transferring his current RRSPs into products offered by the life insurance company that Annick represents.
- This is not true and therefore deceptive, but Gary trusts Annick and does as she suggests.
- Annick should never have made one transaction conditional on the purchase of another product or service.
- This is unethical behaviour as she is the only person to benefit from the transaction.
[Ref. 4.2.3.1]
Ethics Terminology
Churning and twisting
Churning occurs when an agent encourages a client to give up one product for another (usually from the same insurer) in order for the agent to benefit from the commission.
Twisting is when an agent persuades a client to terminate a policy in view of replacing it with another one (generally from a different insurer).
Ethics Terminology
Premium Rebating
Premium rebating involves an agent giving back or rebating a portion of the premiums.
Example;
- Irving met with his client’s son Steven, to sell him a life insurance policy.
- Since Steven was reluctant to sign, Irving offered to pay the first premium.
- In effect, Irving was offering a rebate. Irving should not offer to pay the first premium as an incentive for clients to purchase.
[Ref. 4.2.3.3]
Ethics Terminology
Trafficking in insurance
Trafficking in insurance occurs when an agent acts as an intermediary between a policyholder who wishes to sell a policy (give up or absolute assignment) and a potential buyer.
Example;
- Jamie, an insurance agent who is also registered as a mutual fund salesperson, arranged the sale of viatical settlements (insurance policies assigned by terminally ill individuals to a corporation) to his clients.
- He is required to place all business through his employer, which he did not do, and made profit on the sales.
- This is an unethical and even illegal practice in some jurisdictions.
[Ref. 4.2.3.4]
Ethics Terminology
Inducing to insure
An agent cannot use a gift or offer of payment to convince a client to purchase insurance.
Example;
- Nadia offers Silvano, a potential client, a discount on a policy benefit.
- She recommends adding a term rider free of charge if he buys a permanent life insurance policy.
- This is prohibited. Nadia should not try to induce a client into buying insurance by offering riders free of charge.
Ethics Terminology
Fronting
Allowing another person to solicit business and submit it to an insurer under another agent’s name who has not seen or does not know the client at all.
Examples;
- Donald, the manager of the local office of an insurance company, recruits Abner to become a life insurance agent.
- Abner has not yet successfully completed the licencing examinations, so he is not licenced. However, he has
approached a relative to buy a term policy and has brought the completed application and cheque for the first premium to Donald. - Donald signs as agent of record and splits the commission with Abner.
- Donald should never have employed Abner without the approved licence nor signed him as agent of record, and Abner should not have approached potential clients until he had obtained his licence.
- Donald risks having his licence revoked and Abner risks never being able to obtain his.
The Financial Services Commission of Ontario (FSCO) defines “fronting” as…
Situations in which an agent holds a licence but chooses to have another agent who did not actually complete the transaction sign as the agent of record, or where an unlicensed person arranges the business and has a licenced person sign on their behalf.
TRUE OR FALSE?
The life insurance agent must not hold or retain documents intended for delivery to the client
TRUE
- an agent “must deliver insurance policies or evidence of insurance coverage within a reasonable time” in order to be seen to protect clients’ interests.
[Ref. 4.2.3.7]
TRUE OR FALSE?
It is a violation for any life insurance agent to
make, issue, or circulate any illustration or sales material, or to make any statement that is false, misleading or deceptive.
TRUE
- This is described as an “unfair or deceptive act or practice” in the Insurance Act of Ontario
TRUE OR FALSE?
Taking money or other property received from the client for a specific purpose and fraudulently misapplying it to another purpose is considered a deceptive practice and is illegal.
TRUE
FILL IN THE BLANK!
________ is a criminal offence and involves the agent making a false document and knowingly doing so.
Forgery
According to The Canadian Association of Independent Life Brokerage Agencies (CAILBA), a life insurance agent who holds out properly must (name at least two)…
- Ensure his licence is posted in a publicly visible place;
- Hold out under the name on the licence unless provincial regulation allows otherwise;
- Not mislead as to qualifications or the nature of business being conducted;
- Avoid terms that indicate meaningful specialized training and competency unless the agent has
actually achieved the claimed level of training and/or competency; - Not claim to have “associates” unless there is at least one licenced individual with equal or better
qualifications; - Not hold out as a financial planner unless holding a planning designation recognized by the
Financial Planning Standards Council.
