Chapter 4: State Insurance Statutes, Rules, and Regulations

Question 1

What type of licensee represents the insurance company?

Answer 1

The agent

Question 2

What is the purpose of insurance guaranty associations?

Answer 2

To protect policyowners, insureds and beneficiaries from financial losses caused by insolvent insurers

Question 3

In the agent/insurer relationship, who is considered the principal?

Answer 3

Insurer

Question 4

What is controlled business?

Answer 4

Insurance on the producer’s own life or property, or the lives or property of the producer’s family or business associates

Question 5

What type of misrepresentation persuades an insured, to their detriment, to cancel, lapse, or switch policies from one to another?

Answer 5

Twisting

Question 6

Who may share in the commission from the sale of a life insurance policy?

Answer 6

Only producers properly licensed for the type of insurance transaction

Question 7

Can insurers advertise the existence of the guaranty association during solicitation and sale of insurance policies?

Answer 7

No, advertising of the existence of the guaranty association for the purposes of solicitation and sale of insurance policies by insurers is an illegal business practice.

Question 8

What are producers required to do in order to renew their license?

Answer 8

Complete continuing education hours and pay a renewal fee

Question 9

What type of licensee represents the insured?

Answer 9

Broker

Question 10

To whom may a certificate of authority be issued?

Answer 10

To an insurer authorized to transact business in this state

Question 11

Who is an insurance agent?

Answer 11

A person authorized to sell, solicit and negotiate insurance contracts

Question 12

Two individuals who are in the same risk and age class are charged different rates for their insurance policies due to an insignificant factor. What is this called?

Answer 12

Discrimination

Question 13

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?

Answer 13

Authorized or admitted

Question 14

If an insurer holds a Certificate of Authority, it is known as what type of insurer?

Answer 14

Authorized or admitted

Question 15

For what reason can a temporary license be issued?

Answer 15

For continuation of business in case the licensed producer dies or becomes disabled

Question 16

Who must be a member of insurance guaranty associations?

Answer 16

All insurers authorized to write insurance within a state

Question 17

If a producer makes maliciously critical statements about another insurer, what is this illegal practice called?

Answer 17

Defamation

Question 18

An agent offers a client free tickets to a sporting event in exchange for the purchase of an insurance policy. What is the agent guilty of?

Answer 18

Rebating

Question 19

Who is considered a nonresident agent?

Answer 19

An agent who resides and is licensed in another state, but who is authorized to transact insurance in this state

Question 20

Who must be notified of a producer’s change of address?

Answer 20

The Department of Insurance (Commissioner/Director/Superintendent)

Question 21

When can the Commissioner or Director examine insurers?

Answer 21

Whenever deemed necessary, but at least once every few years (please check your state regulations for specific time requirement)

Question 22

If the Commissioner/Superintendent finds a licensee engaging in an unfair method of competition or an unfair practice, what order will be issued?

Answer 22

Cease and desist order

Question 23

In general, who can be excluded from producer licensing and examination requirements?

Answer 23

Insurance company officers, directors, or any other employees who do not transact insurance and who do not receive commissions for their services (usually, their responsibilities include administrative, executive or clerical).

Question 24

What illegal act does a producer commit when the producer represents a policy in a more favorable light than the policy really is?

Answer 24

Misrepresentation

Question 25

What is the purpose of a cease and desist order?

Answer 25

To prevent a producer or insurer from further violating laws for transacting insurance

Question 26

What document is required for an insurance company to transact insurance?

Answer 26

Certificate of Authority

Question 27

On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. What is the company guilty of?

Answer 27

Misrepresentation

Question 28

Who can usually be granted a temporary license?

Answer 28

Producer’s spouse or designee in case the licensed producer dies or becomes disabled

Question 29

Who is responsible for the costs associated with the examination of insurers?

Answer 29

The insurer who is being examined

Question 30

Who owns stock companies?

Answer 30

Stockholders

Question 31

What are the most common penalties for violations of insurance statutes?

Answer 31

A cease and desist order, a fine, and license suspension or revocation

Question 32

Insurers are classified according to their domicile. What are the three types of insurers?

Answer 32

Domestic, foreign, and alien

Question 33

Who is responsible for the contents of insurance advertisements?

Answer 33

The insurance company

Question 34

When is controlled business legal?

Answer 34

When the commissions from controlled business do not exceed the aggregate commissions on all the other business (specific limits may vary from state to state)