Insurance Producers

Question 1

Agents vs Brokers

Answer 1

Insurance companies generally use one or both of two types of sales representatives to sell their insurance products, including:

• agents employed by an insurance company to sell only that company’s products; and
• independent insurance brokers who sell insurance products for a number of different companies.

Agents are legally considered representatives of the insurer that employs them. Brokers have traditionally and legally been viewed as representing the applicant rather than the insurer. Despite these differences, most states now refer to agents and brokers by the collective term producer.

Question 2

Laws of Agency: The Insurer as Principal

An agency relationship must involve two parties:

• a __________- is the party on whose behalf the agent acts.
• an _________- is the party who acts for another, that “other” being the principal.

Answer 2

An agency relationship must involve two parties:

• a principal - A principal is the party on whose behalf the agent acts.
• an agent (producer) An agent is the party who acts for another, that “other” being the principal.

Legally, the term agent refers to the relationship any person has with a principal. With insurance, the insurer is the principal.

Brokers legally establish an agent relationship with every insurance company with which they write business.

Question 3

The Producer/Insurer Relationship (Captive vs. Independent)

Answer 3

Under the career (or captive) agency system, the agent is employed by one insurance company.

By contrast, independent insurance brokers represent multiple insurers. They can pick insurance products from any of these companies to best meet their clients’ needs.

Question 4

List the 8 fiduciary responsibilities a producers owes to its principal, the insurer.

Answer 4

In its fiduciary responsibility to its principal,

• a producer is required to solicit business that is acceptable to the insurer
• carry out authorized activities with reasonable care
• fully disclose to the insurer all pertinent information that affects the placement of an insurance policy, including the proposed insured’s current health and health history;
• make full disclosure in the completion of claim forms;
• avoid conflicts of interest;
• follow through on business transactions within a reasonable time; and
• fully account for premiums and
• submit them to the insurer on a timely basis

Question 5

Cost Indexes

Two common indexes in use are the

• life insurance ___________ cost index, which compares costs at a future date when the policy might be surrendered for cash value, and
• life insurance ___________ cost index, which compares costs at a future date if premiums are continually paid and no cash value is withdrawn.

Answer 5

The most effective way to compare policies is through the use of cost indexes, which use the factors of premiums, cash value, and policy dividends (in the case of participating policies) to compare the relative costs of similar policies.

Two common indexes in use are the

• life insurance surrender cost index, which compares costs at a future date when the policy might be surrendered for cash value, and
• life insurance net payment cost index, which compares costs at a future date if premiums are continually paid and no cash value is withdrawn.