Final Examination

What provides minimum acceptable standards of conduct?

Ethics

Compliance

both of the above are correct

none of the above are correct

What is the result of increased professional status for the insurance agent?

Increased liability

Continuation of the agency distribution system

both of the above are correct

none of the above are correct

Which of the following is a responsibility of state insurance regulators?

I.  Licensing

II.  Regulating continuing education requirements

III.  Overseeing market conduct

I and II only

I and III only

II and III only

I, II and III

Which level of government is specifically charged with regulating matters relating to the ethical conduct of insurance agents?

state

federal

both state and federal government

neither state nor federal government regulate ethics

Which of the following is NOT a common theme in state insurance laws?

That only approved policies may be sold

That misrepresentation is prohibited

That insurance coverage may not be replaced

That agents perform their duties in a timely way

The body of law and concepts that grew out of the English judicial system is commonly known as:

common law

the Insurance Code

securities law

judicial review

Which level of authority is conferred through the contract of agency:

Express

Implied

Apparent

Statutory

Which of the following are characteristic of implied authority?

I.    It is not contractually provided

II.   It generally relates to business customs

III.  The insurer intends to provide the authority

I and II only

I and III only

II and III only

I, II and III

What type of authority has generally resulted in most of the compliance problems in the insurance industry?

express

apparent

statutory

implied

Bill Walsh is a life insurance agent who has done business with Gary Williams for many years.  Gary traditionally purchased term insurance coverage and would customarily contact Bill before it expired to purchase new coverage.  Gary failed to contact Bill before his current policy expired and now he finds that he is uninsurable.  He has sued Bill for failing to notify him that his coverage was expiring.  What defense is Bill likely to maintain?

Waiver

Estoppel

Election

Course of conduct and custom

The information below should be used to answer the following three questions.

Shirley Whitley is a life insurance agent for MultiMutual and does business as the Olde English Financial Group.  Olde English Financial Group, along with her name and telephone number, is the only information on Shirley's business card.  Shirley met Dave Winslow, president of a local hardware chain, at a Chamber of Commerce luncheon.  She gave Dave her card and said that she offered unique tax-free products that were available only to business owners and suggested they meet to discuss how these products could benefit him.  When Shirley and Dave met, she discussed a private pension arrangement that would permit him to withdraw substantial gains without ever having to pay taxes.

What ethical concern is raised by Shirley's business card?   

A.     Nothing, her business card is fine.

B.     Shirley's failure to identify herself as an agent for MultiMutual is misleading and unethical

C.     The failure of a business card to list the products sold is unethical

D.     Trade names are inherently unethical

 What ethical issue is raised by Shirley's referring to the life insurance products she sells as "unique tax-free products"?

Products may only be described as unique if they are truly unique

The use of the words "tax-free" to describe financial products must advise the prospect to check with his or her tax advisor

both of the above are correct

none of the above are correct

Shirley referred to a life insurance policy as a private pension.  What concern does use of that term raise?

The term "private pension" is permitted when referring to a life insurance policy only if the policy is a modified endowment contract

Use of "private pension" is unethical since it misleads

Use of "private pension" is illegal

"Private pension" may be used at any time to refer to a life insurance policy

Which of the features of dissimilar products must be compared in a complete comparison?

Risks and guarantees

Insurance benefits

Tax features

all of the above

 A comparison that is balanced is one that:

examines the advantages and disadvantages of both products

lists the same number of advantages for both products

lists the same number of disadvantages for both products

is substantiated

When using statistics in a product comparison they must be:

substantiated

referenced

both of the above are correct

none of the above are correct

Which of the following are requirements with respect to collected premiums?

I.    Premiums must be submitted to the insurer on a timely basis

II.   Premiums must not be commingled with personal funds

III.  Premiums must not be used for personal expenses

I and II only

I and III only

II and III only

I, II and III

Which of the following are possible results of an agent's failure to follow an insurer's instructions?

Termination of the agent's contract

Loss of insurer assistance in the event of a lawsuit

both of the above are correct

none of the above are correct

The terms "contribution," "deposit" and "investment" are deceptive and unethical when used to refer to:

a life insurance policy

premiums

separate accounts

cash values

The terms "earnings," "profit" or "return" are deceptive and unethical when used to refer to:

a life insurance policy

premiums

dividends

cash values

The term "vanishing premiums" is deceptive and unethical when used to refer to:

a life insurance policy

premiums paid by the use of dividends

separate accounts

cash values

What is NOT generally involved in the ethical audit of a life insurance agent's practice?

Identifying sales tools and practices used

Evaluating the sales tools and practices used

Changing unethical or non-compliant tools or practices

Review of the agent's bookkeeping

^

Which of the following is the foundation of ethics for the financial services agent?

The Golden Rule

The legal system

Force

Compliance requirements

What makes a system of ethics essential?

A limited supply of goods

Because individuals exist in society

Its fairness

It is the only method to adjudicate disputes

The following is a fundamental method of resolving disputes.

Reason

Force

both of the above are correct

none of the above are correct

What is the common thread in unethical sales practices?

The practices were illegal

They misled the customer

They led to the customer’s monetary loss

They were forbidden by all insurers

Which of the following is NOT a necessary component of a profession?

Specialized knowledge

“Service before income” outlook

Opportunity for substantial income

A code of professional ethics

Which of the following is NOT a role of the states in the regulation of the insurance industry?

Licensing agents

Supervising company sales practices

Licensing insurers

Promulgating pension regulations

Which of the following is NOT a way in which the federal government influences the insurance industry?

Through income taxation of cash values

Through the licensing of insurers

Through health insurance legislation

Through its regulation of insurance products considered securities

The federal government retains the power to control the insurance industry under ______ to the extent that the issues involved are deemed national in character.

ERISA

HIPAA

the McCarran-Ferguson Act

the Financial Services Modernization Act

Which of the following is NOT an authority conferred under the law of agency?

Express authority

Suggested authority

Implied authority

Apparent authority

The subsequent confirmation or approval of an agent’s unauthorized actions is known as:

disintermediation

ratification

brokering

pyramiding

The term “sales tools” includes everything that the agent uses to:

create interest in purchasing a product

create interest in keeping a purchased product

both of the above are correct

none of the above are correct

Shirley Whitcomb is a certified financial planner whose business card and letterhead identify her as “Shirley Whitcomb & Associates, Certified Financial Planners.”  Under what circumstances would Shirley’s business card and letterhead be acceptable?

If Shirley was a CFP

If Shirley and all of her associates were CFPs

either a or b

none of the above are correct

What licensing or registration is generally required before an insurance agent may refer to him- or herself as a financial planner?

The agent must have a Series 63 registration

The agent must be a CLU

The agent must be a registered investment adviser

The agent must be Series 6 registered

What are the areas that may be ethical concerns in the use of personal brochures?

Claiming expertise or education not possessed

Misstating personal or professional accomplishments

Failure to include material information

all of the above

What is potentially the most serious ethical issue in the approach step of the sales process?

The agent’s discussion of a product over the telephone

The agent’s stating or implying that he or she has skills, experience or credentials that are not possessed

The agent’s failure to provide a complete comparison

The agent’s failure to provide full disclosure

Under what circumstances may a life insurance agent claim affiliation with a government agency as a means of suggesting governmental approval?

If the agent is a registered investment adviser

If the agent has a Series 6 or Series 7 registration

Upon application to the SEC

Never

What is the ethical concern in referring to a life insurance policy as a “private pension?”

The term used obscures the true identity and nature of the product

The product would need to be governed by ERISA legislation

Private pensions refer only to modified endowment contracts

There is no ethical concern in referring to a life insurance policy as a private pension

What is generally the first substantive interview in the life insurance sales process?

The approach

The fact-finding interview

The closing interview

The delivery interview

What is/are the principal ethical concern(s) in the presentation step of the sales process?

Selection of the appropriate product

Communication about the recommended product

both of the above are correct

none of the above are correct

Which of the following is the least unethical practice?

Churning

Rebating

Misrepresentation

Replacement

The practice of excessive trading in a client’s securities account for the primary purpose of generating commissions is known as:

churning

rebating

misrepresentation

boiler-rooming

Jim Whelan promised his golf partner that he would pay the fees for the next round of golf if his partner would buy a life insurance policy.  Realizing he needed life insurance anyway, his partner bought a policy.  What, if any, ethical issues are involved?

Jim is guilty of rebating, which is both unethical and illegal

Jim is guilty of rebating only if he actually paid the golf fees

Since the partner needed life insurance anyway, no ethical or legal issue is involved

Jim would be guilty of rebating only if the golf fees exceeded $100

For misrepresentation to be unethical, it must be:

oral

written

either oral or written

none of the above are correct

Which of the following would NOT be a possible result of a life insurance replacement?

Suicide and incontestable provisions begin anew

Original policy’s cost basis could be lost

Death benefit proceeds would become income taxable

Any gain might need to be immediately recognized

Agents should be aware of which of the following warning signs of a phony insurance plan?

a.  premium rates are relatively inexpensive compared to other comparable policies

b.  premium quotes do not vary between applicants

c.  applicants must join an association or union to obtain coverage

d.  all of the above

All ERISA-covered plans are:

a.  illegal

b.  fraudulent

c.  exempt from state regulation

d.  none of the above

Which of the following are exempt from state insurance regulation:

a.  a single-employer ERISA benefits plan

b.  multiple-employer ERISA benefits plans

c.  "association" ERISA benefits plans

d.  none of the above are exemption from state regulation

Possible incarceration for an agent convicted of selling coverage issued by an unauthorized insurer is:

a.  up to one year in county jail

b.  up to one year in prison

c.  up to three years in prison

d.  up to five years in prison

In addition to possible fines and possible incarceration, agents who solicit, negotiate or sell coverage issued by an unauthorized insurer face:

a.  civil liability for all unpaid claims

b.  revocation of all insurance licenses

c.  suspension of all insurance licenses

d.  all of the above