Review Questions

What provides minimum acceptable standards of conduct?

       Ethics
       Compliance
       Both a and b
Neither a nor b


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

      Increased liability
      Continuation of the agency distribution system
      Both a and b
Neither a nor b

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 a and b
Neither a nor b


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 a and b
neither a nor b


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 a and b
     Neither a nor b


       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 practitioner?

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 a and b
Neither a nor b


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
TEFRA
the McCarran-Ferguson Act
the U.S. Claims Court

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 a and b
Neither a nor b

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
neither a nor b


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 practitioner’s discussion of a product over the telephone
The practitioner’s stating or implying that he or she has skills, experience or credentials that are not possessed
The practitioner’s failure to provide a complete comparison
The practitioner’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 a and b
Neither a nor b



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 a or b
neither a nor b


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




What steps are 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
all the above


Which of the following is NOT a general ethical principle concerning communications with a prospect?

Communications must be honest
Communications must convey information fully and fairly
Communications must contain all material information
Communications must not mislead


Which of the following are of importance in terms of ethics and compliance?

The manner in which a practitioner identifies products
The manner in which a practitioner identifies him- or herself
The manner in which a product’s features and benefits are presented
all of the above


Which of the following is NOT a method by which an agent may turn his or her ethical practice into a marketing advantage?

Be proactive
Bring up the prospect’s attitude about the industry
Use open-ended questions to uncover the prospect’s feelings
Avoid discussion of the ethical issues in the industry unless the prospect brings them up