Free Practice Questions for Insurance Licensing Life-Producer Exam

Boycott refers to the refusal to engage in business dealings with a particular party as part of an unfair trade practice, often used to coerce or punish. It is prohibited under Maryland’s Unfair Trade Practices Act.

Boycott (C): Defined as an unfair method of competition when used in the insurance context.

Estoppel (A): A legal doctrine preventing someone from asserting a claim inconsistent with previous actions, unrelated to business refusal.

Injunction (B): A court order stopping specific actions, not related to refusal to do business.

Binder (D): Temporary insurance coverage, unrelated to trade practices.

Beneficiary designation concepts.

Life insurance policies allow the owner to name beneficiaries who receive proceeds at death.

Revocable vs. irrevocable designations.

A revocable beneficiary can be changed by the policyowner at any time without the beneficiary’s consent.

An irrevocable beneficiary cannot be changed without the beneficiary’s written consent.

Evaluate each option.

A. Contingent designation

Refers to a secondary beneficiary, not the right to change.

B. Irrevocable designation

Opposite of the described situation.

C. Contestable designation

Not a valid beneficiary term.

D. Revocable designation

Correct. This allows the policyowner to change beneficiaries.

Maryland relevance.

Maryland recognizes revocable beneficiary designations unless the policy specifically states otherwise.

Conclusion.

Reserving the right to change beneficiaries is a revocable designation.

Defamation involves publishing or circulating false, malicious statements intended to harm an insurer’s reputation. It is prohibited under Maryland law to protect the integrity of insurers.

Defamation (A): Includes any written or spoken communication that is untrue and harms the insurer’s business standing.

Intimidation (B): Relates to coercing individuals through threats, not publishing falsehoods.

Extortion (C): Involves demanding something through threats, unrelated to false statements.

Coercion (D): Involves forcing a party to act under duress, not relevant to publishing false information.

Continuing education (CE) oversight in Maryland.

Maryland requires licensed producers to complete approved CE courses to maintain competence and compliance.

Evaluate each option.

A. NAIC

The NAIC develops model laws but does not approve courses.

B. Agency manager

No regulatory authority over CE approval.

C. Maryland Insurance Administration

Correct. The MIA approves CE providers and course content.

D. Individual insurers

Insurers cannot approve CE requirements.

Good-faith and consumer protection relevance.

MIA oversight ensures CE content supports ethical conduct and compliance with Maryland insurance laws.

Conclusion.

The Maryland Insurance Administration is responsible for approving CE courses.

Tax treatment of deferred annuities.

A deferred annuity accumulates interest on a tax-deferred basis.

Interest earnings are not reported annually while they remain in the contract.

Trigger for taxation.

Federal tax law, followed by Maryland for income reporting, requires taxation only when distributions are received.

Interest is taxed as ordinary income, not capital gains.

Evaluate each option.

A. Annually

Incorrect. This would describe taxable interest accounts, not annuities.

B. After recovering principal

Incorrect. Under the LIFO rules for annuities, interest is taxed first.

C. Upon receiving distributions or income benefits

Correct. This is when taxation occurs.

D. Tax-exempt

Incorrect. Annuities are tax-deferred, not tax-exempt.

Conclusion.

Interest income is reported when distributions are received.

Definition of rebating.

Rebating occurs when an agent offers part of their commission or other valuable consideration to induce the purchase of insurance.

Evaluate each option.

A. Twisting

Involves misrepresentation to replace a policy.

B. Rebating

Correct. Sharing commissions to induce a sale is rebating.

C. Replacement

Lawful when properly disclosed.

D. Retention

Not an unfair trade practice.

Maryland regulatory context.

Maryland prohibits rebating to ensure fairness among policyholders and prevent price discrimination.

Conclusion.

The described conduct is rebating.

Premium determination in life insurance depends on factors that measure risk, but race (D) is not and cannot be used due to anti-discrimination laws.

Age (A): A primary factor; younger applicants are charged lower premiums due to lower mortality risk.

Health (B): Significant; poor health or pre-existing conditions increase premiums.

Occupation (C): Risky professions (e.g., construction or aviation) may result in higher premiums.

Race (D): Prohibited by Maryland law, which ensures fairness and prohibits underwriting based on race, ethnicity, or similar discriminatory criteria.

Purpose of nonforfeiture options.

Nonforfeiture options ensure that a policyowner does not lose all value if premiums stop.

Evaluate each option.

A. Endowment value option

Not a standard nonforfeiture option.

B. Extended term insurance option

Uses cash value to buy term insurance for the same face amount, not the same policy type.

C. Loan value option

Involves borrowing, not policy continuation.

D. Reduced paid-up insurance option

Correct. Uses net cash value to purchase a paid-up policy of the same type with a reduced face amount.

Maryland consumer protection relevance.

Maryland nonforfeiture requirements ensure policyholders retain fair value upon lapse.

Conclusion.

The reduced paid-up insurance option meets the description, making option D correct.

Disciplinary authority of the Maryland Insurance Administration (MIA).

The MIA has authority to discipline producers for misrepresentation, deceptive practices, and unfair trade practices.

Review each action carefully.

A. Misleading statements about an insurer’s financial condition

Prohibited; constitutes misrepresentation and unfair competition.

B. Hiding the true nature of a policy

A form of misrepresentation and possibly twisting.

C. Misleading statements about dividends

Specifically prohibited under insurance advertising and sales rules.

D. Filing a complaint on behalf of a consumer

Lawful and appropriate; producers may assist consumers in asserting their rights.

Good-faith and consumer advocacy.

Assisting a consumer with a complaint supports transparency and accountability.

Maryland law encourages reporting and remediation of improper insurer conduct.

Why option D is the exception.

Filing or assisting with a consumer complaint is not misconduct and is not grounds for discipline.

Conclusion.

A producer cannot be disciplined for filing a complaint on behalf of a consumer, making option D correct.

How policy loans work in life insurance.

A policy loan is taken against the policy’s cash value, not from the insurer’s general funds.

Under both federal tax rules and Maryland insurance principles, policy loans are not taxable income as long as the policy remains in force.

Evaluate each option.

A. Taxable income

Incorrect. Policy loans are generally not taxable unless the policy lapses.

B. Loss of tax-exempt death benefit

Incorrect. Death benefits remain income-tax free, though the loan balance is deducted.

C. Becomes a modified endowment contract (MEC)

Incorrect. A loan does not convert a policy into a MEC.

D. Reduces amount receivable upon surrender

Correct. Any outstanding loan plus interest is deducted from the cash surrender value.

Maryland relevance.

Maryland regulates policy disclosures to ensure consumers understand that loans reduce cash value and net proceeds, which aligns with fair-dealing standards.

Conclusion.

The correct effect of a policy loan is a reduction in the amount receivable upon surrender.