Kentucky Life & Health Insurance Exam — All Questions

A Kentucky producer offers a prospect part of the producer's commission as cash back if the prospect buys a life policy. Under Kentucky law this is:

• a.Permitted for term life policies only
• b.Required to be reported but otherwise legal
• c.Prohibited as unlawful rebating✓
• d.Permitted if the producer discloses it in writing

Rebating, offering any part of the premium or commission or other valuable consideration as an inducement to buy, is a prohibited unfair trade practice. It is barred because it can lead to unfair discrimination between policyholders who are otherwise in the same class.

Using misrepresentation or incomplete comparisons to persuade a policyholder to drop an existing policy and buy a new one is best described as:

• a.Twisting, which is a prohibited unfair practice✓
• b.Rebating, which is fully permitted
• c.Churning, which is fully permitted
• d.Field underwriting, which is required

Twisting is the use of misrepresentation to induce a policyholder to lapse, surrender, or replace an existing policy in favor of a new one, usually with a different insurer. Churning is a similar abuse using the same insurer's policies. Both are prohibited unfair practices.

Premiums that a Kentucky producer collects from clients on behalf of an insurer:

• a.May be invested by the producer for extra return before remittance
• b.Are held in a fiduciary capacity and must be remitted to the insurer, not commingled or used personally✓
• c.Can be kept indefinitely as a security deposit
• d.Become the producer's personal income the moment they are collected

Collected premiums belong to the insurer or the client, not the producer. The producer holds them in a fiduciary capacity and must account for and remit them properly. Commingling premiums with personal funds or misappropriating them is grounds for discipline and can be a criminal offense.