Maryland Life & Health Insurance Exam — All Questions

In an executive bonus (Section 162) plan, the employer:

• a.Owns the life insurance policy outright and names itself as the beneficiary, while the executive simply agrees to be the insured person
• b.Pays a bonus, deductible to the employer and taxable to the executive, that the executive uses to pay premiums on a policy they own✓
• c.Provides no real benefit to the executive
• d.Cannot deduct any part of the arrangement

In a Section 162 executive bonus plan, the employer pays a deductible bonus (taxable to the executive) and the executive owns the policy and pays its premiums. The employer does not own the policy.

A split-dollar life insurance arrangement is:

• a.An agreement in which an employer and employee share the costs and benefits of a life policy, such as premiums, cash value, and death benefit✓
• b.A type of deferred annuity
• c.A term insurance rider that an employer attaches to the executive's personal life insurance policy in order to provide extra temporary death benefit at a low cost
• d.A government insurance program

Split-dollar is an arrangement between an employer and employee (or two parties) to split the premium costs and policy benefits of a life policy. It is not a government program, annuity, or rider.

Which state agency issues resident life and health insurance producer licenses in Maryland?

• a.The Maryland Bureau of Financial Regulation
• b.The Maryland Insurance Administration✓
• c.The Maryland Insurance Commission
• d.The Maryland Department of Insurance

The Maryland Insurance Administration regulates the business of insurance in Maryland and licenses producers. It is led by the Insurance Commissioner, who has authority to issue, deny, suspend, and revoke licenses and to enforce the state insurance code. No separate financial-services department or insurance 'commission' handles producer licensing here.

A Maryland resident who wants to sell both life insurance and health (accident and sickness) insurance typically obtains:

• a.Two separate licenses issued by two different state agencies
• b.A surplus lines broker license
• c.A property and casualty producer license
• d.A resident producer license with life and accident & health lines of authority✓

Maryland follows the producer-licensing model in which one resident insurance producer license carries the specific lines of authority the applicant qualifies for, such as life and accident & health. Property/casualty and surplus lines are different lines for different products.

Before a licensed Maryland producer may transact insurance on behalf of a particular insurer, what must generally occur?

• a.The producer must reside in the insurer's home state
• b.The insurer must appoint the producer and file that appointment with the Maryland Insurance Administration✓
• c.The producer must post a surety bond with the state treasurer
• d.Nothing beyond holding a valid license is ever required

Holding a license lets a person act as a producer, but to represent a specific company the insurer must appoint the producer, notifying the Maryland Insurance Administration. A producer may hold appointments from several insurers at once; ending the relationship terminates the appointment.

To keep a resident life and health producer license active in Maryland, a producer generally must:

• a.Retake the full licensing examination every single year
• b.Do nothing further once the license is first issued
• c.Obtain a brand-new license for each insurer represented
• d.Complete the required continuing education each renewal period and pay the renewal fee✓

Maryland issues licenses for a set term and requires continuing education (including ethics content) each renewal cycle, plus payment of the renewal fee. Letting CE lapse or missing renewal can cause the license to expire, after which reinstatement rules and penalties may apply. Exact hours and fees are set by the Maryland Insurance Administration and can change.

Maryland law requires individual life insurance policies to contain a 'free look' (right to examine) provision. This gives the policyowner the right to:

• a.Cancel only within 3 days of delivery
• b.Cancel at any time during the first policy year at no cost
• c.Receive no refund once the policy has been delivered
• d.Return the policy within the stated period (commonly at least 10 days) after delivery for a full premium refund✓

A free-look, or right-to-examine, provision lets the policyowner return a newly delivered individual life policy within a stated window (commonly at least 10 days) for a full premium refund. Replacement transactions and policies sold to seniors often carry a longer review period. The exact number of days is set by state law.

What is the purpose of the Maryland life and health insurance guaranty association?

• a.To pay certain covered claims, up to statutory limits, if a member insurer becomes insolvent✓
• b.To guarantee a minimum investment return on every policy
• c.To set the premium rates insurers may charge
• d.To advertise member insurers to the public

The guaranty association is a safety net that pays covered claims up to statutory dollar limits when a member insurer becomes insolvent. Importantly, Maryland law prohibits producers and insurers from using the association's existence as an inducement to buy insurance or in advertising; it is a backstop, not a selling point.

When a Maryland producer recommends replacing a client's existing life insurance policy with a new one, the producer must:

• a.Guarantee in writing that the new policy will always be cheaper
• b.Wait a full year before the new policy can be issued
• c.Never disclose the replacement to either insurer involved
• d.Follow the state's replacement rules, including giving the required replacement notices and fair, complete comparisons✓

Replacement is regulated to protect consumers from losing value when switching policies. The producer must provide the required replacement notice, give the client accurate and complete comparisons, and follow notification steps so the existing insurer can respond. Misleading a client into replacing coverage can constitute twisting.

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

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

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

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 Maryland producer collects from clients on behalf of an insurer:

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

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.