Montana Life & Health Insurance Exam — All Questions

For a life insurance policy to be valid, when must the policyowner have an insurable interest in the insured?

• a.At the time of the insured's death
• b.At the time the policy is applied for and issued✓
• c.Continuously for the entire life of the policy
• d.Only if the beneficiary is not a family member

In life insurance, insurable interest must exist at the inception of the contract (when the policy is applied for), not at the time of loss. This differs from property insurance, where insurable interest must exist at the time of the loss. Requiring it continuously is incorrect: for example, a business may keep key-person coverage even after buying the policy, and a divorced spouse's policy can remain valid. Making it depend on the beneficiary's relationship confuses insurable interest (a relationship between owner and insured) with the separate question of who receives the proceeds.

The principle that allows insurers to predict losses more accurately as the number of similar exposure units increases is known as:

• a.Adverse selection
• b.The principle of indemnity
• c.The law of large numbers✓
• d.Subrogation

The law of large numbers states that as the number of similar, independent exposure units grows, the actual loss experience will more closely approach the predicted (expected) experience, letting the insurer set accurate rates. Adverse selection is the tendency of higher-risk applicants to seek coverage more than lower-risk ones. Indemnity is the concept of restoring an insured to their pre-loss financial condition (and does not apply to life insurance, which is a valued contract). Subrogation is an insurer's right to recover a paid claim from a responsible third party.

An insurance policy is considered a 'contract of adhesion.' What does this mean?

• a.The contract is prepared by the insurer and the applicant must accept it as written or reject it✓
• b.Both parties negotiate every term of the contract equally
• c.The values exchanged by the two parties are always equal
• d.The contract can be canceled by either party at any time without cause

A contract of adhesion is drafted by one party (the insurer) and offered to the other (the applicant) on a take-it-or-leave-it basis, with no negotiation of terms. Because of this, courts interpret any ambiguity in favor of the insured. It is not a negotiated bargain, so the second option is wrong. The third option describes a commutative contract; insurance is actually aleatory, meaning the dollar amounts exchanged are unequal and depend on chance. The fourth option confuses adhesion with cancellation rights, which are governed by separate policy provisions and state law.

Which statement best describes term life insurance?

• a.It provides lifetime protection and builds guaranteed cash value
• b.It provides death benefit protection for a specified period and normally builds no cash value✓
• c.It allows the policyowner to skip premiums using the policy's savings element
• d.It pays a benefit only if the insured survives the term

Term insurance provides pure death benefit protection for a stated period (for example, 10 or 20 years) and, because there is no savings element, it generally builds no cash value, which makes it the lowest-cost way to buy a large death benefit. The first option describes permanent (whole) life. The third option describes a feature of cash-value policies, which term does not have. The fourth option is backwards: term pays if the insured dies during the term, not if the insured survives it.

A key characteristic that distinguishes whole life insurance from term insurance is that whole life:

• a.Has premiums that increase each year
• b.Covers the insured only until age 65
• c.Provides lifetime coverage and accumulates cash value✓
• d.Never pays a death benefit if the insured lives a long time

Whole life is a form of permanent insurance: it provides coverage for the insured's entire life (as long as premiums are paid) and accumulates a guaranteed cash value that grows over time. Traditional whole life features a level premium that does not increase, so the first option is wrong. It does not terminate at age 65, so the second is wrong. Because coverage is lifetime, it is designed to pay a death benefit whenever death occurs (policies typically endow at about age 121), making the fourth option wrong.

Which type of permanent policy is known for allowing the policyowner to adjust the premium amount and the death benefit within limits after issue?

• a.Universal life insurance✓
• b.Level term insurance
• c.Single premium immediate annuity
• d.Traditional (ordinary) whole life insurance

Universal life is a flexible-premium, adjustable death benefit policy: the owner can vary the timing and amount of premiums and can increase or decrease the death benefit (subject to insurer rules and possible evidence of insurability). Level term has fixed premiums and a fixed benefit for the term. A single premium immediate annuity is not life insurance at all; it converts a lump sum into an income stream. Traditional whole life has a fixed, level premium and a fixed face amount, which is exactly the rigidity universal life was designed to overcome.

Under the 'human life value' approach to determining how much life insurance a person needs, the insurer primarily estimates:

• a.The total of the insured's outstanding debts only
• b.The replacement cost of the insured's home and possessions
• c.The face amount the applicant simply requests
• d.The insured's future earnings that would be lost to the family if the insured died✓

The human life value approach measures the present value of the insured's future earnings that the family would lose if the insured died prematurely, capturing the economic value of that income stream. It is broader than simply totaling current debts, which is only one piece of a needs analysis. It has nothing to do with the replacement cost of property (that is property insurance). And it is a systematic calculation, not merely the amount the applicant asks for.

A policyowner buys a term policy in which the death benefit steadily declines over the years while the premium stays level. This is commonly used to cover a mortgage. What is it called?

• a.Increasing term
• b.Decreasing term✓
• c.Level term
• d.Return-of-premium term

Decreasing term has a death benefit that reduces over the policy period while the premium remains level, making it a natural fit for a declining debt such as a mortgage. Increasing term does the opposite, with a benefit that grows over time. Level term keeps both the face amount and premium constant. Return-of-premium term is level term that refunds premiums if the insured survives the term; it does not have a declining benefit.

A limited-pay whole life policy differs from ordinary (straight) whole life in that limited-pay:

• a.Provides coverage only for a set number of years
• b.Has no cash value
• c.Requires premiums to be paid only for a specified, shorter period while coverage lasts for life✓
• d.Can only be purchased by people over age 65

Limited-pay whole life is permanent insurance in which premiums are paid over a shortened, defined period (for example, 20-pay life or paid-up at 65), after which the policy is fully paid up and coverage continues for life. Coverage is still lifetime, so the first option is wrong. Like all whole life, it builds cash value, so the second is wrong. There is no age-65 purchase restriction, so the fourth is wrong. The trade-off is higher premiums during the payment period in exchange for finishing payments sooner.

In a universal life policy, choosing the 'level death benefit' option (Option A) rather than the 'increasing death benefit' option (Option B) generally results in:

• a.A death benefit that stays roughly level, equal to the policy's face amount✓
• b.A death benefit equal to the face amount plus the accumulated cash value
• c.No cash value accumulation at all
• d.Premiums that the insurer can raise without limit each year

Under Option A (level), the total death benefit stays approximately equal to the face amount; as the cash value grows, the pure insurance (net amount at risk) shrinks so the total stays level. Option B (increasing) pays the face amount plus the accumulated cash value, which is what the second choice describes. Universal life does accumulate cash value under either option, so the third is wrong. And while universal life premiums are flexible, the insurer cannot raise a policyowner's required premium without limit; cost-of-insurance charges are capped by guarantees in the contract.

In a variable life insurance policy, the cash value and (in part) the death benefit can rise or fall based on the performance of separate account investments. Because of this investment risk, the producer selling it generally must:

• a.Only hold a life insurance license
• b.Guarantee the policyowner a minimum rate of return of 4%
• c.Invest all premiums in the insurer's general account
• d.Also be registered to sell securities✓

Variable life places cash value in separate accounts (sub-accounts) whose performance the policyowner selects and bears the investment risk for; because these are securities, the producer must hold both a life insurance license and a securities registration (FINRA). A life-only license is therefore not enough. The insurer does not guarantee the account's return, so the second option is wrong. The premiums go into separate accounts, not the insurer's general account, so the third is wrong (that describes traditional whole life).

The incontestability provision in a life insurance policy provides that after the policy has been in force for a stated period (typically two years), the insurer:

• a.May cancel the policy for any reason
• b.Cannot void the policy or deny a claim due to a misstatement on the application, except in cases of fraud where allowed by law✓
• c.Must double the death benefit
• d.May raise the premium based on the insured's health

The incontestability clause bars the insurer from contesting the policy (voiding it or denying a claim) based on misstatements in the application once it has been in force for the contestable period, usually two years, giving beneficiaries certainty. It does not let the insurer cancel at will, nor does it increase the death benefit or permit premium increases based on health. Its purpose is to protect the insured/beneficiary from having a long-standing policy challenged over an old application error.

The grace period provision in a life insurance policy means that if a premium is not paid on its due date:

• a.The policy stays in force for a set period (such as 30 days) during which the overdue premium can still be paid✓
• b.The policy immediately lapses with no coverage
• c.The insurer must refund all prior premiums
• d.The death benefit is permanently reduced

The grace period keeps coverage in force for a specified time after the premium due date (commonly 30 or 31 days), so a late-paying policyowner does not lose protection; if the insured dies during the grace period, the death benefit is paid minus the premium owed. The policy does not lapse immediately, so the second option is wrong. The insurer is not required to refund prior premiums, and the death benefit is not permanently reduced simply because a payment was late.

A policyowner surrenders a whole life policy and elects to receive the accumulated cash value in a lump sum. This is an example of exercising which type of option?

• a.A dividend option
• b.A settlement option
• c.A nonforfeiture option✓
• d.A policy loan

Nonforfeiture options govern what a policyowner may do with the guaranteed cash value if the policy is surrendered or lapses; the three standard choices are cash surrender, reduced paid-up insurance, and extended term insurance. Dividend options apply to how dividends from a participating policy are used. Settlement options determine how the death benefit (or surrender proceeds) is paid out over time to a payee. A policy loan borrows against cash value without surrendering the policy, so coverage continues; here the owner is giving up the policy for cash.

A rider that keeps a life insurance policy in force by paying the premiums for the policyowner if the insured becomes totally disabled is called the:

• a.Accidental death benefit rider
• b.Guaranteed insurability rider
• c.Cost-of-living rider
• d.Waiver of premium rider✓

The waiver of premium rider excuses the policyowner from paying premiums (the insurer pays them) while the insured is totally disabled, usually after a waiting period, keeping the policy fully in force. The accidental death benefit rider pays an additional amount if death results from an accident. The guaranteed insurability rider lets the owner buy additional coverage at set times without new evidence of insurability. The cost-of-living rider increases the death benefit to keep pace with inflation. Only waiver of premium addresses paying premiums during disability.

During the accumulation phase of a deferred annuity, what is happening?

• a.The insurer is making periodic income payments to the annuitant
• b.The owner is paying money into the contract and it is growing tax-deferred✓
• c.The contract is being surrendered for its cash value
• d.The death benefit is being paid to the beneficiary

The accumulation (pay-in) phase is when the owner contributes premiums and the annuity's value grows on a tax-deferred basis, before income payments begin. Making periodic income payments describes the annuitization (payout or distribution) phase, not accumulation. Surrendering the contract ends it early. Paying a death benefit occurs if the owner/annuitant dies, which is a separate event. An immediate annuity skips accumulation, but a deferred annuity has this pay-in period first.

How does an immediate annuity differ from a deferred annuity?

• a.An immediate annuity begins income payments within about one payment period of purchase, while a deferred annuity delays payments to a future date✓
• b.An immediate annuity can only be funded with monthly premiums
• c.An immediate annuity has no annuitant
• d.An immediate annuity guarantees a higher interest rate than any deferred annuity

An immediate annuity (typically a single-premium immediate annuity, or SPIA) starts income payments within roughly one payment interval of purchase, so it is bought to generate income right away; a deferred annuity postpones the payout phase to a later date, allowing tax-deferred accumulation first. Immediate annuities are funded with a single lump sum, not ongoing monthly premiums, so the second option is wrong. Every annuity has an annuitant (the measuring life), and there is no rule that immediate annuities always credit a higher rate.

An annuitant selects a 'straight life' (life-only) annuity payout option. What is the main trade-off of this choice?

• a.It pays the smallest monthly income but guarantees payments to heirs
• b.It continues payments to a joint annuitant for life
• c.It pays the largest monthly income, but payments stop at the annuitant's death with nothing to heirs✓
• d.It refunds all unused premiums to the estate

A straight life (life-only) option pays income for as long as the annuitant lives and stops at death, with no further payments to a beneficiary; because the insurer has no obligation beyond the annuitant's life, it provides the largest periodic payment of the pure life options. The first option is backwards about both the payment size and heir guarantee. A joint-and-survivor option (not life-only) continues to a second annuitant. Options that refund unused premiums (such as installment or cash refund) or guarantee a period certain provide beneficiary protection but pay less than life-only.

When a life insurance death benefit is paid to a named beneficiary as a lump sum, how is that benefit generally treated for federal income tax purposes?

• a.The entire amount is taxable as ordinary income
• b.The death benefit is generally received free of federal income tax✓
• c.Only the portion equal to premiums paid is tax-free
• d.It is taxed as a capital gain

Life insurance death proceeds paid to a beneficiary are generally received income-tax-free, one of the primary tax advantages of life insurance. It is therefore not taxed as ordinary income in full, nor limited to a return of premiums, nor treated as a capital gain. Note that if the death benefit is paid in installments, any interest earned on the retained proceeds is taxable, and the proceeds may still be part of the insured's estate for estate-tax purposes, but the core death benefit itself is income-tax-free.

In a nonqualified deferred annuity, how are withdrawals taxed during the accumulation phase under the standard tax rule?

• a.All withdrawals are entirely tax-free because the money was already taxed
• b.The principal (cost basis) comes out first and is taxable
• c.Earnings (interest) are considered withdrawn first and are taxable as ordinary income (LIFO)✓
• d.Withdrawals are taxed as long-term capital gains

For nonqualified annuities purchased after August 13, 1982, withdrawals follow last-in, first-out (LIFO) tax treatment: the taxable earnings (interest) are treated as coming out first and are taxed as ordinary income, and a 10% penalty may apply before age 59 1/2. The already-taxed principal (cost basis) comes out only after the earnings are exhausted, so the second option reverses the order. Annuity gains are ordinary income, not tax-free and not capital gains, which rules out the first and fourth options. During annuitization, the exclusion ratio instead spreads the return of basis across each payment.

In a disability income policy, the 'elimination period' refers to:

• a.The maximum length of time benefits will be paid
• b.A waiting period after a disability begins before benefit payments start✓
• c.The period during which the insurer can cancel the policy
• d.The time the applicant has to return the policy for a refund

The elimination period is a waiting period, measured from the start of a covered disability, that must pass before the insured begins receiving benefit payments; it functions like a time deductible and a longer elimination period lowers the premium. The maximum time benefits are paid is the benefit period, a different concept. The insurer's ability to cancel relates to renewability provisions. The time to return the policy for a refund is the free-look period. Only the elimination period delays the start of benefits.

In a major medical plan, 'coinsurance' most accurately describes:

• a.A flat dollar amount the insured pays at each doctor visit
• b.The amount the insured must pay before the plan pays anything
• c.The most the plan will ever pay in a lifetime
• d.The percentage split of covered costs between the insurer and the insured after the deductible is met✓

Coinsurance is the sharing of covered expenses on a percentage basis (for example, the insurer pays 80% and the insured pays 20%) after the deductible has been satisfied. A flat dollar amount per visit is a copayment, not coinsurance. The amount the insured pays before the plan pays is the deductible. The most the plan will ever pay is a maximum benefit limit. Coinsurance specifically refers to the proportional cost split, and it stops once the insured reaches the out-of-pocket maximum (stop-loss).

The term 'morbidity' as used by health insurers refers to:

• a.The incidence and severity of sickness and disability in a given group✓
• b.The rate at which people in a group die
• c.The interest rate credited to reserves
• d.The percentage of premium spent on commissions

Morbidity measures the frequency and severity of illness, injury, and disability within a defined population, and health insurers use morbidity tables to price coverage. Mortality, by contrast, measures the rate of death and is used mainly for life insurance pricing. Morbidity is not an interest or investment measure, nor is it a marketing or commission figure. Understanding the morbidity-versus-mortality distinction is fundamental: health insurance risk is about getting sick or disabled, while life insurance risk is about dying.

A disability income policy uses an 'own-occupation' definition of total disability. This means the insured is considered totally disabled if, because of injury or sickness, they cannot:

• a.Perform the duties of any occupation for which they are reasonably suited
• b.Leave their home for any reason
• c.Perform the material duties of their own regular occupation✓
• d.Work in any job anywhere in the country

An own-occupation definition treats the insured as totally disabled when they cannot perform the important duties of their own regular occupation, even if they could work in some other job; it is the more generous (and thus more expensive) definition, favoring the insured. The 'any-occupation' definition, which is stricter, requires that the insured be unable to work in any job for which they are reasonably suited by education, training, or experience, and that is what the first and fourth options describe. Being unable to leave home is not part of either standard definition.

Benefits under most long-term care (LTC) insurance policies are typically triggered when the insured:

• a.Reaches a specified age such as 65
• b.Is unable to perform a specified number of the activities of daily living (ADLs) or has a severe cognitive impairment✓
• c.Is admitted to a hospital for any reason
• d.Loses their job

LTC benefits are usually triggered when the insured cannot perform a set number (commonly two) of the activities of daily living, such as bathing, dressing, eating, toileting, transferring, and continence, or suffers a severe cognitive impairment like Alzheimer's disease. Simply reaching an age does not trigger benefits. LTC is not the same as hospital coverage; it pays for custodial and long-term care such as nursing home or home care. Loss of employment is unrelated to LTC eligibility.

A key difference between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO) is that an HMO typically:

• a.Requires members to use network providers and often a primary care physician who coordinates referrals✓
• b.Lets members see any provider out of network at the same cost as in network
• c.Reimburses members on a fee-for-service basis with no network at all
• d.Provides no coverage for preventive care

HMOs emphasize managed care: members generally must use in-network providers and often select a primary care physician (a gatekeeper) who coordinates care and referrals to specialists, in exchange for lower costs. A PPO offers more flexibility, allowing out-of-network care at a higher cost, so paying the same cost regardless of network is not accurate for either an HMO or a PPO. Fee-for-service with no network describes a traditional indemnity plan. HMOs actually stress preventive care, so the last option is wrong.

Once an insured's covered out-of-pocket expenses reach the plan's 'stop-loss' (out-of-pocket maximum) for the year, the plan generally:

• a.Stops paying any further claims for the year
• b.Requires the insured to pay 100% of remaining costs
• c.Cancels the policy until the next year
• d.Pays 100% of additional covered expenses for the rest of the year✓

The stop-loss (out-of-pocket maximum) provision caps the insured's annual cost sharing; once the insured has paid that amount in deductibles and coinsurance, the plan pays 100% of additional covered expenses for the remainder of the year, protecting the insured from catastrophic costs. It does not stop the plan's payments, nor shift all remaining costs to the insured, which are the opposite of its purpose. Reaching the stop-loss does not cancel the policy. The provision exists specifically to limit the insured's financial exposure.

Under the Uniform Provisions Law, the 'time limit on certain defenses' (incontestability) provision in an individual health policy generally prevents the insurer, after the policy has been in force for a stated period, from:

• a.Ever raising premiums on the class of policyholders
• b.Requiring proof of loss for a claim
• c.Denying a claim based on misstatements in the application (except fraudulent ones, where permitted)✓
• d.Paying benefits on time

The time-limit-on-certain-defenses (incontestability) provision bars the insurer, after the policy has been in force for a set period (often two or three years), from voiding the policy or denying a claim because of misstatements made in the application, with an exception for fraudulent misstatements where state law allows. It does not restrict the insurer's right to adjust premiums for a whole class, nor does it eliminate the routine requirement that the insured submit proof of loss. Paying benefits on time is required by a separate provision (time of payment of claims), not this one.

A 'pre-existing condition' provision in a health policy generally allows the insurer to:

• a.Limit or exclude coverage for a condition the insured had before the policy took effect, for a stated period✓
• b.Cancel the policy whenever the insured files any claim
• c.Refuse to ever pay for accidents
• d.Increase the death benefit for prior illnesses

A pre-existing condition provision lets the insurer limit or exclude benefits for a medical condition that existed (was diagnosed or treated, or would have prompted a prudent person to seek care) before the policy's effective date, typically for a defined waiting period after which the condition is covered. It is not a general right to cancel the policy upon any claim, and it does not let the insurer refuse all accident coverage. Health policies pay medical or disability benefits, not a death benefit, so the last option is inapplicable.

Which statement correctly distinguishes Medicare from Medicaid?

• a.Medicare is a needs-based program for low-income individuals, while Medicaid is based on age
• b.Medicare is a federal health program primarily for people age 65 and older, while Medicaid is a needs-based program for low-income individuals funded jointly by federal and state governments✓
• c.Both are strictly age-based programs with no income requirement
• d.Medicare covers only prescription drugs, while Medicaid covers only hospital stays

Medicare is a federal program that primarily covers people age 65 and older (and certain younger people with disabilities or end-stage renal disease), regardless of income. Medicaid is a joint federal-state program that provides coverage based on financial need (low income and limited assets). The first option reverses the two programs. Neither is purely age-based without regard to income (Medicaid is means-tested), and the descriptions of drug-only or hospital-only coverage misstate both programs; Medicare has multiple parts (A, B, C, D) covering hospital, medical, and drug benefits.

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

• a.Montana Commissioner of Securities and Insurance (CSI)✓
• b.Montana Department of Insurance
• c.Montana Division of Insurance
• d.Montana Department of Commerce

Montana regulates insurance through the Office of the Commissioner of Securities and Insurance (CSI), Montana State Auditor. Unusually, the state's insurance commissioner is the elected Montana State Auditor, so the same official regulates both insurance and securities. This dual, elected role is a distinctive Montana feature. This agency issues producer licenses and enforces the state's insurance laws.

In Montana, what authorizes a person to sell both life and health insurance products?

• a.A separate license issued by a different agency for each product line
• b.A resident insurance producer license carrying the life and the accident/health lines of authority✓
• c.A property and casualty producer license
• d.A surplus lines broker license

Montana issues a resident producer license, and the producer requests the lines of authority they qualify for. Adding both the life line and the accident and health line lets one license cover life and health products. Property/casualty and surplus lines are different lines for different products.

Before a licensed Montana producer may transact business on behalf of a specific insurer, what generally must happen?

• a.Nothing beyond holding a valid producer license
• b.The producer must post a surety bond with the state treasurer
• c.The insurer must appoint the producer, filing the appointment with the Commissioner of Securities and Insurance✓
• d.The producer must first sell property and casualty insurance

A license lets a person act as a producer, but to represent a particular company the insurer must appoint the producer and file that appointment with the regulator. A producer may hold appointments from more than one insurer, and appointments are how the insurer accepts responsibility for the producer's sales.

Which statement about keeping a Montana resident producer license active is correct?

• a.The license must be renewed periodically and the producer must complete continuing education, including an ethics component, each renewal period✓
• b.Once issued, the license never expires and no continuing education is ever required
• c.Continuing education is required only during the first year and never again
• d.The license renews automatically with no action or education by the producer

Montana, like other states, issues producer licenses for a set term and requires continuing education, including ethics hours, to renew. Letting CE or the renewal lapse can cause the license to expire, after which reinstatement rules and penalties may apply. Always confirm the current hour totals and deadlines with the regulator.

Montana requires individual life insurance policies to include a "free look" (right to examine) provision. What right does it give the policyowner?

• a.The right to change the insured at any time during the first year
• b.The right to return the policy within the stated free-look period after delivery for a full premium refund✓
• c.The right to a partial refund only, minus a cancellation fee
• d.No refund once the policy has been delivered

A free-look provision lets the policyowner return a newly delivered policy within the period stated in the contract and receive a full premium refund, so they can review the actual policy before committing. Many states set this at 10 days or more, with longer periods common for replacements and policies sold to seniors; confirm the exact Montana period in the current statute.

Regarding the Montana life and health insurance guaranty association, what may a producer do when selling a policy?

• a.Advertise the association's protection as a reason to buy
• b.Promise the buyer that all losses will always be fully paid
• c.Not use the existence of the guaranty association as an inducement to buy or in advertising✓
• d.Substitute the association's coverage limits for the policy's own terms

Every state has a life and health insurance guaranty association that pays certain covered claims when a member insurer becomes insolvent, subject to statutory dollar limits. State law prohibits producers and insurers from using the association's existence to induce a sale or in advertising. It is a backstop for insolvencies, not a selling point.

Montana's Unfair Trade Practices provisions in its insurance law primarily do what?

• a.Set the commission rates producers may earn
• b.Define and prohibit unfair methods of competition and unfair or deceptive acts in the business of insurance, such as misrepresentation and false advertising✓
• c.Establish the minimum wage for insurance office staff
• d.Govern federal Medicare enrollment periods

Like other states, Montana has adopted an Unfair Trade Practices law (based on the NAIC model) that defines and bans practices such as misrepresentation, false or misleading advertising, unfair discrimination between similar risks, and improper claim settlement. Violations can bring fines and license suspension or revocation.

A Montana producer is replacing a client's existing life insurance with a new policy. What does the state's replacement regulation generally require?

• a.The producer must follow replacement rules, give the client the required replacement notices, and let the existing insurer be notified so it can try to conserve the coverage✓
• b.The producer may proceed with no disclosure as long as the new policy is cheaper
• c.The producer must cancel the old policy before the new one is even applied for
• d.Replacement is prohibited entirely in the state

Replacement rules protect consumers from losing value when switching policies. The producer must identify the transaction as a replacement, provide the required notices and comparisons, and the existing insurer is given notice and an opportunity to conserve the business. Skipping these steps is a violation even if the new policy seems better.

A Montana producer offers a prospect part of the producer's commission as cash back to induce the purchase of a life policy. Under state law this is:

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

Rebating, giving away part of the premium or commission or other valuable consideration to induce a purchase, is prohibited in Montana. It is an unfair practice because it leads to unfair discrimination between policyholders who are charged different net prices for the same coverage.

Under Montana market-conduct rules, what is "twisting"?

• a.Selling policies to two members of the same household
• b.Using misrepresentation or incomplete comparisons to persuade a policyholder to drop an existing policy and buy a new one✓
• c.Submitting an application electronically instead of on paper
• d.Holding appointments with more than one insurer

Twisting is inducing a policyholder to lapse, surrender, or replace a policy through misrepresentation or misleading comparisons. It is a prohibited unfair practice. A related abuse, churning, involves replacing coverage within the same insurer's book, often using the policy's own values, to generate new commissions.