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Texas Statutes and Rules Common to
Life and Health Insurance Exam
A temporary license holder can receive a commission from a sale made to all of the following EXCEPT A. An accountant at a rival insurance company B. The license holder's family doctor C. The license holder's sister-in-law D. The license holder's spouse's best friend Answer: C; A temporary license holder sale to a family member or an individual the temporary license holder has an employment or business relationship with will not pay commission Agent Regulation - ✔✔-Only one license of the same type is allowed per agent
- Must be licensed in the line of authority for which the agent transacts insurance
- Avoid unfair trade practices Agents (types of licensees) - ✔✔any person who solicits insurance on behalf of any insurance company, takes or transmits (other than for himself/herself) an insurance application or policy, examines any risk or
loss, or receives, collects, or transmits any premium; normally compensated by commissions, where a percentage of the premium is paid to the agent by the insurance company Alien insurer - ✔✔an insurance company that is incorporated outside of the United States All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT: - A. An offer to share in commissions generated by the sale B. Dividends from a mutual insurer C. An offer of employment D. Stocks, securities, or bonds Answer: B; Dividends paid to policy holders of a mutual insurer are not considered to be a rebate because the policy specifies that they might be paid All of the following would be considered an insurance transaction EXCEPT: - A. Obtaining an insurance license B. Soliciting a policy C. Advising a policy holder regarding a claim D. Negotiating coverage
An insurance agent wants for a client to replace her current annuities plan with another one. He presents the new one in an incomplete and dishonest way, which makes the new contract seem far more appealing than the original one. The policy owner ends up surrendering her original contract and replacing it with the new one. Which term best describes what the agent did? - ✔✔Twisting; Twisting is an illegal act, in which an agent misrepresents the terms of an insurance or annuities contract or draws incomplete comparisons, in a way that would compel the insured to surrender the contract for the new one Boycott, Coercion, and Intimidation - ✔✔illegal to be involved in any activities of these that is intended to restrict fair trade or to create a monopoly; would include unfair behavior that influences not only clients, but competing agents and brokers Coercion is to require, as a condition to a loan, that the applicant purchase insurance from a specific insurer Cease and desist - ✔✔to stop or discontinue Cease and Desist Order - ✔✔Issued by the Commissioner (may also be issued before a hearing) Certificate of Authority - ✔✔insurers must apply for and be granted a license (or COA) from the state department of insurance and meet any financial (capital and surplus) requirements set by the state before they
may transact business in a specific state; insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer Coercion - ✔✔forceful act or threat aimed to influence a person to act against his or her will; an unfair trade practice in which an agent uses physical or mental force with the intent of inducing an applicant to purchase insurance Commission - ✔✔payment to the agent by the insurance company for placing insurance, usually percentage of the policy premium Commissioner - ✔✔the head of the State Department of Insurance Commissioner may impose an administrative penalty on a licensee who violates: - ✔✔1. The Insurance Code
- Another insurance law of this state
- A rule or other adopted under the Insurance Code or another insurance law of this state Penalty for a violation may not exceed $25,000 unless a greater or lesser penalty is specified by the Insurance Code or another insurance law; Commissioner will notify other state Commissioners or similar officers of penalties handed out
Denial of License - ✔✔Commissioner may discipline a license holder or deny an application to anyone who has done any of the following:
- Willfully violated any provision of the Texas Insurance Code
- Intentionally made a material misstatement in the licensing application
- Obtained, or attempted to obtain, the license by fraud or misrepresentation
- Misappropriated or converted to personal use money belonging to an insurer, insured or beneficiary
- Been guilty of fraudulent or dishonest practices
- Materially misrepresented the terms and conditions of life insurance policies or contracts
- Made or issued any statement misrepresenting or making incomplete comparisons regarding the terms of an insurance or annuity contract in an attempt to induce the owner to forfeit or surrender the contract and replace it with another (also called twisting)
- Been convicted of a felony Department of Insurance Regulations – ✔✔-2 years: Commissioner's term of office
- 5 years: Administration, attorney, or CPA experience required before applying to become the Commissioner
- 30 days: For agent to request a hearing after receiving a cease and desist order
- 10 days: After receiving the request for Commissioner to hold the hearing
- 5 years: Commissioner must conduct annual examinations of authorized insurers Domestic insurer - ✔✔an insurance company that is incorporated n this state; in most cases, the company's home office is in the state in which it was formed (the domicile); for instance, a company chartered in Pennsylvania would be considered a Pennsylvania domestic company Emergency Cease and Desist Order - ✔✔if commissioner believes any licensed agent is engaged in any form of unfair method of competition or trade practice, or that an unlicensed person is engaging in the sale of insurance, the commissioner may issue an emergency cease and desist order, served by registered or certified mail; order must state the charges and require the person to immediately stop committing the acts, methods or practices in violation; order must also explain the rights of the person charged with the order; request for hearing must be made within 30 days of the order and it will be held no later than the 10th day after the date the commissioner receives the request for a hearing unless parties mutually agree on later date Examination of Records - ✔✔Commissioner regulates insurance companies authorized to do business in this state; purpose of the examination of insurers' books and records is to ensure that the companies remain solvent and conduct business in compliance with state laws and regulations pertaining to licensing, policy forms, rates,
insurance producers and who are not individually engaged in the sale of insurance
- A person who's activities are limited to advertising without the intent to solicit insurance
- A non-resident who sells, solicits or negotiates a contract of insurance for commercial property and casualty risks to an insured with risks located in more than one state insured under that contract
- A salaried full-time employee who counsels or advises his/her employer relative to the insurance interests of the employer or subsidiaries Expiration - ✔✔Commissioner will send an agent whose license is bout to expire notice of such expiration at least 30 days before that date; if an agent allowed his/her license to expire, the following reinstatement rules apply:
- If expired for no more than 90 days, the license may be renewed by filling a renewal application, paying the renewal fee, and paying an additional fee (equal one-half of the renewal fee)
- If expired for more than 90 days but less than 1 year: the licensee may obtain a new license by filing a new application with the Department, paying the license fee and an additional fee equal to one-half of the license fee; a license examination is not required
- If expired for more than 1 year: the license cannot be renewed; the person must go through a complete licensing process as required by the state for any new applicants; in addition, the agent may not use any continuing education credits that were obtained before the new license
is granted to satisfy any certification course or continuing education course requirements for the new license False Advertising - ✔✔violating the rule of including any untrue, deceptive, or misleading statements that apply to the business of insurance or anyone who conducts it; specifically includes:
- Terms, benefits, conditions, or advantages of any insurance policy
- Any dividends to be received from the policy, or previously paid out
- Financial condition of any person or the insurance company
- The true purpose of any assignment or loan against a policy Foreign insurer - ✔✔an insurance company that is incorporated in another state or territorial possession (such as Puerto Rico, Guam or American Samoa); for example, a company chartered in California would be a foreign company within the state of New York Fraud - ✔✔the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party; grounds for voiding an insurance contract; TX Department of Insurance has an Insurance Fraud Unit to enforce laws relating to fraudulent insurance acts; fraudulent insurance act is any illegal act that has been:
- Committed in the business of insurance
- Committed as part of or in support of an insurance transaction
- A part of an attempt to defraud an insurer
Home office - ✔✔insurer's headquarters, principal place of business How long must producer maintain records of continuing education course completion? - ✔✔4 years Important Dollar Amounts - ✔✔-$50: Maximum agent licensing fee
- $25,000: Maximum fine for violating the Insurance Code
- $2,500: Fine for willful violation of the Fair Credit Reporting act Inducement - ✔✔an offer that attempts to influence the other party Insolvent - ✔✔unable to meet financial obligations License to an individual applicant - ✔✔Department can issue a license to an individual applicant who meets all of the following requirements:
- Is at least 18 years old
- Has passed the required licensing examination in the last 12 months
- Has submitted the application, required fees, and any other required information required by the Department
- Has not committed any acts for which a license may be denied Licensing and Appointment Requirements - ✔✔-18: Minimum required age for licensing
- 12 months: Results of the licensing examination are valid
- 90 days: Maximum duration of temporary licenses
- 6 months: no more than one temporary license issued per person
- 2 years: Duration of reporting period
- 5 years: After license revocation or denial before another license application can be filed
- 5 years: After felony conviction for breach of fiduciary duty before another license application can be filed
- 2 years: Duration of agent's license Location of incorporation - ✔✔Insurance companies are classified according to this (domicile); regardless of where an insurance company is incorporated, it must obtain a Certificate of Authority before transacting insurance within the state Miscellaneous Producer Regulations - ✔✔-90 days: after license renewal date for agents to pay fees and complete CE before license expires
- 24 hours: CE to be completed during each reporting period
- 2 hours: minimum requirement for ethics training Misrepresentation - ✔✔committing the illegal act of issuing, publishing, or circulating any illustration or sales material that is false, misleading, or deceptive as to policy benefits or terms, the payment of dividends, etc.; also refers to oral statements
Other Remedies for violation of Insurance Code, another insurance law of this state, or a rule of the Commissioner - ✔✔the department may:
- Deny an application for an original license
- Suspend, revoke, or deny renewable of a license
- Place on probation a person whose license has been suspended
- Assess an administrative penalty
- Reprimand a license holder Petition for reinstatement/issuance - ✔✔should be filed with the associate commissioner and must include:
- The date of final conviction and/or the date the sentence or probation terminated
- The reasons why the petitioner believes the license should be issued or reinstated Prompt Payment of Claims - ✔✔claims must be settled promptly; no later than the 15th business day following a receipt of a notice of a claim, the insurer must do the following:
- Acknowledge receipt of the claim
- Begin an investigation of the claim
- Request all statements, forms and items that the insurer believes will be required from the claimant
Rebating - ✔✔any inducement offered to the insured in the sale of insurance products that is not specified in the policy; both the offer and acceptance of a rebate are illegal; may include, but are not limited to:
- Rebates of premiums payable on the policy
- Special favors or services
- Advantages in the dividends or other benefits
- Stocks, bonds, securities, and their dividends or profits Reciprocal Agreements - ✔✔Commissioner can enter into RA's with officials of other states to waive the written examination requirements for applicants who reside in those states, as long as the following conditions are met:
- The other state requires agent licensing applicants to pass a written examination
- An appropriate official of the other state certifies that the applicant holds a currently valid insurance license in that state, and either passed a written examination or held a license before examinations were required
- The applicant has no place of business within Texas as an insurance agent Reciprocity - ✔✔a mutual interchange of rights and privileges; a situation in which two parties provide the same help or advantages to each other (for example, Producer A living in State A can transact business as a nonresident in State B if State B's resident producers can transact business in State A)
- Felony conviction
- Rebates of insurance premiums Temporary - ✔✔not renewable and cannot be issued more than once in any 6-month period to the same applicant; cannot sell insurance that replaces an existing individual life insurance policy or annuity contract that is in force; limitation does not apply to temporary agents who write accident and health policies; commissioner may issue a temporary life insurance agent's license, effective for 90 days, without requiring a written examination to applicants who complete a 40 hour training course before applying for the license or within 14 days after applying for the license, to the following people:
- An applicant who has submitted the application and fee and wants to collect premiums on industrial life insurance contracts during the period of the temporary license
- Anyone who an insurer is considering for appointment as a full-time agent, as soon as the department receives the application and a certificate signed by the insurer's authorized representative requesting a temporary license for the applicant being considered The Commissioner has full power and authority to do all of the following EXCEPT: - ✔✔A. Enforce the Insurance Code B. Issue cease and desist orders C. Draft insurance laws D. Issue Certificates of Authority
Answer: C Transacting Insurance - ✔✔includes any of the following (by mail or any other means):
- Solicitation
- Negotiations
- Sale (effectuation of the contract of insurance)
- Advising an individual concerning coverage or claims Unfair/Prohibited Trade Practices (Marketing Practices) - ✔✔insurers and insurance producers may not engage in any trade practice that is defined as, or determined to be, an unfair method of competition or an unfair or deceptive act of practice in the business of insurance; knowingly commit an unfair method of competition or to engage in such actions with enough frequency that the commission of unfair marketing practices indicates a general business practice Violation - ✔✔An insurer or agent is suspected of committing a violation or being involved in an unfair trade practice; commissioner is notified and may issue a statement of charges Which of the following must an insurer obtain in order to transact insurance within a given state? - ✔✔Certificate of Authority
