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Difficulty: MediumUnfair Trade Practices

A captive life insurance agent is falling short of an annual sales quota. To generate immediate income, the agent contacts several existing clients and strongly advises them to cancel their current, active whole life policies and purchase new policies from the same insurer. The agent falsely claims the new contracts offer substantially improved long-term guarantees, deliberately omitting that the replacements will restart the clients' suicide and contestability clauses while depleting their existing cash values. The primary objective is to generate new first-year commissions. Which of the following unfair trade practices has the agent committed?

  1. ChurningAnswer
  2. B
    Twisting
  3. C
    Rebating
  4. D
    Defamation

Answer

Churning
The scenario describes churning, which is a specific unfair trade practice where an agent misrepresents policy features to convince a client to replace an existing policy with a new one from the same insurer, with the primary goal of earning new first-year commissions.

Step-by-Step Solution

1
Analyze the agent's actions and motivations in the scenario.
The agent is using misrepresentations to replace existing policies with new policies from the same insurer.
Identifying the core mechanics of the transaction is necessary to map it to statutory definitions.
2
Differentiate between replacement-related regulatory violations.
Twisting involves replacing a policy from a different insurer, while churning involves replacing a policy within the same insurer primarily for commission.
Precise legal distinctions determine the exact regulatory violation.
3
Match the scenario details to the correct unfair trade practice.
The scenario describes internal replacement driven by commission and utilizing misrepresentation, which defines churning.
This confirms the specific statutory violation committed by the agent.

Key Concept

Unfair Trade Practices: Churning vs. Twisting
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Topics

Unfair Trade Practices

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