Life License Qualification Program (LLQP) Practice Exam

What is considered an accurate statement of an unfair trade practice?

1. Coercion involves making a malicious statement about the financial condition of an insurance company

2. Twisting involves an agent using misrepresentation to convince a policyowner to cancel their current policy

3. No more than 25% of an agent's insurance sales are allowed to come from controlled business

4. Rebating occurs when someone intentionally deceives another with the intent to gain financially

The correct answer is: Twisting involves an agent using misrepresentation to convince a policyowner to cancel their current policy

The accurate statement regarding unfair trade practices is that twisting involves an agent using misrepresentation to convince a policyholder to cancel their current policy. This practice is deemed unfair because it typically takes advantage of the policyholder's lack of knowledge or understanding about their insurance options. An agent may misrepresent the benefits or features of a new policy compared to the existing one, creating a misleading scenario that encourages the cancellation of a policy that may still provide adequate or necessary coverage. This undermines the trust that is fundamental to the insurance industry and can lead to financial loss for clients who unwittingly alter their coverage based on inaccurate information. The other options, while describing various unethical behaviors, do not encapsulate the definition of an unfair trade practice as accurately as the selected answer. Coercion, for instance, can involve harmful activities but doesn't specifically target the act of misrepresentation in the context of policy cancellation. The limitation on controlled business sales pertains to regulations, rather than directly addressing unfair trade practices. Rebating, although misleading and unethical, does not align as closely with the specific act of persuading a policyholder to abandon a current policy through deception.