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When recommending a replacement policy, a producer should remember that:

a) The new policy must always have higher premiums.
b) The replacement must be in the best interest of the client.
c) The agent earns higher commissions on replacement policies.
d) The decision is solely up to the agent.

1 Answer

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Final answer:

A producer should always recommend insurance policies that are in the best interest of the client, not based on the potential for higher commissions or premiums. The fundamental law of insurance requires that premiums collectively cover losses, costs, and profits, which can be influenced by state regulations.

Step-by-step explanation:

When recommending a replacement policy, a producer should remember that the replacement must be in the best interest of the client. This is critical to ensure that the client's needs are being met and that they are not subject to unfavorable terms simply for the benefit of the agent. Insurance policy recommendations should take into account the benefits, coverage, and costs of the policy to the client. The producer's commission should not be the driving factor, and the new policy should not be recommended solely based on higher premiums when it is not necessary nor advantageous to the client.

It is important to note that the fundamental law of insurance holds that the amount paid in premiums must, on average, cover the losses, operational costs, and allow for the insurance company's profits. Therefore, insurance companies must balance these factors when setting premiums, especially in light of regulations that attempt to keep premiums low.

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