Agency Compliance

Agency ComplianceA career in insurance and financial services carries with it a tremendous responsibility. As an insurance agent, you approach others, both friends and strangers, and ask them for the opportunity to help protect and increase their personal financial security. You ask them to accept your advice and trust your recommendations. In doing so, you have an absolute obligation to maintain the highest possible ethical standards. You assume responsibility for helping them meet their financial needs. It is this responsibility, combined with your training, specialized knowledge in areas that are difficult to understand, and the promise of service, that raises insurance sales to the professional level.

What must you do to live up to this responsibility? Certainly you must comply with all applicable laws and regulations. But professionalism and ethical conduct demand more than that. Compliance means following the laws and regulations, including company rules, that apply to the sale of insurance products. These are the minimum standards. State and federal laws regulate the insurance industry to protect consumers from unfair sales practices. Company rules are developed to make certain that the company and its agents meet state and federal requirements. They are also designed to make sure that the company has complete and accurate information on which to base its underwriting and claims decisions. Following these regulations and rules is the first step in professional conduct.


The insurance industry in the United States is regulated primarily by the individual states, not bythe federal government. Each state has its own laws and regulations that deal with insurance sales. Likewise, each state has its own rules for the approval and licensing of insurance products and agents. For a particular product to be sold in a given state, both the company and the product must be approved.

License-Each state is responsible for approving the agents who will be licensed to sell the approved products. Generally, agents must hold a resident license in the state in which they live and also hold a non-resident license in any other state in which they do business. It is illegal for anyone to solicit insurance business unless he or she is properly licensed.

Licensing procedures vary from state to state, although all states require the successful passing of an examination before issuing a resident license. Nonresident licenses are often granted through reciprocal agreements between the states, without additional testing. Licenses are granted for a specific time period, and most states now require proof of continuing professional education before a license is renewed.

Typically, the basic life insurance license allows its holder to sell most life insurance, health insurance, and fixed annuity products. But variable life insurance, variable annuities, and other investment or equity-based products, are generally not covered by the basic license. These products require special licenses and registration with the National Association of Security Dealers (NASD) and, depending on the state regulations, separate state licenses. The licensing process is a state's way of providing some control over insurance agents' activities. If an agent fails to comply with the state's regulations, the state has the right to rescind the license and may take legal action against the agent and, possibly, against his or her company. The state's insurance department also serves as a place for consumers to turn if they have a complaint or feel that an agent has misrepresented the facts in making a sale.

While state laws regulating insurance vary, the state commissioners work together through the National Association of Insurance Commissioners (NAIC) in an attempt to identify the issues of greatest importance to consumers and to set legislative standards through model legislation. Through their work, there is general agreement when it comes to some practices involved in insurance sales. For example, all but two states-California and Florida forbid rebating or the practice of sharing or returning part of the premium to a client as an inducement to purchase a policy.

Misrepresentation - All states are concerned with the possible misrepresentation of insurance products and their benefits. Presenting an insurance policy as a savings plan, cash accumulation fund, educational savings plan, individual retIrement plan, or as any other similar savings device, without making it clear that the underlymg product is insurance, constitutes misrepresentation and is illegal. Suggesting that a policy has certain features, benefits, values, or guarantees that are not specIfIcally guaranteed in the written contract, is, likewise, misrepresentation.  So is a failure to reveal limitations or exclusions of the coverage.

Acceleration Clause - The part of a contract that says when a loan may be declared due and payable.

Accidental Death Benefit - In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.

Acknowledgment: the act of going before a qualified officer (e.g., Clerk) and declaring the validity of the document. The officer certifies same, whose certification is known as the acknowledgment

Acquit: the act of freeing a person from the charge of an offense by means of a decision, verdict or other legal process; to discharge