Controlled Business - Life Insurance Exam Prep

Summary

This video script explains the concept of 'controlled business' in the context of life insurance sales, where policies are written for family, close friends, or business associates. It outlines the potential risks for insurance companies, such as adverse selection and commission fraud, which make carriers wary of such practices. The video also emphasizes that in most states, agents cannot obtain a license if their primary intent is to write policies for themselves or close connections. Additionally, it offers resources and study guides to help viewers pass their life insurance pre-licensing exam on the first try.

Takeaways

• 😀 Controlled business refers to writing insurance policies for yourself, your family, close friends, or business associates.
• 😀 Insurance companies are wary of controlled business due to risks like adverse selection and policy cancellations.
• 😀 Adverse selection occurs when individuals who might not qualify for insurance are approved because of the agent's insider knowledge of the carrier's underwriting process.
• 😀 Insurance carriers fear that agents might write policies, earn commissions, and then have clients cancel the policies, causing chargebacks.
• 😀 Most states have strict regulations against controlled business to avoid fraudulent activities and protect the insurance system.
• 😀 In some states, you cannot obtain your life insurance license if your primary intention is to write policies for close family, friends, or associates.
• 😀 Writing policies for close friends may still be considered controlled business, even if the word 'friends' is not explicitly mentioned in the legal definition.
• 😀 Agents need to be aware of the potential consequences of writing controlled business, such as chargebacks and loss of commissions.
• 😀 To pass the life insurance pre-licensing exam, understanding controlled business and the related regulations is crucial.
• 😀 The speaker offers study guides and provides an opportunity to reach out for further assistance with life insurance sales, including leads for agents working remotely.
• 😀 The speaker encourages viewers to watch the next video to learn more about the different types of life insurance needed to pass the licensing exam.

Q & A

What is controlled business in the context of life insurance?

Controlled business refers to life insurance policies written on the life of the agent's family members, close friends, or business associates. This type of business is scrutinized because of potential conflicts of interest and ethical concerns.

Why do insurance companies have concerns about controlled business?

Insurance companies worry that controlled business may lead to adverse selection, where policies are written for individuals who may not qualify for insurance, and the risk of policy cancellations after commissions are earned, potentially leading to chargebacks.

What does adverse selection mean in the context of controlled business?

Adverse selection occurs when an agent uses insider knowledge to help individuals qualify for policies they might not otherwise qualify for, potentially skewing the risk pool and undermining the insurance company's financial stability.

Why are life insurance carriers particularly wary of controlled business?

Life insurance carriers are wary because agents could earn commissions on policies and then have those policies canceled, leading to financial losses for the carrier due to chargebacks or unpaid commissions.

How strict are states and insurance carriers regarding controlled business?

States and insurance carriers are very strict about controlled business. In many states, individuals cannot get a life insurance license if their only intention is to write policies for themselves, their family, or close friends and business associates.

Can you write life insurance policies for your family and friends as an agent?

While you can write policies for family and friends, doing so exclusively may be considered controlled business, which could violate licensing regulations and carrier rules. It's important to avoid writing policies just for your close circle to ensure compliance.

What is the risk of writing controlled business for life insurance agents?

The primary risks for agents writing controlled business are violating ethical guidelines, losing their license, facing chargebacks on commissions, and damaging relationships with carriers and clients.

What is the main goal of passing the life insurance pre-licensing exam?

The main goal of passing the life insurance pre-licensing exam is to demonstrate knowledge of life insurance products, policies, and regulations, allowing you to legally sell life insurance and represent carriers.

What does the speaker offer to help those studying for the life insurance exam?

The speaker provides study guides and personal contact information for those seeking assistance with the exam. They also offer opportunities to work with their agency, which provides leads for agents to sell life insurance over the phone.

What is the next video the speaker suggests to viewers?

The speaker recommends watching a subsequent video that will help viewers learn about the various types of life insurance policies they need to understand in order to pass the exam on the first try.