Life & Health Insurance Exam (National Portion)Ethics and SuitabilityMedium
A new client, Ms. Chen, expresses concern about the complexity of her current annuity policy, which was sold to her by another agent. She indicates that she did not fully understand the surrender charges or the investment risks involved. If the previous agent failed to explain these aspects clearly, which ethical duty was most likely breached?
- ADuty of Loyalty
- BDuty of Confidentiality
- CDuty of Disclosure
- DDuty of Care
Show answer & explanationAnswer & explanation
Correct answer: C. Duty of Disclosure
The duty of disclosure requires an agent to fully and clearly explain all material facts of a policy, including potential downsides like surrender charges and investment risks, so the client can make an informed decision.
Why the other options are wrong
- A. Duty of Loyalty means acting in the client's best interest, not necessarily explaining all details.
- B. Duty of Confidentiality involves protecting client information, which is unrelated to this scenario.
- D. Duty of Care relates to acting prudently, but disclosure is more specific to explaining policy details.
Duty of Disclosure
An agent's ethical and legal obligation to fully and clearly explain all material facts, terms, conditions, benefits, and risks of an insurance policy to a client before purchase.
- Ensures the client makes an informed decision.
- Includes explaining surrender charges, fees, and investment risks.
- Prevents misrepresentation or omission of facts.
Memory trick: FIDO's Duties: Loyalty, Disclosure, Care.