Life & Health Insurance Exam (National Portion)Ethics and SuitabilityEasy
An insurance producer is helping a client, Mr. Schmidt, purchase a new life insurance policy. During the application process, Mr. Schmidt mentions he was diagnosed with a serious heart condition five years ago but has been asymptomatic since. The producer advises Mr. Schmidt that since he feels fine, there's no need to disclose this on the application because it might increase his premiums. Which ethical principle is the producer violating?
- ADuty of professional competence
- BDuty of reasonable care
- CDuty of confidentiality
- DDuty of utmost good faith
Show answer & explanationAnswer & explanation
Correct answer: D. Duty of utmost good faith
The duty of utmost good faith requires both the insured and the insurer to deal honestly and openly with each other. By advising Mr. Schmidt to conceal a material fact, the producer is violating this fundamental principle.
Why the other options are wrong
- A. Duty of professional competence involves possessing the necessary skills and knowledge, which isn't directly violated by this specific action.
- B. Duty of reasonable care involves acting prudently to avoid harm to the client, but utmost good faith is more directly applicable to disclosure.
- C. Duty of confidentiality relates to protecting client information, not disclosure during application.
Utmost Good Faith (Uberrimae Fidei)
A foundational principle in insurance requiring all parties to an insurance contract to act with the highest degree of honesty and to disclose all material facts relevant to the contract.
- Applies to both the insured and the insurer.
- Requires full disclosure of material facts.
- Breach can lead to contract voidance or denial of claims.
Memory trick: Insurance contracts need Utmost Good Faith for a Fair Exchange.