Massachusetts Life & Health Insurance Practice Test

Why B is correct

211 CMR 71.18 governs permitted compensation for Medicare supplement sales in Massachusetts, and its core principle is that pay structures must not create incentives to sell coverage that is not appropriate for the applicant. A schedule that pays a premium reward for replacements steers producers toward churn — repeated sales the applicant does not need — and is therefore improper compensation design under the rule enforced by the Massachusetts Division of Insurance. Contractual disclosure of the rate does not legitimize it.

Why the other options are wrong

• A) Compensation for Medicare supplement sales is regulated, not a private business matter; 211 CMR 71.18 constrains how it may be structured.
• C) Disclosure of the higher replacement rate in the contract does not cure the incentive problem the rule targets.
• D) The licensure status of the producer is beside the point; the compensation design itself violates 211 CMR 71.18.

Memory hook

Paying extra to churn is itself the violation — incentives must stay appropriate.

Why C is correct

211 CMR 42.08 and M.G.L. c. 175, § 110(N)(3)(a) define a replacement by its effect on existing coverage: a new policy is a replacement when its purchase or issuance causes an existing accident and health policy to lapse, terminate, be converted to reduced paid-up or reduced benefits, or otherwise be materially changed. The definition is about churn in the applicant's coverage, not about routine renewals, riders that add value, or the ordinary use of an existing policy.

Why the other options are wrong

• A) A same-policy renewal keeps existing coverage intact; nothing lapses or shrinks, so it is not a replacement under 211 CMR 42.08.
• B) A rider added to the existing policy enhances rather than replaces it; no existing coverage is terminated or reduced.
• D) Filing a claim is the normal exercise of an existing contract and involves no new policy displacing old coverage.

Memory hook

New policy in, old policy out — that swap is the replacement the rules target.

Why C is correct

211 CMR 95.08, part of the Massachusetts Division of Insurance's variable life solicitation rules, gives the buyer of an individual variable life policy a right to examine the policy for 10 days and return it for a refund of premium. Massachusetts attaches free-look rights product by product rather than through one general rule, so the variable product's period must not be confused with the periods that apply to other transactions. The buyer's remedy during the window is simple: return the policy and receive the premium back.

Why the other options are wrong

• A) The right to examine exists specifically for variable life under 211 CMR 95.08; paying the first premium does not end it.
• B) The 20-day refund window is the Massachusetts right to examine for a replaced life policy or annuity under the replacement rules, not for variable life.
• D) The 30-day right to return belongs to Medicare supplement policies under 211 CMR 71.13, not to variable life insurance.

Memory hook

Variable life free look: ten days to change your mind about the market.