An insurer sells life insurance by mailing offers directly to consumers, who complete an application by mail or telephone without meeting a licensed agent. This method of distribution is known as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Direct response, also called mass marketing, is a distribution method in which the insurer markets insurance directly to consumers through mail, telephone, the internet, or advertising, without an agent intermediary. The consumer completes the application directly, and underwriting is typically performed at the home office. The agency systems — independent and exclusive — both rely on licensed agents to sell and service policies. Direct response can lower acquisition costs but provides little or no personal advice, which is why disclosures such as the buyer's guide and careful suitability review remain important in that channel.
Why the other options are wrong
- B) The independent agency system uses independent agents who represent several insurers and place business with the company that best fits the client; the consumer deals with an agent, not directly with the insurer.
- C) The exclusive (captive) agency system uses agents contracted to sell only one insurer's products; a licensed agent still conducts the sale.
- D) Brokerage distribution involves brokers placing coverage with insurers on behalf of clients; it requires a licensed producer in the transaction.
Memory hook
Direct response = no agent in the room. The mail, phone, and internet do the selling.