State RegulationsFL specificDifficulty 2/5
An agent tells a client it is time to 'upgrade' her life policy and uses the policy's accumulated cash value to buy additional coverage from the same insurer, without explaining that the transaction reduces her death benefit and raises future costs. Under Florida law, this is
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Under Fla. Stat. 626.9541(1)(l),(aa), churning occurs when an agent uses an existing policy's cash value or dividends to purchase additional insurance with the same insurer without the policyowner's informed decision, to the owner's detriment. The client here was told nothing about the reduced death benefit and higher future costs - the hallmark of churning rather than a legitimate enhancement.
Why the other options are wrong
- A) Insurer approval of the mechanics does not cure the missing informed decision by the policyowner.
- B) No value was given back to the client as an inducement; her own policy values were consumed.
- D) Keeping the transaction inside one insurer is what defines churning - it does not make the practice lawful.
Memory hook
'Upgrade' without explanation = churning.