Reference no: EM132428806

Problem: Deborah, age 75, has a $60,000 ordinary life insurance policy that has a cash value of $35,000. Deborah is concerned about the cost of long-term care in a nursing home. A new agent of a national life insurer persuaded her to transfer the $35,000 into a deferred annuity. The agent told Deboah that the annuity pays lifetime income benefits and also allows her to withdraw the $35,000 without penalty if she should enter a nursing home. After the policy was issued, Deborah had 10 days to change her mind. During the free-look period, a friend of Deborah examined the policy. Analysis of the policy showed that only 10 percent of the cash value could be withdrawn each year without penalty. A 7 percent surrender charge would apply to any excess amounts withdrawn. In addition, the income payments were scheduled to start in 10 years when Deborah attained age 85. Deborah filed a complaint against the agent with the state insurance department. An investigation revealed that the agent had made similar misrepresentations to other clients.

Required:

Question 1: Based on the above facts, identify the illegal practice in which the agent engaged.

Question 2: What action can the state insurance department take against the dishonest agent?

Question 3: What action can the state insurance department take against the life insurer?