Pennsylvania unfair insurance practices practice questions
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Both Pennsylvania PSI exams, Life (16-01) and Accident and Health (16-02), list "Unfair insurance practices" and "Unfair claims settlement practices" in section 1.0 Insurance Regulation. [1] The outlines point to the Unfair Insurance Practices Act, twisting under the Insurance Company Law, and the claims rules in 31 Pa. Code Chapter 146. [1] This page sums up those rules and gives 12 practice questions.
What the Unfair Insurance Practices Act covers
Section 5(a) of the act defines unfair methods of competition and unfair or deceptive acts. On the exam, these are the ones most tied to selling life and health coverage: [2]
- (1) Misrepresentation in estimates, illustrations, statements or sales presentations, including misrepresenting benefits or terms, misrepresenting dividends, misrepresenting to get someone to lapse, exchange or surrender a policy, and calling a policy shares of stock.
- (2) False advertising: untrue, deceptive or misleading statements about the business of insurance.
- (3) Defamation: statements that are false or maliciously critical of someone's financial condition and meant to injure them.
- (4) Boycott, coercion or intimidation.
- (7) Unfair discrimination, including discrimination by race, religion, nationality or ethnic group, age, sex, family size, occupation, place of residence or marital status in underwriting standards or eligibility.
- (8) Rebates and other inducements not specified in the contract.
- (10) Unfair claim settlement practices, when done often enough to show a business practice.
- (11) Complaint records for the preceding four years.
- (12) Misrepresentation in applications to get a fee or commission.
- (13) Ads for permanent life insurance to people 50 or older without disclosing any reduction in the face amount.
Practice questions
1. A producer gives a client a misleading comparison to get them to drop a policy with one company and buy from another. What is this called?
A. Rebating
B. Twisting
C. Defamation
D. Coercion
Answer: B. Section 348 of the Insurance Company Law bars any misrepresentation or incomplete comparison of policies made to induce a policyholder to lapse, forfeit or surrender insurance and take a policy in another company. [3]
2. A producer offers a client a gift card not mentioned in the policy if they buy. Which part of the act covers this?
Answer: Section 5(a)(8), rebates. It covers giving or offering, as an inducement to insurance, any rebate of premiums, special favor, or valuable consideration or anything of value not specified in the contract. [2]
3. An insurer uses marital status to deny applicants in the same class with essentially the same hazard. Is that allowed?
Answer: No. That is unfair discrimination in underwriting standards or eligibility under section 5(a)(7)(iii). [2]
4. A company advertises permanent life insurance to people 50 and older but does not mention that the face amount drops in the early years. What is wrong?
Answer: The ad lacks the required disclosure of any reduction in the face amount and the period it applies. (Section 5(a)(13)) [2]
5. How long must a person keep a record of complaints received?
Answer: For the preceding four years, showing the number, line of insurance, nature, disposition and processing time of each complaint. (Section 5(a)(11)) [2]
6. When does a claim handling failure become an unfair claim settlement practice under the act?
Answer: When it is done with such frequency as to indicate a business practice. (Section 5(a)(10)) [2]
7. Under 31 Pa. Code 146.5, how soon must an insurer acknowledge a notice of claim?
Answer: Within 10 working days, unless payment is made within that time. [4]
8. How long does an insurer normally have to finish investigating a claim?
Answer: 30 days after notification, unless it cannot reasonably be done. If not, it must explain the delay in writing, and do so again every 45 days. (31 Pa. Code 146.6) [5]
9. After receiving proper proofs of loss, how soon must a first-party claimant be told the claim is accepted or denied?
Answer: Within 15 working days. A denial based on a policy provision must name that provision and be in writing. (31 Pa. Code 146.7(a)(1)) [6]
10. Before the commissioner holds a hearing on a suspected violation, how much notice is required?
Answer: Not less than thirty days from the date of the notice, sent by certified mail. (Section 8(a)) [2]
11. A person knowingly violates the act. What is the most a court can fine per violation?
Answer: Up to $5,000 per violation, with a cap of $50,000 in any six-month period. If the person did not know and should not reasonably have known, up to $1,000 per violation, capped at $10,000 in six months. (Section 11) [2]
12. What is the penalty for violating a commissioner's cease and desist order while it is in effect?
Answer: Up to $10,000 for each violation. (Section 11(3)) The commissioner may also suspend or revoke a license after a hearing finds a violation of section 5. (Section 9) [2]
Study tips
- Know the penalty ladder: $1,000 or $5,000 per violation depending on knowledge, with six-month caps of $10,000 and $50,000, and $10,000 per violation of a cease and desist order.
- Keep the claim clocks apart: 10 working days to acknowledge, 30 days to investigate (then every 45), and 15 working days to accept or deny after proofs of loss.
- Twisting lives in the Insurance Company Law, section 348, not in the Unfair Insurance Practices Act.
More questions are in the free Pennsylvania insurance law practice test.
Prep Retention is independent and is not affiliated with PSI or the state.
Sources
- PSI, Pennsylvania outlines 16-01xx and 16-02xx (effective 3/1/2026): https://proctor2.psionline.com/media/programs/PAINS/16-01xx.pdf , https://proctor2.psionline.com/media/programs/PAINS/16-02xx.pdf
- Unfair Insurance Practices Act (Act of July 22, 1974, P.L. 589, No. 205), PA General Assembly: https://www.palegis.us/statutes/unconsolidated/law-information/view-statute?iFrame=true&txtType=HTM&SessYr=1974&SessInd=0&ActNum=0205
- Insurance Company Law of 1921 (Act of May 17, 1921, P.L. 682, No. 284), Section 348, PA General Assembly: https://www.palegis.us/statutes/unconsolidated/law-information/view-statute?iFrame=true&txtType=HTM&SessYr=1921&SessInd=0&ActNum=0284
- 31 Pa. Code 146.5: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter146/s146.5.html&d=reduce
- 31 Pa. Code 146.6: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter146/s146.6.html&d=reduce (same)
- 31 Pa. Code 146.7: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter146/s146.7.html&d=reduce (same)