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Illinois Marketing Practices, Unfair Claims and the Guaranty Association: Practice Questions

20 free practice questions with explanations. Pick an answer for each, then check your score.

Exam weight: Part of the 22 common-rules questions, plus the guaranty association on the Illinois Life and Accident & Health producer state exams. Updated 2026-11-04.

Quick study guide

Under 215 ILCS 5/151, any inducement to buy insurance that is not specified in the policy is a rebate.

Rebating (215 ILCS 5/151 to 5/153)

No company, agent or broker may offer or pay, directly or indirectly, any part of the premium or commission, any special advantage in date of policy or age of issue, paid employment, stocks or other property, or any other inducement not specified in the policy (151(1)). The applicant who accepts a rebate also violates the law (151(2)). Permitted: a company's bonus or premium abatement out of surplus from nonparticipating business, and taking a bona fide note at 6% interest in payment of a premium. A violation is a Class B misdemeanor; the agent is not entitled to the commission on that policy, and the company may recover any commission already paid (152). A witness compelled to testify in a rebating case cannot be prosecuted for the acts testified about, except for perjury (153).

Misrepresentation, defamation and other unfair practices

Section 149 bans misrepresenting policy terms, benefits or dividends; misleading comparisons made to induce a policyholder to lapse, forfeit, change or surrender coverage; defamation, meaning any false or malicious statement calculated to injure a company in its reputation or business; and implying that a company or policy is approved, endorsed or guaranteed by the State, the Director or a deposit with the Director. Penalty: a business offense, $200 to $10,000. On the applicant's side, a misrepresentation defeats a policy only if it appears in the policy or written application and was made with actual intent to deceive or materially affects the risk (154). Section 424 also makes boycott, coercion or intimidation an unfair practice.

Unfair claims practices (5/154.5, 5/154.6, Part 919)

The acts in 154.6 are improper claims practices when committed knowingly or with such frequency as to indicate a persistent tendency (154.5). Part 919 sets the clock:

Duty	Time limit	Source
Acknowledge pertinent communications	15 working days	919.40
Supply claim forms on request	15 working days	154.6(o)
Bona fide effort to contact claimants when liability is reasonably clear	21 working days after notification of loss	919.40
Offer payment of an undisputed amount	30 days after affirming liability	919.50(a)
Written explanation of a first-party denial or lower offer	30 days after the liability determination	919.50(a)(1)
Written explanation of delay (life, accident and health)	Claim unresolved 45 days	919.70(a)(2)

Denials and delay letters carry the Notice of Availability of the Department of Insurance. Insurers may not request a polygraph, or call a payment "final" unless the policy limit is paid or there is a bona fide dispute (919.60).

Guaranty association (5/531.01 to 5/531.19)

Per life: $300,000 death benefits (no more than $100,000 cash value) and $250,000 annuity present value; health benefit plans $500,000. No one may use the association to sell, and the summary document is delivered at or before policy delivery.

Practice questions

An Illinois life agent offers to pay a prospect's first two monthly premiums out of her own commission if he buys a policy from her that week. The policy says nothing about the payment. Under 215 ILCS 5/151, the offer is:
1. A.Permitted, as long as the agent notes the payment on the application
2. B.Permitted, as long as the insurer approves it in writing first
3. C.Permitted, because the money comes from the agent's commission rather than the insurer
4. D.A prohibited rebate, because it is an inducement not specified in the policy
Show answer
Answer: D. Section 151(1) bars any company, agent or broker from offering or paying, directly or indirectly, any rebate of the premium or of the agent's commission, or any other valuable consideration or inducement to insurance that is not specified in the policy. Paying premiums from the agent's own pocket is an indirect rebate of premium, and noting it on the application does not make it lawful.
Source: Illinois outline I.F.1: Rebating (215 ILCS 5/151, 5/152, 5/153); 215 ILCS 5/151
Which of the following does 215 ILCS 5/151 expressly allow, even though it reduces what a policyholder pays?
1. A.An agent dating a policy back six months so that the insured is issued at a younger age
2. B.An agent giving each new client shares of stock in the agency as a thank-you for buying
3. C.A company paying policyholders a bonus or abating premiums out of surplus accumulated from nonparticipating insurance
4. D.An agent offering a client part-time paid work at the agency if the client buys a policy
Show answer
Answer: C. Section 151(1) states that nothing in the section prevents a company from paying a bonus to policyholders or abating their premiums out of surplus accumulated from nonparticipating insurance; it also allows taking a bona fide obligation at 6% interest in payment of a premium. The same section lists a special advantage in date of policy or age of issue, any paid employment or contract for services, and the offer of stocks or other property as prohibited inducements.
Source: Illinois outline I.F.1: Rebating (215 ILCS 5/151, 5/152, 5/153); 215 ILCS 5/151
An applicant asks his agent to split the first-year commission with him, and the agent agrees. Under Illinois law, who has violated the rebating statute?
1. A.Both the agent who gives the rebate and the applicant who accepts it
2. B.Only the insurer, because it is responsible for all acts of its agents
3. C.No one, because the applicant made the request rather than the agent
4. D.Only the agent, because applicants cannot violate the Insurance Code
Show answer
Answer: A. Section 151(1) forbids agents and brokers to offer or pay a rebate, and 151(2) separately forbids any insured person or applicant to receive, accept or agree to accept any rebate, any part of the agent's commission or any other inducement not specified in the policy. Who proposed the deal does not matter. Under 5/152(3) the company is not guilty for an agent's act unless an officer, director or department head knowingly permitted it or knew of it in advance.
Source: Illinois outline I.F.1: Rebating (215 ILCS 5/151, 5/152, 5/153); 215 ILCS 5/151; 215 ILCS 5/152
An agent is found to have rebated part of the premium on a policy he sold. The insurer has already paid him the commission on that policy. Under 215 ILCS 5/152, which consequence applies?
1. A.The agent must pay the insured a penalty equal to three times the rebate
2. B.The violation is a Class 4 felony, and the policy is void from its issue date
3. C.The agent keeps the commission but pays the Department a $100 administrative fee
4. D.The violation is a Class B misdemeanor, and the insurer may recover the full commission from the agent
Show answer
Answer: D. Section 152(1) makes any violation of Section 151 a Class B misdemeanor. Section 152(2) says an agent or broker who violates 151 is not entitled to any commission on a policy on which a rebate was given or offered, and if the company has already paid it, the company may recover the full amount from the agent or broker. The statute does not void the policy, set a treble penalty or provide for a flat fee.
Source: Illinois outline I.F.1: Rebating (215 ILCS 5/151, 5/152, 5/153); 215 ILCS 5/152
To win a sale, an agent tells a prospect that a competing insurer's universal life policy "has no cash value at all," which is untrue. Which Illinois provision does this most directly violate?
1. A.215 ILCS 5/154, which governs misrepresentations made by applicants
2. B.215 ILCS 5/151, which bans inducements not specified in the policy
3. C.215 ILCS 5/149, which bans statements misrepresenting the terms or benefits of any company's policy
4. D.215 ILCS 5/154.6, which lists improper claims practices
Show answer
Answer: C. Section 149(1) forbids any company, agent, broker or other person to make or circulate any estimate, illustration, circular or verbal or written statement misrepresenting the terms of any policy issued by it or any other company, or the benefits or advantages promised. Section 151 deals with inducements, 154 with misstatements by or for the insured during negotiation of a policy, and 154.6 with claims handling. Section 424(1) also lists a violation of 149 as an unfair or deceptive act.
Source: Illinois outline I.F.2: Misrepresentation (215 ILCS 5/149, 5/154); 215 ILCS 5/149; 215 ILCS 5/424
An agent circulates a flyer falsely claiming that a rival Illinois insurer "is months away from bankruptcy" in order to steer customers away from it. Under 215 ILCS 5/149, this is:
1. A.A violation only if the flyer is mailed to the rival insurer's own policyholders
2. B.Rebating, because the flyer offers customers something of value
3. C.Defamation: a false or malicious statement calculated to injure a company in its reputation or business
4. D.Allowed, if the agent honestly believes the claim is true
Show answer
Answer: C. Section 149(3) forbids any company, agent, broker or other person to make or circulate any pamphlet, circular, literature or verbal or written statement containing a false or malicious statement calculated to injure any company doing business in Illinois in its reputation or business. Nothing of value is offered, so it is not rebating. The ban covers statements to anyone, not just the rival's policyholders, and a violation is a business offense with a penalty of $200 to $10,000 under 149(5).
Source: Illinois outline I.F.3: Defamation (215 ILCS 5/149); 215 ILCS 5/149
An agent's website says his insurer's policies are "guaranteed by the State of Illinois through the company's deposit with the Director." What is the potential penalty under 215 ILCS 5/149?
1. A.No penalty, as long as the company really does have a deposit with the Director
2. B.A business offense with a penalty of not less than $200 nor more than $10,000
3. C.A Class B misdemeanor with forfeiture of all commissions on the policies sold
4. D.A fine of $50 per day for as long as the statement remains online
Show answer
Answer: B. Section 149(4) forbids any statement or advertising that implies a company, its financial condition, its claims payments or its policies are approved, endorsed or guaranteed by the State of Illinois, the federal government, the Director or the Department, or are secured by a deposit with the Director, and forbids using or referring to any such deposit. Under 149(5) a violator is guilty of a business offense and pays a penalty of $200 to $10,000. The Class B misdemeanor and commission forfeiture are the rebating penalties in 5/152, and the existence of a real deposit is no defense.
Source: Illinois outline I.F.2: Misrepresentation (215 ILCS 5/149, 5/154); 215 ILCS 5/149
On a written application, an applicant gives a wrong answer to a health question. Under 215 ILCS 5/154, when can that misrepresentation defeat the policy?
1. A.Only if it is stated in the policy or written application and was made with intent to deceive or materially affects the risk
2. B.Only if the applicant both intended to deceive and the misstatement was material
3. C.Whenever any answer on the application is untrue, however minor
4. D.Only if the applicant repeated the wrong answer orally to the agent
Show answer
Answer: A. Section 154 says no misrepresentation or false warranty defeats a policy unless it is stated in the policy, an attached endorsement or rider, or the written application, and then only if it was made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed. Either intent or materiality is enough; both are not required. An innocent, immaterial error does not defeat the policy, and oral statements outside the written application do not count.
Source: Illinois outline I.F.2: Misrepresentation (215 ILCS 5/149, 5/154); 215 ILCS 5/154
Several agencies agree among themselves to stop placing business with an insurer until it withdraws a new direct-to-consumer program. Under 215 ILCS 5/424, this agreement is:
1. A.Lawful, because every agency may choose which insurers it represents
2. B.An unfair method of competition: concerted boycott, coercion or intimidation tending to restrain the business of insurance
3. C.Unfair only if the targeted insurer is domiciled outside Illinois
4. D.Lawful unless the agencies also lower their commissions on the insurer's products
Show answer
Answer: B. Section 424(2) defines as an unfair method of competition and unfair or deceptive practice entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion or intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the business of insurance. The agreement among the agencies to pressure the insurer is what makes it unlawful, not one agency's own choice of carriers. The section has no domicile test.
Source: Illinois outline I.F.4: Other unfair practices (215 ILCS 5/424); 215 ILCS 5/424
Under 215 ILCS 5/154.5, an act listed in Section 154.6, such as failing to acknowledge claim communications promptly, becomes an improper claims practice when it is:
1. A.Committed knowingly, or with such frequency as to indicate a persistent tendency to engage in that conduct
2. B.Found by a jury in a lawsuit brought by the claimant
3. C.Committed even once, regardless of intent or frequency
4. D.Committed against a claimant who is not an Illinois resident
Show answer
Answer: A. Section 154.5 makes it an improper claims practice for a company to commit any act in Section 154.6 if it is committed knowingly in violation of the Code or its rules, or with such frequency as to indicate a persistent tendency to engage in that type of conduct; 154.6 adds that the act must be without just cause. A single innocent slip does not meet the test, no lawsuit is required, and residence is not the criterion. Section 424(4) also lists these acts as unfair or deceptive practices.
Source: Illinois outline I.F.5: Unfair claims practices (215 ILCS 5/154.5, 5/154.6; Reg. 919); 215 ILCS 5/154.5; 215 ILCS 5/154.6
A health insurer receives a letter from an insured asking about the status of a pending claim. Under 50 Ill. Adm. Code Part 919, what is the longest the insurer may take to acknowledge it with "reasonable promptness"?
1. A.45 calendar days from receipt of the communication
2. B.30 calendar days from receipt of the communication
3. C.15 working days from receipt of the communication
4. D.21 working days from receipt of the communication
Show answer
Answer: C. Section 919.40 defines "reasonable promptness," as used in 215 ILCS 5/154.6(b) (failing to acknowledge pertinent communications), as a maximum of 15 working days from receipt of a communication from a claimant or insured; a pertinent communication is any correspondence materially related to handling the claim. The 21-working-day figure is part of the definition of a prompt investigation, 30 days is the time to offer payment after affirming liability (919.50(a)), and 45 days triggers the delay letter for life, accident and health claims (919.70(a)(2)).
Source: Illinois outline I.F.5: Unfair claims practices (215 ILCS 5/154.5, 5/154.6; Reg. 919); 50 Ill. Adm. Code 919.40; 215 ILCS 5/154.6
An insurer affirms liability on a hospital claim, and the amount owed is determined and not in dispute. Under 50 Ill. Adm. Code 919.50, within what time must the insurer offer payment?
1. A.Within 15 working days after the claim was first reported
2. B.Within 90 days after the date of service
3. C.Within 30 days after affirmation of liability
4. D.Within 60 days after proof of loss is received
Show answer
Answer: C. Section 919.50(a) requires a company to affirm or deny liability within a reasonable time and to offer payment within 30 days after affirmation of liability if the amount of the claim is determined and not in dispute. For portions of a claim that are not in dispute and whose payee is known, it must tender payment within the same 30 days, even if other parts are still contested. The 15-working-day period applies to acknowledging communications and supplying claim forms, not to payment.
Source: Illinois outline I.F.5: Unfair claims practices (215 ILCS 5/154.5, 5/154.6; Reg. 919); 50 Ill. Adm. Code 919.50
After investigating, an insurer denies an insured's first-party disability claim. Under 50 Ill. Adm. Code 919.50, what must the insurer send the insured?
1. A.A written explanation within 90 days, sent to the Department of Insurance rather than the insured
2. B.A written explanation within 30 days citing the policy provision relied on, with the Notice of Availability of the Department of Insurance
3. C.A copy of the entire claim file within 10 days, including adjusters' notes
4. D.An oral explanation by phone, followed by a written one only if the insured asks
Show answer
Answer: B. Section 919.50(a)(1) requires a reasonable written explanation of a first-party denial, or of a settlement lower than the amount claimed, within 30 days after the investigation and determination of liability are completed. It must clearly set out the policy definition, limitation, exclusion or condition on which the denial was based, and the Notice of Availability of the Department of Insurance must accompany it. The rule does not require handing over the claim file, and 215 ILCS 5/154.6(n) separately bars failing to explain a denial promptly.
Source: Illinois outline I.F.5: Unfair claims practices (215 ILCS 5/154.5, 5/154.6; Reg. 919); 50 Ill. Adm. Code 919.50; 50 Ill. Adm. Code 919.40
A beneficiary filed a death claim under an individual life policy, and 45 days after it was reported the insurer still has not resolved it. Under 50 Ill. Adm. Code 919.70, what must the insurer do?
1. A.Nothing until 90 days have passed, when it must report the claim to the Department
2. B.Give the beneficiary a reasonable written explanation for the delay, with the Notice of Availability of the Department of Insurance
3. C.Refer the claim to the Illinois Life and Health Insurance Guaranty Association
4. D.Pay the claim in full, because unresolved claims are deemed approved after 45 days
Show answer
Answer: B. Section 919.70(a)(2) says that if a claim remains unresolved for 45 days from the date it is reported, the life, accident or health insurer must give the insured or, when applicable, the beneficiary a reasonable written explanation for the delay, accompanied by the Notice of Availability of the Department of Insurance; in credit or mortgage claims the debtor gets the notice too. The rule does not deem a claim approved. The 90-day period applies only where claims are filed directly by a provider or another carrier under contract (919.70(a)(3)), and the guaranty association acts only when an insurer is impaired or insolvent.
Source: Illinois outline I.F.5: Unfair claims practices (215 ILCS 5/154.5, 5/154.6; Reg. 919); 50 Ill. Adm. Code 919.70
A widow submits a death claim form on her husband's policy. Under 50 Ill. Adm. Code 919.70, what must the insurer, which keeps individual policy records, also do?
1. A.Search for other policies on the decedent's life, including under other names he used, and decide liability on any found within 6 months
2. B.Search for other policies only if the widow pays a search fee
3. C.Report the death to every other insurer licensed in Illinois within 30 days
4. D.Pay only the policy named on the claim form, because the beneficiary must identify any others
Show answer
Answer: A. Section 919.70(a)(1) requires an insurer, on submission of a death claim form, to search for other policies on the decedent's life, asking about other names such as a maiden name, nickname or alias and using them in the search. It must investigate additional policies found and complete a determination of liability no later than 6 months after the claim filing date, then notify the owner and beneficiary and arrange payment. Group and credit life insurers that do not keep certificate holder records are exempt; the rule mentions no fee and no duty to notify other insurers.
Source: Illinois outline I.F.5: Unfair claims practices (215 ILCS 5/154.5, 5/154.6; Reg. 919); 50 Ill. Adm. Code 919.70
An Illinois resident owns three life policies, all issued by the same insurer, which becomes insolvent. Under 215 ILCS 5/531.03, what is the most the Life and Health Insurance Guaranty Association will pay in death benefits on his life?
1. A.$500,000 in total, with no more than $300,000 in cash values
2. B.$250,000 in total, with no more than $250,000 in cash values
3. C.$300,000 per policy, or $900,000 in total
4. D.$300,000 in total, with no more than $100,000 in net cash surrender and withdrawal values
Show answer
Answer: D. Section 531.03(3)(b)(i)(A) limits the association, with respect to any one life regardless of the number of policies, to $300,000 in life insurance death benefits but not more than $100,000 in net cash surrender and net cash withdrawal values. The association also never pays more than the insurer's own contractual obligation (531.03(3)(a)). The $250,000 figure is the limit on the present value of annuity benefits, and $500,000 applies to health benefit plans.
Source: Illinois outline Life II.H / Accident and Health II.G: Life & Health Insurance Guaranty Association (215 ILCS 5/531.01 through 5/531.19); 215 ILCS 5/531.03
Under 215 ILCS 5/531.03, which coverage limit for health insurance benefits per individual is correct when a member insurer becomes insolvent?
1. A.$300,000 for disability income insurance and $300,000 for long-term care insurance
2. B.$250,000 for disability income insurance and $500,000 for long-term care insurance
3. C.$100,000 for disability income insurance and $100,000 for long-term care insurance
4. D.$500,000 for disability income insurance and $250,000 for long-term care insurance
Show answer
Answer: A. Section 531.03(3)(b)(i)(B) sets the health limits per individual at $300,000 for disability income insurance, $300,000 for long-term care insurance, $500,000 for health benefit plans, and $100,000 for other health coverages, including any cash values. The association's aggregate limit for one life is $300,000, except that it rises to $500,000 where health benefit plans are involved. The $250,000 figure belongs to annuities, not health insurance.
Source: Illinois outline Life II.H / Accident and Health II.G: Life & Health Insurance Guaranty Association (215 ILCS 5/531.01 through 5/531.19); 215 ILCS 5/531.03
A client owns a variable annuity issued by an insurer that becomes insolvent. Which part of the contract does the Illinois Life and Health Insurance Guaranty Association NOT cover?
1. A.The guaranteed portion, if the contract owner lives in Illinois
2. B.The portion not guaranteed by the insurer, where the investment risk is borne by the contract owner
3. C.Any part of the contract, because annuities are excluded from guaranty association coverage
4. D.The death benefit, because only cash values are covered for annuities
Show answer
Answer: B. Section 531.03(2)(b)(i) and (xv) exclude any portion of a policy or contract not guaranteed by the member insurer or under which the risk is borne by the owner, including the non-guaranteed part of a variable life or variable annuity contract. Annuities are covered under 531.03(2)(a), up to $250,000 in present value per life, so guaranteed benefits remain protected for eligible residents. The association also excludes obligations not in the contract's written terms, such as claims based on marketing materials (531.03(2)(b)(vi)).
Source: Illinois outline Life II.H / Accident and Health II.G: Life & Health Insurance Guaranty Association (215 ILCS 5/531.01 through 5/531.19); 215 ILCS 5/531.03
While selling an annuity, an Illinois agent tells a cautious client: "Even if the company fails, the state guaranty association will make you whole." Under 215 ILCS 5/531.19, this statement is:
1. A.Permitted, because the association does protect annuity owners
2. B.Permitted, as long as the agent also hands over the association's summary document
3. C.Prohibited only in printed or broadcast advertising, not in conversation
4. D.Prohibited, because no agent may use the association's existence for sales, solicitation or inducement to purchase
Show answer
Answer: D. Section 531.19(a) bars any person, including a member insurer or its agent, from making any advertisement, announcement or statement, written or oral, that uses the existence of the guaranty association for sales, solicitation or inducement to purchase covered insurance. The required summary document must itself state that agents are prohibited from doing this and that coverage may not apply or is subject to substantial limitations and exclusions (531.19(c)), so delivering it does not cure the pitch. "Make you whole" is also wrong on the facts, since coverage is capped.
Source: Illinois outline Life II.H / Accident and Health II.G: Life & Health Insurance Guaranty Association (215 ILCS 5/531.01 through 5/531.19); 215 ILCS 5/531.19
Under 215 ILCS 5/531.19, when must a member insurer give a policy owner the guaranty association's summary document describing its purposes and limitations?
1. A.Within 30 days after the first premium is paid
2. B.Prior to or at the time the policy or contract is delivered
3. C.Only when the policy owner asks for it in writing
4. D.Only after the insurer has been found impaired or insolvent
Show answer
Answer: B. Section 531.19(b) bars a member insurer from delivering a covered policy or contract unless the summary document is delivered to the owner, certificate holder or enrollee prior to or at the time of delivery; it should also be available on request. Receiving it does not mean the policy would be covered, and failing to receive it gives no greater rights than the Article provides. The document must carry a clear and conspicuous disclaimer on its face (531.19(c)).
Source: Illinois outline Life II.H / Accident and Health II.G: Life & Health Insurance Guaranty Association (215 ILCS 5/531.01 through 5/531.19); 215 ILCS 5/531.19

Where these questions come from: Illinois content outline (Pearson VUE #121402, Life or Accident and Health state exam), section I.F: Marketing practices (rebating, misrepresentation, defamation, other unfair practices, unfair claims practices); Life exam section II.H and Accident and Health exam section II.G: Life & Health Insurance Guaranty Association. See how we write questions.