Louisiana Bail Bonds Practice Exam

What is a direct outcome of a 'terminate' action in insurance?

1. Extension of coverage takes place

2. Cancellation of coverage happens between the producer and insurer

3. A new policy is written

4. The brokerage earns additional fees

The correct answer is: Cancellation of coverage happens between the producer and insurer

The action of 'terminate' in an insurance context refers to the cancellation of coverage that occurs between the producer (or agent) and the insurer. When a termination occurs, it signifies that the insurance contract is no longer in effect, and the insured party will no longer be covered under the terms of that policy. This means the responsibilities and obligations outlined in the insurance contract will cease, and the insured will need to seek new coverage if desired. Termination can occur for various reasons, such as non-payment of premiums, changes in risk, or the policyholder choosing to switch providers. This action contrasts with the other choices, which do not accurately describe the implications of termination. For instance, the extension of coverage and writing of a new policy typically involves continuation or modification of an insurance agreement rather than its cancellation. Similarly, earning additional fees by the brokerage is not a direct result of terminating coverage; rather, it might involve financial transactions linked to new policies or endorsements. Thus, the answer accurately reflects the concept of termination in insurance as it relates to the cessation of coverage.