New Jersey Life Producer Practice Exam

What must be true for a company offering insurance to be considered legitimate?

1. It must be incorporated

2. It must have a physical location in New Jersey

3. It must maintain certain reserve levels

4. It must be licensed

The correct answer is: It must be licensed

For an insurance company to be considered legitimate, it must be licensed. This licensing is a legal requirement that ensures the company meets specified standards and regulations set forth by the state insurance department. The licensing process evaluates the company’s financial solvency, governance structure, and compliance with state laws designed to protect policyholders. Being licensed signifies that the insurance company is authorized to operate within a particular state and can provide the insurance products it offers legally. It also assures consumers that the insurer adheres to industry regulations, promoting trust and transparency in the marketplace. Without a license, an insurance company cannot legally sell insurance, making licensing a foundational necessity for legitimacy in the insurance industry.