Arizona Life and Health Practice Exam

Under what condition is it acceptable to charge a fee or service charge in addition to the premium?

1. If approved by the insured

2. If it’s a fixed amount

3. If the charge is reasonably related to the cost of the service

4. If it is disclosed at the time of sale

The correct answer is: If the charge is reasonably related to the cost of the service

Charging a fee or service charge in addition to the premium is acceptable when the charge is reasonably related to the cost of the service provided. This condition ensures that any additional fee is justified and reflects the actual expense incurred in delivering a service associated with the insurance policy. It prevents insurers from imposing arbitrary or excessive fees that could exploit consumers, promoting fair practices in the insurance industry. Charging a fee solely based on approval from the insured or fixing an amount does not inherently justify the reasonableness of the fee; it could still be excessive or unrelated to the actual cost of the service. While disclosure at the time of sale is critical for transparency and informed consent, it does not alone validate the charge unless it is also reasonably aligned with the service costs. Hence, the focus here is on ensuring that any additional charge correlates to actual service costs, maintaining a fair relationship between the fee and the services rendered.