Certified Financial Consultant (CFC) Practice Exam

What is true regarding commissions for Medicare supplement policies?

1. They are regulated by the state

2. They are forbidden by law

3. They are permitted up to a certain amount each policy

4. They vary widely between insurers

The correct answer is: They are permitted up to a certain amount each policy

Medicare supplement policies, often referred to as Medigap plans, operate under specific regulatory frameworks that govern the commissions paid to agents and brokers selling these policies. The correct assertion about commissions for these types of policies is that they are permitted up to a certain amount for each policy. This means that states have set limits or guidelines on how much an insurer can pay agents as commission for the sale of Medicare supplement policies. The existence of a defined maximum commission ensures that consumers are protected from excessive costs in premiums that might result from high commission rates. It also maintains fairness in the market, allowing for reasonable compensation for agents while safeguarding the financial interests of policyholders. While commissions could vary somewhat between different insurers, they must still adhere to the regulations placed by state law, thus preventing any substantial discrepancies that may lead to consumer disadvantage. This regulatory framework helps create a consistent market environment for both agents and consumers. Understanding this structure is crucial for financial consultants as it impacts how they guide clients in selecting the right Medicare supplement options and the associated costs.