Health Insurance Mastery Practice Exam

What document grants an insurer permission to transact insurance?

1. License agreement

2. Guarantee certificate

3. Certificate of Authority

4. Insurance charter

The correct answer is: Certificate of Authority

The certificate of authority is the document that grants an insurer permission to transact insurance within a specific jurisdiction. This document serves as a formal declaration from the state insurance department that the insurer has met necessary regulatory requirements, including financial stability, ethical practices, and competency to provide insurance products to consumers. Obtaining a certificate of authority is essential for insurers to operate legally and ensure they adhere to local laws and regulations designed to protect policyholders. The other options do not fulfill this role. A license agreement typically refers to a contract regarding the use of certain property, not specifically related to insurance transactions. A guarantee certificate is unrelated to insurance licensing; instead, it may refer to assurance provided by one party to another regarding the fulfillment of an obligation. An insurance charter generally refers to the foundational documents necessary for forming an organization but does not specifically pertain to licensing or permission to conduct insurance transactions. Thus, the certificate of authority is the clear and correct choice for granting permission for an insurer to operate in the insurance market.