PSI Life Exam Practice Test

What action could bind XYZ Insurance Company to an intermediary's later acts?

1. Continuing to pay the intermediary deferred commissions

2. Formal termination of the intermediary

3. Revising the contract terms with the intermediary

4. Issuing a public notice of cancellation

The correct answer is: Continuing to pay the intermediary deferred commissions

Continuing to pay the intermediary deferred commissions can create a binding relationship between XYZ Insurance Company and the intermediary's later acts. This is because the payment of commissions is typically a recognition of an ongoing business relationship, which can imply that the company is still invested in the intermediary's activities. If XYZ Insurance Company continues to compensate the intermediary, it may inadvertently endorse or validate the intermediary's actions, suggesting that these actions are in alignment with the company's policies or interests. The other options involve formal steps that might sever or modify the relationship rather than bind the company to the intermediary's future actions. For instance, formally terminating the intermediary or issuing a public notice of cancellation communicates an end to the relationship, which cannot create any binding effect. Similarly, revising the contract terms would imply a negotiation that alters the relationship but doesn't bind XYZ Insurance Company to any subsequent acts of the intermediary unless explicitly stated.