A real estate developer offers to give every home buyer a free life insurance policy, with no separate charge, as an inducement to purchase property. Under California Insurance Code Section 777.1, this practice is:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 777.1 prohibits an insurer from participating in any plan to offer or effect insurance or annuities as an inducement to the purchase or rental of property or services without a separate charge to the insured, and it prohibits agents, brokers, and solicitors from arranging the sale of such insurance. The statute lists narrow exceptions, such as credit union shares, newspapers of general circulation, goods-performance guarantees, and debt-related life or disability insurance that pays the balance of an indebtedness, but none of those exceptions applies to a free life insurance giveaway tied to home purchases. Such an arrangement is an unlawful inducement regardless of who writes it or how it is acknowledged.
Why the other options are wrong
- C) The absence of a separate charge is the very defect the statute targets. Section 777.1 prohibits offering insurance free of charge as an inducement to purchase property, so the arrangement is unlawful.
- D) Having the policy written by a licensed agent does not cure the violation. The statute expressly forbids agents, brokers, and solicitors from arranging sales of free insurance as an inducement.
- B) A written acknowledgment does not change the nature of the transaction. The giveaway remains an unlawful inducement to purchase property under Section 777.1. The correct answer follows from the controlling authority, which this option does not follow.
Memory hook
Free insurance bribes buyers and inflates prices. Section 777.1 bans giving coverage away to sweeten a property deal.