Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What is the fiduciary responsibility of a broker regarding unearned commissions?

1. To disregard unearned commissions if the policy is cancelled

2. To hold unearned commissions in trust and pay them back if the policy is cancelled

3. To donate unearned commissions to charity

4. To keep unearned commissions for future use

The correct answer is: To hold unearned commissions in trust and pay them back if the policy is cancelled

A broker has a fiduciary responsibility to hold unearned commissions in trust and ensure they are returned if a policy is cancelled. This obligation underscores the trust placed in brokers by their clients, as brokers must act in the best interests of their clients at all times. When a policy is cancelled, any commissions that have been paid in advance but have not yet been earned must be returned to the insurer or the client. This reflects the ethical duty brokers have to manage clients' funds with integrity and transparency. By holding these unearned commissions in a trust capacity, brokers ensure compliance with regulatory standards and uphold their professional responsibilities. Maintaining this standard helps to foster trust and credibility within the broker-client relationship while reinforcing the importance of accountability in the insurance industry.