North Carolina Laws and Rules Practice Exam

False advertising in insurance occurs when an insurer makes misleading claims about its products or services that can deceive consumers. The correct answer highlights a scenario where an insurer exaggerates its dividends in a magazine advertisement. This practice can mislead potential policyholders into overestimating the financial benefits they might receive, creating an unrealistic expectation that can influence their purchasing decisions.

By overstating the dividends, the insurer is not presenting an honest and transparent view of the potential returns on a policy, which undermines consumer trust and violates regulations intended to protect consumers. This type of misleading information can lead to consumers making decisions based on incorrect data, thus constituting false advertising.

The other options reflect practices that do not involve deceptive or misleading representations. Offering lower prices may be a legitimate strategy as long as those prices are accurately represented. Providing clear information about policy terms is essential for transparency and consumer understanding, and using testimonials can be acceptable when they are genuine and not misleading.