Opal, age 75, has a $100,000 ordinary life insurance policy that has a cash value of $35,000. Opal is concerned about the cost of long-term care in a nursing home. A new agent of a national life insurer persuaded her to transfer the $35,000 into a deferred annuity. The agent told Opal that the annuity pays lifetime income benefits and also allows her to withdraw the $35,000 without penalty if she should enter a nursing home. After the policy was issued, Opal had 10 days to change her mind. During the free-look period, a friend of Opal examined the policy. Analysis of the policy showed that only 10 percent of the cash value could be withdrawn each year without penalty. A 7 percent surrender charge would apply to any excess amounts withdrawn. In addition, the income payments were scheduled to start in 10 years when Opal attained age 85. Opal filed a complaint against the agent with the state insurance department. An investigation revealed that the agent had made similar misrepresentations to other clients.

a. Based on the above facts, identify the illegal practice in which the agent engaged.

b. What action can the state insurance department take against the dishonest agent? c. What action can the state insurance department take against the life insurer?