New Jersey Life Producer Law Practice Test

An insolvent insurance company is defined as one that is unable to meet its financial obligations. This indicates that the company's liabilities exceed its assets, meaning it lacks sufficient resources to pay policyholders, creditors, and other financial obligations. Insolvency is a critical issue in the insurance industry, as it can jeopardize the financial security of policyholders who rely on the company to fulfill its promises for claims and benefits. Recognizing insolvency is essential for regulators, policyholders, and investors, as it prompts necessary actions to protect the interests of those affected.

The other choices do not accurately describe an insolvent company. For instance, a financially stable and profitable company or one that can cover its liabilities would be considered solvent, while a company that has voluntarily ceased operations does not inherently indicate insolvency; it could be a strategic decision made for various reasons.