Insurance
Rebating
Rebating is an illegal insurance practice where an agent offers part of their commission or other inducements to a prospect as an incentive to purchase a policy, violating state insurance laws designed to ensure fair competition.
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Exam Tip
Rebating = giving back part of commission or gifts to get the sale. ILLEGAL in most states! Florida is an exception.
What is Rebating?
Rebating is an unfair trade practice in insurance where an agent offers to return part of their commission or provide other valuable consideration to induce someone to purchase an insurance policy. It is illegal in almost all states.
What Constitutes Rebating
| Illegal Rebating | Example |
|---|---|
| Commission sharing | "I'll give you $200 of my commission" |
| Paying premiums | Agent pays first month's premium |
| Gift cards/cash | Giving prospects money to buy |
| Valuable gifts | Expensive items as incentive |
| Special favors | Services with significant value |
What is NOT Rebating
| Permitted Activity | Why It's Allowed |
|---|---|
| Advertising gifts | Small items of nominal value ($25 or less) |
| Educational materials | Providing policy information |
| Meals during business | Reasonable hospitality |
| Lower quoted rates | Legitimate pricing differences |
| Dividends | Policy benefits, not inducements |
Why Rebating is Prohibited
- Unfair Competition - Agents with higher commissions could unfairly compete
- Consumer Protection - Prevents decisions based on rebates vs. policy value
- Industry Stability - Maintains orderly marketplace
- Agent Compensation - Protects agents' earning ability
Rebating vs. Twisting
| Practice | Definition |
|---|---|
| Rebating | Offering inducements to buy |
| Twisting | Misrepresenting to replace coverage |
State Variations
| State | Rebating Rule |
|---|---|
| Most States | Prohibited |
| California | Prohibited |
| Florida | Permitted with disclosure |
Penalties for Rebating
- License suspension or revocation
- Fines and monetary penalties
- Civil liability
- Criminal charges in severe cases