When a long-term care policy is replaced in California, how is the first-year sales commission calculated under CIC Section 10234.97?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
CIC Section 10234.97(a) limits the first-year sales commission when LTC coverage is replaced: the commission is calculated based on the difference between the annual premium of the replacement coverage and that of the original coverage. If the replacement premium is less than or equal to the premium being replaced, the commission is limited to the percentage normally paid for renewal. Replacement is also contingent on the insurer's declaration, under Section 10235.16, that the replacement materially improves the insured's position. The rule removes the financial incentive for agents to churn policies solely for larger first-year commissions, protecting consumers from unnecessary replacements. Group coverage as defined in Section 10231.6(a) is excepted.
Why the other options are wrong
- B) Full first-year commission on the new policy is exactly what the statute curbs; commissions are limited to the premium difference.
- C) Commissions are paid to the selling agent by the insurer; they are not remitted to the state insurance department.
- D) The commission limit applies to replacements generally, not only when a different agent sells the replacement.
Memory hook
Replacement commission = difference in premium, not a full first-year bonus. Churn does not pay.