A producer offers to refund $100 of her commission to any client who purchases a life insurance policy. Under California Insurance Code Section 750, this practice is:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 750 of the California Insurance Code prohibits paying, giving, or offering any rebate of the premium, any special favor or advantage, or anything of value not specified in the policy, as an inducement to the purchase of insurance. A rebate of the producer's own commission is exactly the kind of inducement the statute targets, because it offers the client a benefit that is not part of the policy contract. The prohibition exists to keep competition focused on the merits of the products rather than on under-the-table incentives, and to prevent agents from buying business with commission kickbacks. Violations of the anti-rebate rule can lead to license suspension or revocation. The rule applies broadly and without exception for premium size.
Why the other options are wrong
- B) Disclosing the rebate to the insurer does not cure the violation. Section 750 forbids offering valuable consideration not specified in the policy as an inducement, and telling the insurer about the rebate does not make the prohibited practice lawful.
- C) Giving away part of the producer's own commission is a rebate and is equally prohibited under Section 750. The source of the money does not matter; the statute bars any valuable consideration or inducement not stated in the policy, regardless of whether it comes from the producer's pocket.
- D) The prohibition in Section 750 applies to policies of all sizes. There is no exception that permits rebates on policies with premiums above any particular amount, so the practice is unlawful regardless of the premium charged.
Memory hook
Any valuable perk outside the policy is an unlawful inducement.