A Texas agent tells an applicant that he will pay the applicant part of his commission so that the first-year cost is lower. How is this treated?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under TIC 4005.053(c)(1), an agent may not pay, permit, or give, directly or indirectly, to a person who does not hold a license as an agent a rebate of premiums payable, a commission, or any other valuable consideration or inducement that is not specified in the insurance policy or contract, for or on account of the solicitation or negotiation of an insurance contract. Under TIC 541.056, giving an applicant anything of value not specified in the contract as an inducement to buy is an unlawful rebate. Practical consequence: the arrangement is prohibited whether or not the insurer consents, and the applicant who knowingly accepts the payment is also exposed.
Why the other options are wrong
- A) The source of the money does not matter; what matters is that it is value given to the insured as an inducement and not specified in the policy.
- B) Insurer consent does not legalize a rebate, because the prohibition runs against the inducement itself.
- D) Timing is not the test; a payment made after delivery under a promise used to induce the sale is still a rebate.
Memory hook
Commission sharing goes to licensees, while money to the buyer is a rebate.