California Life-Only & Accident and Health AgentCalifornia Law - GeneralMedium
A client is seeking to purchase a life insurance policy and requests a quote from two different agents. Agent A offers the client a 10% discount on their first year's premium as an incentive to purchase the policy through them. Agent B offers no such discount. Agent A's action is an example of which prohibited practice?
- ARebating
- BMisrepresentation
- CTwisting
- DChurning
Show answer & explanationAnswer & explanation
Correct answer: A. Rebating
Rebating is the illegal practice of offering an applicant for insurance an inducement not specified in the policy, such as a discount on the premium, a gift, or a share of the commission, to buy insurance.
Why the other options are wrong
- B. Misrepresentation involves making false statements about a policy or its terms, which is not what Agent A is doing directly here; they are offering an undisclosed inducement.
- C. Twisting involves inducing a policyholder to lapse or surrender an existing policy to replace it with another to the insured's detriment.
- D. Churning involves replacing policies repeatedly to generate new commissions, often within the same company.
Rebating (Insurance)
The illegal practice of offering an applicant for insurance any valuable consideration or inducement not specified in the policy.
- Prohibited by California Insurance Code.
- Includes discounts, gifts, or shares of commission.
- Aims to ensure fair competition and prevent discrimination.
Memory trick: A secret discount is a rebating crime, robbing fair play of its time.