Other Than Life (OTL) Practice Exam

Which of the following actions is illegal for an insurance agent?

1. Share commission

2. Rebate premium

3. Deposit collected premium in a trust account

4. Keep any part of the commission when a policy is cancelled mid-term

The correct answer is: Rebate premium

Rebating a premium is considered illegal in many jurisdictions because it undermines the insurance industry’s principles of equity and stability. When an insurance agent offers a rebate, they are returning a portion of the premium to the policyholder as an incentive for purchasing insurance. This practice can lead to unfair competition, as it encourages agents to offer lower costs inappropriately, rather than relying on the merits of the insurance policy itself. It can also create significant ethical dilemmas, as it imposes pressure on consumers to choose policies based on price rather than coverage and reliability. In contrast, sharing commission, maintaining trust accounts for collected premiums, and retaining a portion of the commission upon a policy's cancellation may fall within legal and industry norms depending on specific regulations and guidelines in particular states. Each jurisdiction has its own rules governing these practices, but they are generally accepted within the framework of insurance operations. It is crucial for insurance agents to adhere to the regulations in their area to maintain the integrity of the insurance profession.