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What You Should Know
- Rebating is when an insurance agent offers a gift to the policyholders who buy a new policy
- Rebating in insurance examples include agents offering part of their commission, money, gifts, services, and even employment
- Rebating is illegal in most states, but even the states that don't have laws against rebating frown upon it
Insurance agents compete to get the business of people who are looking to buy different types of insurance. One tactic that some agents use to earn a buyer's business is rebating.
Rebating in insurance typically results in the customer receiving some reward for buying from an agent. Still, it is often illegal and can lead to bad business, such as unfair competition or inadequate coverage for policyholders.
Read more about insurance rebating below and view some examples of rebating in insurance.
What is rebating in life insurance?
Rebating in insurance means that an agent has offered to pay part of their commissions or other gifts to the policyholders who buy the policy that earns them the payment. For example, if you purchased a policy, the agent would offer to pay you part of their commissions from the sale to encourage you to buy the policy.
Rebating is also known as an inducement, which is any reward given to encourage individuals to buy an insurance policy from a specific agent.
Is rebating in insurance legal? In most cases, no. Most states have regulations against insurance rebating. In addition, the states that don't have laws against insurance rebating still heavily frown upon the practice.
It can sometimes be challenging to distinguish what counts as rebating or inducement in terms of rebating laws. For example, if an insurance agent takes a potential customer out for lunch to discuss a policy, does that count as rebating?
In general, if the gift is given with the requirement that the customer buys the policy, then it is considered rebating or inducement. So, if the insurance agent says, "I will buy lunch if you buy this policy," that is likely breaking rebating laws.
Is rebating in insurance legal?
The purpose of rebating laws is to create fair competition between insurance agents and producers and protect customers from being encouraged to buy policies that aren't the best fit for them.
Some independent insurance agents may have access to resources that others don't. Therefore, they could use these resources to encourage individuals to buy policies from them by offering incentives outside the insurance policy's benefits.
Rebating laws make it so insurance agents must compete based on customer service and policy offerings instead of what they can use to incentivize customers.
In addition, some insurance companies pay higher commission rates. Therefore, if agents can use commissions to rebate customers for buying a policy, they may recommend these higher-paying policies even if the coverage is not best for the customer.
So, the rebating laws encourage agents to think of the customer first and earn business by providing the customer with the right policy for their needs.
Is rebating illegal in my state?
Let's take a look at the insurance rebating laws in each state:
| State | Is rebating legal or illegal? | Gift Regulations |
|---|---|---|
| Alabama | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $15. |
| Alaska | Illegal | Most gifts are not allowed. Gifts that encourage a customer to hear more about insurance or meet with an agent are not allowed. |
| Arizona | Illegal | No regulations |
| Arkansas | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $25. |
| Colorado | Illegal | No regulations |
| Connecticut | Illegal | No gifts of any kind are allowed. |
| Delaware | Illegal | No regulations |
| Florida | Legal, but must be available to all possible insureds for all possible insurance companies | No regulations |
| Georgia | Illegal | No regulations |
| Hawaii | Illegal | No regulations |
| Idaho | Illegal | Activity defined by Idaho as customer service is allowed. |
| Illinois | Illegal | Some free services and small gifts are allowed. |
| Indiana | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $25. |
| Iowa | Illegal | Social meetings and some small gifts are allowed. |
| Kansas | Illegal | No regulations |
| Kentucky | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $25. |
| Louisiana | Illegal | Small gifts are allowed but cannot be tied to purchasing an insurance policy. |
| Maine | Legal, but must meet gift regulations | Gifts are allowed in connection to marketing insurance policies. Gifts must be less than $100 or $500 for raffles or drawings. Gifts cannot be in cash but can be in cash equivalents such as gift cards. Free services are allowed but must be valued at or below $100. |
| Maryland | Illegal | No regulations |
| Massachusetts | Illegal | No regulations |
| Michigan | Illegal | Gifts cannot be tied to purchasing an insurance policy and must be valued between $5 and $10. |
| Minnesota | Illegal | No regulations |
| Mississippi | Illegal | No regulations |
| Missouri | Illegal | No regulations |
| Montana | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $50. Gifts must be available to all potential insureds. |
| Nebraska | Illegal | No regulations |
| Nevada | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $20. |
| New Hampshire | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $25. |
| New Jersey | Illegal | Charitable contributions are allowed if the customer does not receive any tax benefits from the contribution. |
| New Mexico | Illegal | Gifts are not allowed. |
| New York | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $25. Free services are allowed as long as they are used as customer service related to an insurance policy and are offered in a non-discriminatory way. |
| North Carolina | Illegal | Small gifts are allowed but cannot be tied to purchasing an insurance policy. |
| North Dakota | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $100. |
| Ohio | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $50. |
| Oklahoma | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $100. |
| Oregon | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $100. |
| Pennsylvania | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $100. |
| Rhode Island | Illegal | Small gifts are allowed by cannot be tied to the purchase of an insurance policy. |
| South Carolina | Illegal | No regulations |
| South Dakota | Illegal | Gifts cannot be tied to purchasing an insurance policy and must be valued between $10 and $25. |
| Tennessee | Illegal | Small gifts are allowed but cannot be given to only people who buy a policy. |
| Texas | Illegal | No regulations |
| Utah | Illegal | No regulations |
| Vermont | Illegal | No regulations |
| Virginia | Illegal | No regulations |
| Washington | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $100. |
| Washington, D.C. | Illegal | No regulations |
| West Virginia | Illegal | Gifts cannot be tied to purchasing an insurance policy and cannot be more than $25. |
| Wisconsin | Illegal | No regulations |
| Wyoming | Illegal | No regulations |
As you may notice above, California is missing from this list because the state's regulations and laws can get a bit confusing. Technically, there are no laws against rebating in California, but many other laws and regulations can make rebating extremely difficult for agents to do without being prosecuted or otherwise punished.
If you're an insurance agent, make sure that you follow your state's regulations to ensure you stay in business. On the other hand, if you're a customer, make sure you're buying a suitable policy for you rather than for a gift or additional incentive.