What is insurance rebating?

Insurance rebating is the act of offering monetary incentives to a customer to coerce them into choosing a policy. Rebating is illegal in most states because it encourages unfair competition.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent Benji Carr

UPDATED: Mar 24, 2022

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Quick Facts

  • An insurance rebate is an offering from the insurance company for monetary incentives to sign onto a policy
  • Rebates derive from the agreed upon commission for insurance agents
  • Insurance rebates are illegal, and you should never accept one when offered

If you’re shopping for life insurance, you are likely seeking the best deal possible. Acquiring cheap rates is important, but you should steer clear of any illegal practices.

An insurance rebate is an illegal act of offering money back for selecting an insurance policy. This money usually derives from the commission promised to an insurance agent. In order to promote fair competition and avoid coercion, insurance rebating is illegal. To appropriately receive the best rates on your insurance, you should compare quotes from top life insurance companies.

What is an insurance rebate?

Regarding insurance, a rebate is a money-back offer from the insurance company, agent, or broker. The insurance company may promise a large cashback offer for signing on to a certain policy. While it may sound tempting, this rebate money typically comes from the commission pledged to an insurance agent.

Many insurance agents receive compensation via commission only. When an insurance company offers a rebate, this money represents an insurance agent’s compensation. By offering a rebate for certain policies, insurance companies are unfairly positioning their products.

Insurance rebates are illegal in most states. If you are offered a rebate for an insurance policy, you should decline the offer and seek a different life insurance company. Accepting an insurance rebate is not only morally murky, but it can also land you in hot water. While the insurance company usually experiences legal issues for rebating, sometimes customers are charged as well.

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Why are insurance rebates illegal?

An important part of the free market is encouraging healthy competition. Capital can be the biggest barrier to success when smaller companies compete with big corporations. Very large insurance companies have more expendable capital than smaller players.

The most well-known insurance companies can typically offer their products online directly to consumers. This platform can eliminate the middleman or insurance agent paid to help pair customers with the best policy for their needs.

Smaller insurance companies rely on insurance agents to sell their products. Because they don’t have brand awareness, they typically can’t count on television commercials as effective marketing. Generally, a local insurance company works with community members to actively market their products. These agents are trained to help you understand your life insurance policy terms and conditions.

By keeping costs level and fair, you can ensure that market competition will lead to a better experience for customers.

Large insurance corporations with a huge customer base typically have more financial freedom than small companies. This freedom, in turn, can lead to agents and brokers who can afford to sacrifice parts of their commission for a sale. Allowing insurance rebates can effectively force smaller players out of the industry.

If the insurance industry gets whittled to only a select few companies and agents who can afford to offer rebates, then your choice for an ideal policy is greatly limited. Once there is a monopoly on insurance, the prices can get higher while the product becomes more inferior over time. By keeping costs level and fair, you can ensure that market competition will lead to a better experience for customers.

What defines an insurance rebate?

Insurance rebates may also be referred to as inducements, and they may not always look like a cash offer. Any gift or incentive that an agent, broker, or company offers that is not part of the explicit terms of an insurance policy might be an example of rebating in insurance.

Rebates can be used as a tactic to sign customers onto a policy that is more expensive than what they need. This deceptive practice can cost you. While the cash or gift offered might seem like a great deal, the policy you’re acquiring could be more expensive over time.

While money back on a policy can be financially tempting, you never know if you’re actually getting a good deal. How much did a different customer receive as a rebate? Are you receiving the right life insurance policy for your needs? If rebates are allowed to occur, then consumer trust in the insurance industry will wane.

What should you do if you are offered an insurance rebate?

If an agent or broker ever offers you incentives or gifts to sign on to a certain policy, you should reject their offer. Not only is the insurance agent jeopardizing their own license, but they could be putting you at risk as well. While the insurance agent, broker, or company typically takes the fall for rebates, this is not always the case.

The insured may also experience legal trouble for accepting a rebate if the court decides that they knowingly broke the law. Rebates are not the solution if you really want to find the most affordable life insurance for your situation.

Working directly with a knowledgeable life insurance agent or broker who deals honestly is a better way to obtain the right insurance coverage. In order to receive the best rates on your insurance, you should compare quotes from at least three different insurance companies.

Avoiding rebates not only keeps you out of legal trouble. It also prevents you from getting stuck with the wrong policy.

A more expensive policy means a larger commission for the agent or broker. With a larger commission, they may consider the cost of a rebate to be worth it. But what does that mean for you in the long run?

Accepting a more expensive insurance policy due to an up-front rebate indicates that you will eventually pay more. Even if the type of rebate offered is cash off of your monthly rates, you are still likely paying too much.

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Are there exceptions to anti-rebating laws?

According to the National Association of Insurance Commissioners, there are a few exceptions to illegal rebating. These include the following:

  • promotional items
  • raffles
  • referrals
  • charity donations
  • value-added services

Furthermore, there are urges to remove rebating bans from the insurance industry. The call to revise rebating laws comes down to creating transparency in insurance rebates.

Currently, rebating is opaque to consumers and many players in the insurance industry. This opacity prevents healthy competition and makes it difficult to regulate pricing. With a more transparent method of rebating, we may witness these laws change in the future.

What is insurance rebating?

A rebate is any incentive that an insurance agent, broker, or company offers to coerce a customer into signing on to a policy. Rebating is illegal in most states and provinces and carries with it hefty fines and penalties. Punishment typically falls on the company or agent who offered the rebate. Still, sometimes consumers can face trouble as well.

Rebating is not the solution to receiving the best deal on insurance. It is important to procure the appropriate insurance for your situation, so it is best to speak with a trusted professional. You should compare quotes from at least three different insurance companies to acquire the most affordable rates on life insurance.

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