A North Carolina producer offers to pay a portion of an applicant's first-year premium out of her own commission to close a sale. How is this treated under North Carolina law?

Why A is correct

Under G.S. 58-33-85(a),(b), no producer may pay or offer any rebate, discount, premium reduction, special favor, or valuable consideration not specified in the policy as an inducement to purchase, and the insured may not knowingly accept one. Kicking back part of the commission to cover the applicant's premium is a classic illegal rebate, and the producer risks civil penalty and license action.

Why the other options are wrong

• B is wrong because the producer-compensation exception permits the insurer to pay the producer a commission for selling, not to have the producer divert that commission into the applicant's premium.
• C is wrong because the written-consent exception in G.S. 58-33-85 applies to service fees in excess of the premium, not to rebating part of the premium itself.
• D is wrong because uniformity does not cure the violation; any premium reduction not specified in the policy is prohibited regardless of how widely it is offered.

Memory hook

If the discount is not printed in the policy, giving it back is rebating.

Why D is correct

Under G.S. 58-33-85(a),(b), no insurer or producer may give any rebate, discount, premium reduction, special favor, or valuable consideration not specified in the policy as an inducement to purchase, and the insured may not knowingly accept one. The statute carves out express exceptions for producer compensation, participating-policy dividends and unearned premiums, and trade practices otherwise permitted; a service fee above the premium additionally requires the applicant's written consent before services are rendered.

Why the other options are wrong

• A) Commissions and compensation paid to licensed producers are an express exception to the rebate prohibition.
• B) Dividends, savings, and unearned premiums returned by participating insurers are specifically permitted.
• C) A service fee exceeding the premium is lawful when the applicant consents in writing before the services are rendered.

Memory hook

A rebate is anything not in the policy - commissions and dividends are the exceptions.

Why D is correct

Under G.S. 58-33-85, neither an insurer nor a producer may pay or offer any rebate, discount, premium reduction, special favor, or valuable consideration not specified in the policy as an inducement to purchase, and the insured may not knowingly accept one. Exceptions include ordinary producer compensation, participating-insurer dividends, and trade practices otherwise permitted by law.

Why the other options are wrong

• A) Twisting is misrepresenting policy terms to induce a lapse or surrender; it is a different practice and equally prohibited.
• B) Coercion involves compelling a course of action; the conduct described is rebating, which is prohibited regardless of insurer approval.
• C) Defamation is disparaging a competitor's financial condition; nothing here disparages another insurer.

Memory hook

Cash back to close the sale is rebating - banned for both sides.