Rebating Insurance: Why It's Not Worth the Incentive

Most states outlaw the practice of rebating insurance, which occurs when agents offer money or other incentives in exchange for insurance policy enrollment. Usually, the rebate comes out of the agent's commission for selling the policy. Insurance rebating is not legal, so you shouldn't accept a rebate if an insurance agent offers you this incentive.

What Is an Insurance Rebate?

According to the National Association of Insurance Commissioners, an insurance rebate could be cash or a gift with monetary value. The law does recognize some exceptions, which include:

• Services that add value to your policy, such as roadside assistance for auto insurance coverage
• Donations to charity on behalf of a consumer
• Bonuses for referring others to the insurance agent
• Raffle prizes
• Promotional items such as mugs and pens

Why Does the Law Prohibit Rebating Insurance?

Insurance rebates represent a type of unfair competition, which goes against the principles of a free market economy. If the law allowed rebates, it would be difficult for smaller companies to compete with larger firms that can afford to offer consumers these types of incentives. If big companies shut smaller insurance companies out of the industry, customers would only be able to choose from a few different insurance providers and would be at the mercy of their prices. 

In the fair market, even though big insurance companies can pay for TV commercials and reduce costs by cutting out the middleman, smaller companies keep their insurance agents and compete by building relationships within the community. This landscape increases the likelihood that consumers will have a good experience. 

What Should I Do if I'm Offered an Insurance Rebate?

Do not accept offers of money, gifts or other incentives in exchange for enrolling in an insurance policy. Although the legal responsibility for rebating insurance usually falls on the insurance company or agent, you could also face consequences if you take the incentive. You're also not working with a broker that has your best interests at heart, since they're exposing you to illegal activity.

You can avoid this situation by working with a trustworthy agent or insurance company or starting with recommendations from friends, family members or coworkers. Read online reviews to make sure the provider has a good reputation before you sign up for an insurance policy.