Life Company That Allows Rebating in California

[LGilmore]

"I rebate my clients the cost of the TFP, ILIT, and Trustee setup (usually about 6-8K). I think that's a great fair trade to give to my clients"

I think covering their expenses in the establishment of a policy are alot different than "I'll give you half my commission if you buy". Am I correct in how I read your post? You're just covering the client's expenses around the purchase of the policy and not just cutting a check for half the commission?

 

[Thatguy]

I think the only unwritten rule is NOT to advertise. Carriers don't really care - it's the agents in other states that balk so the carriers have to make some gestures. I believe the commissioner does not allow carriers to terminate agents based on rebating practice. If you're just offering legal fees out of your own pocket and keep it between yourself and the client, I don't see any problem coming from any carrier. I'm also in CA and believe that it goes on among larger cases. If I were you, I wouldn't call the carriers and ask "you guys allow rebate on this 300k premium case?" I'd just keep it qu-i-et.

I concur with you completely! However, when doing the Trustee certs, my attorney will not allow me to access their clients unless FULL DISCLOSURE is made, including to the insurance carrier.

Many insurance carriers will terminate an agent if they find out they are rebating, despite what state laws may allow.
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"I rebate my clients the cost of the TFP, ILIT, and Trustee setup (usually about 6-8K). I think that's a great fair trade to give to my clients"

I think covering their expenses in the establishment of a policy are alot different than "I'll give you half my commission if you buy". Am I correct in how I read your post? You're just covering the client's expenses around the purchase of the policy and not just cutting a check for half the commission?

You are reading it correct. But however you look at it, it's still rebating. I'm giving the client a portion of my commission, thus I am required to disclose.
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Florida requires that you tell the carrier that you are rebating and that it must be consistent within a group of clients...ie. everyone you sell a Prudential UL to.

In CA. Prop.103 repealed CA rebating law. It is my understanding that rebating in CA has nothing to do with the carrier. The agent gets paid by the carrier and if they agent want to rebate some or all of the comp to the client they can. In CA you do not have to tell the carrier you are rebating like in Florida.

You are partial correct. In CA, prop 103 does allow rebating; but you still have to tell the carriers because the appointment contract is a bilateral contract and can be terminated by either parties. i.e if they find out, then they can terminate you. I'd rather work within the confines of the law, and be welcomed with open arms, as opposed to sneaking around behind their backs.
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I would never go down that path, why don't you call the carriers you use the most and ask them rather than ask a internet forum?

I have, and I have replies from the companies that I work with already. However, there are thousands of carriers out there and I may not be aware of other carriers and their practices.
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What kind of term are you peddling?

Tell me, what is the premium on a 10 year term for the 2nd year? It's the SAME as in the 1st year!

The premiums on a decreasing term are LESS the second year than they were the first year. Just a matter of semantics since I don't sell decreasing term anymore, but just thought I would point that out.

 

[LGilmore]

Wouldn't some of these carriers consider picking up the tab for those expenses anyway?

I think while you put these under the broadest definition of rebating right now. You are not just handing over straight commission, you're covering a bill. Let me ask you, do you have your own people that could provide these functions as part of your client services? I mean, you are writting off these things as expenses aren't you? vs. sending the client a 1099? How are you reporting for taxes the money spent? Are you eating it and declaring it income? Are you expensing it or are you giving it to the client to spend and creating income for him/her?

 

[Thatguy]

Wouldn't some of these carriers consider picking up the tab for those expenses anyway?

I think while you put these under the broadest definition of rebating right now. You are not just handing over straight commission, you're covering a bill. Let me ask you, do you have your own people that could provide these functions as part of your client services? I mean, you are writting off these things as expenses aren't you? vs. sending the client a 1099? How are you reporting for taxes the money spent? Are you eating it and declaring it income? Are you expensing it or are you giving it to the client to spend and creating income for him/her?

I've tried to discuss it with the carrier to cover the ILIT creation and asset verification; the answer was a resounding "No!" The creation of the ILIT, TPF, and certification are responsibilities of the client, not the carrier.

I do have a network of people, which is why I can get these services at a reduced fee; and in some cases - deferred payment until after commission.

As far as expense of the money, my accountant takes that out as an expense. Since rebating is legal, then it is considered a legal expense.

 

[bluemarlin08]

Wouldn't some of these carriers consider picking up the tab for those expenses anyway?

Do you know carriers that do this? Never heard one that would.

 

[LGilmore]

"I've tried to discuss it with the carrier to cover the ILIT creation and asset verification; the answer was a resounding "No!" The creation of the ILIT, TPF, and certification are responsibilities of the client, not the carrier"

I think that is because of the potential liability that carriers try to stay out of those things. Arm's length transactions and all that.


"As far as expense of the money, my accountant takes that out as an expense. Since rebating is legal, then it is considered a legal expense"

But you are declaring the full commission as income first to yourself, right? Then these costs are just expenses. That's not really a matter of rebating and income unless you are cutting a check directly to the insured, then it would be income to them and their expense to write off (if allowed).

I think you may be a grey area and it depends on how somebody looks at it. If you're going to call it rebating, then you can't deduct for the expense and should be 1099ing the insured as you are giving them income.

If you are going to cut the checks to separate individuals for their work as billed, then it's expense to you, not a rebate. Then it might fall under insurance practices rules, or it might not, depends on your state.

And I could be full of sh ite here, but to me a rebate is "here's the money, spend it how you will." and you tell the irs were you sent the money and they have tax responsibilities for it.

If it's being treated as a business expense, it's not a rebate. The only question would be what's allowed for clients as client services under your state rules?

 

[Franz Kafka]

But you are declaring the full commission as income first to yourself, right? Then these costs are just expenses. That's not really a matter of rebating and income unless you are cutting a check directly to the insured, then it would be income to them and their expense to write off (if allowed).

I think you may be a grey area and it depends on how somebody looks at it. If you're going to call it rebating, then you can't deduct for the expense and should be 1099ing the insured as you are giving them income.

If you are going to cut the checks to separate individuals for their work as billed, then it's expense to you, not a rebate. Then it might fall under insurance practices rules, or it might not, depends on your state.

And I could be full of sh ite here, but to me a rebate is "here's the money, spend it how you will." and you tell the irs were you sent the money and they have tax responsibilities for it.

If it's being treated as a business expense, it's not a rebate. The only question would be what's allowed for clients as client services under your state rules?

That's an interesting point. The short definition of rebating says "the act of giving something of value to an applicant by the agent/broker in return for purchasing a life insurance policy (e.g. sharing commissions)". So yea picking up the retainer would be considered rebating. So is taking the guy and his family to a steakhouse which most agents I believe would report as a business expense. Better call my pre-paid legal (LOL).

 

[Thatguy]

"I've tried to discuss it with the carrier to cover the ILIT creation and asset verification; the answer was a resounding "No!" The creation of the ILIT, TPF, and certification are responsibilities of the client, not the carrier"

I think that is because of the potential liability that carriers try to stay out of those things. Arm's length transactions and all that.


"As far as expense of the money, my accountant takes that out as an expense. Since rebating is legal, then it is considered a legal expense"

But you are declaring the full commission as income first to yourself, right? Then these costs are just expenses. That's not really a matter of rebating and income unless you are cutting a check directly to the insured, then it would be income to them and their expense to write off (if allowed).

I think you may be a grey area and it depends on how somebody looks at it. If you're going to call it rebating, then you can't deduct for the expense and should be 1099ing the insured as you are giving them income.

If you are going to cut the checks to separate individuals for their work as billed, then it's expense to you, not a rebate. Then it might fall under insurance practices rules, or it might not, depends on your state.

And I could be full of sh ite here, but to me a rebate is "here's the money, spend it how you will." and you tell the irs were you sent the money and they have tax responsibilities for it.

If it's being treated as a business expense, it's not a rebate. The only question would be what's allowed for clients as client services under your state rules?

You make an interested point, and although I wish you are correct - both my attorney and account disagree with you. Believe me, I tried arguing your way as well. Prop 103 considers rebating to be a return of monetary value, either direct or indirect, to the client OR any third party involved with the procuring and culmination of that policy. So if I pay the attorney on behalf of the client, that's still rebating.

I'm sure there are attorney(s) out there who would agree and disagree with either situation. My personal philosophy is that I would rather walk in the light of day, with head held high knowing I did my due diligence to protect the client and myself; as opposed to sneaking around someone's back and getting caught later. I am a big believer in full disclosure, and I find it has worked well for me.

 

[LGilmore]

" both my attorney and account disagree with you.oth my attorney and account disagree with you."

That's Ok. I just wonder who reports it as income, you or the client? If I follow your definition as per 103 shouldn't that be income to the client no as far as the IRS goes and doesn't the IRS trump cali?

If the cali law says it's a rebate in any form, shouldn't the person writing off the expense be the client? Shouldn't you be reducing your income by the amount rebated?

I'm just wondering who's taking a tax credit and who is declairing the income? More from an IRS pov than a cali.
If cali says a rebate is a return of monetary value, who reports that gain?

Just understand, I am not trying to stick a finger into you or anything. It's just I remember a term about 20 years ago called "phamtom income" and I think it involved the tax concept of rebates of commissions.

What if the insured was paying via a pre tax plan and received a rebate? A tax write off and additional money back, none of it taxed, hummm?

Just glad I don't have that can of worms to deal with.

 

[alexwat31]

i read all comments today this is good for me . thanks for all ..