State RegulationsPA specificDifficulty 3/5
A licensed producer promises her unlicensed friend a portion of the commission on each policy that the friend's referrals generate. The friend performs no licensed work on the transactions. How should this arrangement be characterized?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
40 P.S. §§ 310.72-310.74 permit compensation for insurance sales to flow only through licensed channels, and sharing a commission with an unlicensed person is a prohibited split no matter who writes the check or how the paperwork labels it. The friend performs no licensed activity, so no lawful basis exists for the payment. The Pennsylvania Insurance Department treats commission-sharing arrangements of this kind as a producer compensation violation.
Why the other options are wrong
- A) Referral-based commission splits are precisely what the compensation rules prohibit; sourcing customers does not license the payment.
- B) Raising the insurer's commission rate to fund the split does not cure it; the defect is paying an unlicensed person, not the rate.
- C) Paying from the producer's own share does not legitimize the split; the prohibition on compensating unlicensed persons applies regardless of the payor.
Memory hook
A commission split with an unlicensed friend is a violation wearing a friendly face.