State RegulationsVA specificDifficulty 2/5
A licensed Virginia producer offers her neighbor a $100 payment for every new life insurance client the neighbor sends her. The neighbor holds no insurance license. How does Virginia law treat this arrangement?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The Virginia producer-regulation provisions on illegal compensation (Va. Code § 38.2-1813) prohibit paying compensation for insurance business to persons who are not licensed. A paid referral stream from an unlicensed neighbor is exactly the arrangement the statute targets, because money for insurance business must run through licensed, appointed persons. The Virginia Bureau of Insurance treats such payments as illegal compensation.
Why the other options are wrong
- B) Accepting payment for procuring insurance business is itself regulated activity; Virginia does not permit such payments to flow to unlicensed persons.
- C) Labeling the payments as marketing expenses does not cure the illegality; the prohibition attaches to the payment for business, not to its bookkeeping.
- D) The prohibition is not confined to persons who discuss benefits; paying anyone unlicensed for insurance business is unlawful under Va. Code § 38.2-1813.
Memory hook
Money for referrals must run through licensed hands — paying the unlicensed buys trouble.