Recognize Prohibited Conduct and Handle Client Money

Introduction

A producer earns trust in two ways. The first is by telling clients the truth about policies and treating them fairly. The second is by handling their money as money that belongs to someone else. Nevada law turns both of these into specific rules.

This lesson is organized around two questions you can ask in any situation:

• What am I saying or giving? Is it true, fair, and part of the contract?
• Whose money is this, and what clock is running?

If you can answer both questions, you can sort most conduct problems into the right rule and know what to do next.

Before You Start

This lesson builds on two earlier lessons. Know the regulator and the regulated parties covers who the Commissioner is and who the rules apply to. Obtain and keep the right license covers what licensing and appointment mean.

By the end of this lesson, you should be able to:

1. Tell apart misrepresentation, twisting, defamation, rebating, unfair discrimination, insurance fraud and unfair claims practices, using the fact that separates each one from the others.
2. Choose and follow a lawful method for holding client premiums, and explain why a commingling waiver does not change who owns the money.
3. Apply the trust-account deficit formula, and match each money deadline to the event that starts it.
4. Decide whether a person may be paid a commission, including a renewal commission.
5. Find the correct starting event for keeping a policy's records.

This lesson summarizes Nevada law as checked in October 2026. It is study material, not legal advice. All people, cases and amounts in it are fictional, and any numbers are stipulated for practice.

Misrepresentation: A False Picture of a Policy

Plain-English takeaway: You may not give anyone a false or misleading picture of a policy, an insurer, or what a policy will pay.

Nevada's rule is broad about the form the picture takes. It covers any estimate, illustration, circular, statement, sales presentation or comparison. It is prohibited if it does any of the following:

• Misrepresents a policy's benefits, advantages, conditions or terms.
• Misrepresents the dividends or share of surplus a policy will pay.
• Makes a false or misleading statement about dividends or surplus a policy has already paid.
• Misleads about any person's financial condition, or about the legal reserve system a life insurer operates under.
• Uses a policy name or title that misstates what the policy really is.
• Misrepresents something in order to get someone to lapse, forfeit, exchange, convert or surrender a policy.
• Misrepresents something in order to get someone to pledge or assign a policy, or to borrow against it.
• Presents an insurance policy as if it were shares of stock.

Example (fictional): A producer named Jordan shows a client a whole life illustration. Jordan says, "These dividends are locked in. You'll get them every year." The policy's dividends are not guaranteed.

Why this fits the rule: Jordan misrepresented the dividends the policy will pay. The client now expects a fixed amount that the contract does not promise.

Change one fact: Suppose instead that Jordan says, "This column shows dividends at the current scale. They are not guaranteed and could be higher or lower." The picture is now accurate, so there is no misrepresentation. Discussing dividends is not the problem. Making them sound like something they are not is the problem.

Twisting: Misleading Someone to Change What They Do With a Policy

Plain-English takeaway: Twisting means using a misleading statement or comparison to push someone into doing something with a policy they already have.

The rule covers written and oral statements that misrepresent a policy's terms, conditions, benefits or advantages, or that compare policies in a misleading way. The statement must be made for the purpose of inducing someone, or attempting or tending to induce them, to do any of these things with a policy:

• lapse it
• forfeit it
• surrender it
• borrow against it
• retain it
• exchange it
• convert it
• otherwise deal with it or dispose of it

Two details in that list are easy to miss:

• "Retain" is on the list. Misleading a client into keeping a policy is twisting too, just as misleading them into dropping it is.
• "Attempting or tending to induce" is enough. The client does not have to actually replace the policy. A misleading pitch that fails is still prohibited.

Example (fictional): A client named Priya owns a term policy. A producer tells Priya, "Your current insurer can cancel your policy any time it wants. Switch to mine." That statement is false. Priya decides not to switch.

Why this fits: The producer made a misrepresentation about the existing policy, and the purpose was to get Priya to drop it. Twisting does not require that Priya actually switched.

Change one fact: Now suppose the producer gives Priya an accurate side-by-side comparison. The new policy really does fit Priya's need better, and Priya replaces the old one. Nothing misleading was said, so this is not twisting. A replacement is not twisting just because a policy changed hands.

Honest replacements still come with their own required steps. Those are covered in Replace a policy responsibly and use the free look.

Defamation: Attacking an Insurer to Injure It

Plain-English takeaway: You may not spread statements about an insurer that are false, or maliciously critical or derogatory, when the statements are meant to injure someone in the insurance business.

The rule has two parts:

• The statement is false, or it is maliciously critical of or derogatory to an insurer, or to an organization that is proposing to become an insurer.
• It is calculated to injure a person engaged, or proposing to engage, in the business of insurance.

The rule reaches oral statements as well as written materials. It also covers anyone who aids, abets or encourages the statement being made or passed along. A whispered rumor at a networking event counts, and so does forwarding someone else's pamphlet.

Example (fictional): A producer tells several prospects, "Northpoint Life is about to go under. Get out now." There is no basis for the claim, and the producer's goal is to damage Northpoint's sales.

The statement is false, and it is aimed at injuring an insurer's business. That is defamation. If the producer also used this claim to get a client to drop a Northpoint policy, the same words could be twisting as well.

The distinguishing fact: Defamation is about attacking an insurer. A fair, accurate comparison given to help a client decide is a different act from a statement designed to damage a competitor.

Compare the Three Statement Rules

All three rules involve what you say, but each asks a different question:

• Misrepresentation asks: Did I give a false or misleading picture of a policy, a dividend, a financial condition, or what a product is?
• Twisting asks: Did I use a misleading statement or comparison to push someone to change, or keep, an existing policy?
• Defamation asks: Did I spread a false or malicious attack on an insurer, meant to injure it?

One statement can break more than one rule. Ask each question separately.

Check 1: A producer tells a client, "Your current policy has no cash value, so keep paying me for a new one and let the old one lapse." The old policy does have cash value. The client hasn't decided yet. Which rule or rules does this fit, and does it matter that no replacement has happened?

Answer: Explanation

This is twisting. The producer made a misrepresentation about the existing policy for the purpose of inducing a lapse. Attempting to induce a lapse is enough, so it does not matter that no replacement has happened.

The statement is also a misrepresentation, because it gives a false picture of the policy's benefits, and one branch of the misrepresentation rule specifically covers misrepresentations made to induce a lapse.

It is not defamation. The statement misstates a policy's features. It does not attack the insurer itself.

The tempting mistake is to think nothing illegal happened until the client actually switches.

Rebates and Inducements: Extras Not in the Contract

Plain-English takeaway: You may not knowingly offer or give a client something of value outside the contract to get them to buy life insurance, an annuity or health insurance. The client may not knowingly accept it either.

Unless another law expressly allows it, prohibited inducements include:

• a rebate of premium
• a special favor in dividends or other benefits
• paid employment or a contract for services
• any valuable consideration not specified in the contract

A second branch prohibits stocks, bonds, other securities, or any agreement promising returns and profits, offered as an inducement or in connection with the insurance. This branch applies whether or not the promise is written into the policy. Putting a profit promise in the policy does not make it lawful.

The $100 Gift Allowance

Nevada allows small gifts. The allowed items include:

• prizes and gifts
• goods, wares and merchandise
• gift certificates
• donations made to charitable organizations
• raffle entries
• meals
• event tickets
• similar items

The limit is $100 in aggregate value per policyholder or prospective policyholder in any one calendar year.

• Aggregate means you add up everything that person receives during the year.
• The limit is counted per person, not per policy.
• The year is the calendar year, January through December.

Worked example (fictional, amounts stipulated): In March, a producer gives a client, Sam, dinner worth $65. In October, Sam buys a second policy, and the producer gives Sam event tickets worth $45.

• Add them: $65 + $45 = $110.
• Both gifts went to the same person in the same calendar year.
• $110 is more than $100, so the limit is exceeded.

Buying a second policy does not create a second $100 allowance.

Change one fact: Suppose the tickets are given the following January instead. Now each calendar year has one gift under $100, and both are within the limit.

The gift allowance is a limited allowance for items like those listed above. It does not turn a cut in the premium into a "gift."

Six Practices That Are Not Rebates or Discrimination

Nevada lists six practices that are not counted as rebates or unfair discrimination. Each one comes with conditions:

1. Bonuses or premium reductions from nonparticipating surplus on life insurance or annuities. These must be fair and equitable to policyholders and in the best interests of the insurer and its policyholders.
2. Debit-plan allowances for policyholders who have paid premiums directly to the insurer's office for a specified period. The allowance must fairly represent the savings in collection expense.
3. Group premium readjustment based on the group's loss or expense experience. This is done at the end of the first or a later policy year, and can be made retroactive only for that policy year.
4. Lower rates for large-amount policies. The reduction cannot exceed the issuance and administration savings reasonably attributable to the larger size.
5. Lower rates for salary savings, payroll deduction, preauthorized check, bank draft or similar payment plans. The reduction must be reasonably in line with the savings these plans produce.
6. Extending credit for premium payment, as long as a reasonable rate of interest is charged and collected.

There is also a separate allowance for SEC-registered mutual fund shares or face-amount certificates sold at the same time as life insurance. It applies only if each product can be bought independently of the other, at the same price and on similar terms as when bought alone.

Example (fictional): A producer lends a client $900 to pay the first-year premium, with no interest. The producer says, "Just pay me back when you can."

The only credit exception requires a reasonable rate of interest to be charged and collected. An interest-free advance does not meet that condition, and being repaid does not change that. The loan is a valuable consideration outside the contract, offered to win the sale.

Check 2: A producer gives a prospect a $40 gift card in February and a $55 charity donation in the prospect's name in June. The prospect never buys a policy. In November, the producer offers the same person a $10 coffee voucher. Is the November voucher allowed?

Answer: Explanation

No. The limit applies to prospective policyholders as well as buyers, so buying a policy is not required.

Add up the year: $40 + $55 = $95, and $95 + $10 = $105. That is over $100 for the calendar year.

The tempting mistake is to judge each item on its own, since each is under $100. The rule looks at the total value per person per calendar year.

Unfair Discrimination: People Alike, Treated Differently

Plain-English takeaway: Charging people different prices is not automatically illegal. It is unfair discrimination when people in the same class with equal expectation of life are treated differently in rates, dividends, benefits or terms.

• Life insurance and annuities: The comparison is between persons of the same class and equal expectation of life.
• Health insurance: The comparison is between persons of the same class and essentially the same hazard. A separate rule bars unfair discrimination among legally qualified providers in the fee paid for the same service. This lesson does not cover health insurance further.

Example (fictional): Two applicants are stipulated to be in the same class with equal expectation of life. The insurer charges one of them more because the producer likes the other applicant better. That is unfair discrimination.

Change one fact: Now stipulate that the insurer places the two applicants in different classes based on a difference in expected mortality. A price difference that follows a real difference in class or expectation of life is not what this rule targets. Not every risk-based price difference is discrimination.

Sex and Marital Status

Nevada regulations apply to contracts delivered or issued for delivery in Nevada on or after September 11, 1977. They cover applicants as well as insureds, and they cover riders and endorsements as well as base policies. Under these regulations:

• Coverage cannot be denied because of sex or marital status.
• Benefits, conditions and types of coverage cannot be restricted, modified, excluded or reduced solely because of sex or marital status. The exception is a rate difference that the insurance code allows.
• A rate difference based on sex or marital status is allowed only if it is based on sound actuarial data. The insurer must give the Commissioner the justification on request.
• Restrictions that the insured and the insurer agree to are permitted.
• Marital status may be used to decide who is eligible for dependent or family coverage.

Examples of prohibited practices include:

• denying a rider to women when the same rider is available to men
• setting different conditions for exercising a policy's benefit options depending on the policyholder's sex
• limiting how much coverage someone can buy based on marital status, unless the limit only defines who qualifies for dependent benefits

These rules do not mean every rate must be the same for everyone. They mean a difference must be supported by sound actuarial data.

Blindness

For life insurance, health insurance and annuities, the following are unfair discrimination between persons of the same class when they are done solely because of blindness or partial blindness:

• refusing to insure
• refusing to continue to insure
• limiting the amount, extent or kind of coverage
• charging a different rate for the same coverage

Other conditions, including the condition that caused the blindness, must be judged by the same sound actuarial principles, or actual or reasonably anticipated experience, used for anyone else.

Disability insurance has two specific points:

• Denying disability coverage on the ground that the policy presumes disability if the insured loses their sight does count as refusing to insure.
• Excluding disabilities that consist solely of blindness the person already had when the policy was issued does not count as refusing to insure.

Check 3: An insurer charges an applicant more for life coverage than others in the same class. The only reason is that the applicant is partially blind. There is no other condition and no actuarial support. Is this allowed? Would your answer change if the higher rate were based on a separate condition, priced the same way the insurer prices that condition for everyone?

Answer: Explanation

The first rate is not allowed. It is a different rate for the same coverage, charged solely because of partial blindness.

The second situation is different. Other conditions, including the underlying cause of the blindness, may be considered if they are judged by the same sound actuarial principles used for other people.

The deciding fact is whether blindness alone drove the decision.

Insurance Fraud: Knowing, Willful and Material

Plain-English takeaway: Insurance fraud is deliberate deception about a fact that matters. An honest mistake is not fraud.

Nevada defines insurance fraud as acting knowingly and willfully in any of these ways:

• Presenting a statement for an application while knowing it conceals or omits facts, or contains false or misleading information about a fact material to the application.
• Presenting a statement in support of a claim while knowing the same about a fact material to the claim.
• Assisting, abetting, soliciting or conspiring with someone else to present such a statement.
• Acting, or failing to act, with intent to defraud or deceive in order to obtain a policy or its proceeds.
• Acting as a practitioner, an insurer or an insurer's agent to help, conspire with or urge another person to commit fraud through deceit or misrepresentation.
• Accepting policy proceeds while knowing they came from fraud.
• Employing someone to recruit clients or patients for the purpose of committing fraud. Lawful contact or communication, such as an insurer communicating with its own policyholder or with a claimant about settlement, is excluded.
• Participating in, aiding, conspiring in or soliciting fraud, or permitting an employee or agent to commit it.

Scope note: For this definition, "policy of insurance" means a policy issued in Nevada by an authorized insurer. It also includes a policy issued outside Nevada by an authorized insurer that relates to property located in Nevada at the relevant time. Do not assume the definition reaches every out-of-state act.

Example (fictional): An applicant, Reese, misremembers the year of a past surgery and writes 2019 instead of 2018. Reese is not trying to hide anything. That is an error, not fraud, because it was not knowing and willful.

Change one fact: Now Reese deliberately leaves the surgery off the application to get a lower rate, and the surgery is material to underwriting. That is knowing, willful and material, so it fits the definition. A separate Nevada statute also prohibits a producer, examining physician, applicant or anyone else from knowingly or willfully making a false or fraudulent statement in or about an application.

Reporting Suspected Fraud

Who reports, and to whom: Any person, governmental entity, insurer or authorized representative of an insurer must report information about insurance fraud to both the Commissioner and the Attorney General, on a form those two offices prescribe. Telling only your manager or only the Division does not meet this requirement.

What happens next:

• The Commissioner and the Attorney General each independently review the report and decide whether to investigate.
• During an investigation, each independently decides whether there is probable cause.
• A district attorney may prosecute with the Attorney General's permission or at the Attorney General's request.

A report is information, not a finding of guilt.

Insurers have additional duties:

• If an insurer reasonably suspects a loss was not accidental or natural, it must notify the Commissioner and the Attorney General in writing, give its reasons, and provide the information from its claim investigation. If the loss is believed to be caused by fire, the insurer must also notify an investigative or law enforcement agency.
• When an insurer receives a written request for fraud information from an authorized agency, it must provide that information.
• Agencies must keep reported information confidential, except as the law permits. A reporting insurer is entitled to relevant information after the investigation or prosecution is complete, whichever comes later.

Consequences

• Insurance fraud is a category D felony.
• After a conviction, or a plea of guilty, guilty but mentally ill, or nolo contendere, a court may also order the person to pay court costs and the costs of investigation and prosecution.
• An insurer or other person subject to the Commissioner's jurisdiction is treated as a victim for restitution purposes.
• If a person licensed or registered in Nevada is convicted, or pleads guilty or guilty but mentally ill, the Commissioner and the Attorney General must send the conviction or plea and the supporting evidence to each agency that licenses that person.

Check 4: A producer notices a client's claim form lists a hospital stay the producer believes never happened. The producer wants to email the agency manager and stop there. Is that enough? And does the producer's report mean the client committed fraud?

Answer: Explanation

Emailing the manager is not enough. The law requires a report to both the Commissioner and the Attorney General, on the prescribed form.

The report does not establish fraud. Each office independently decides whether to investigate and whether there is probable cause. Fraud also requires that the false statement was knowing, willful and material, which still has to be shown.

Unfair Claims Practices

Plain-English takeaway: Once a claim is made, the insurer must be honest and reasonably prompt, and it must not pressure claimants into taking less than they are owed.

Nevada lists 16 unfair claims practices. Grouped by theme, they are:

• Truthfulness
• misrepresenting pertinent facts or policy provisions
• failing to tell the insured or beneficiary which coverage a payment is made under
• failing to promptly explain the policy basis for a denial or a compromise offer
• Promptness
• not acknowledging and acting reasonably promptly on claim communications
• not having reasonable standards for prompt investigation
• not affirming or denying coverage within a reasonable time after proof of loss is submitted
• not promptly and fairly settling claims where liability has become reasonably clear
• Pressure tactics
• offering substantially less than is later recovered, which forces insureds to sue
• announcing a practice of appealing arbitration awards in order to force smaller settlements
• holding back payment on a clear part of the coverage to gain leverage on another part
• Paperwork games
• requiring a preliminary claim report and then a formal proof of loss containing substantially the same information
• settling based on an application that was altered without the insured's knowledge or consent
• Promises in advertising
• trying to settle for less than a reasonable person would expect from the written or printed advertising that accompanied or was made part of the application
• Advice and deadlines
• telling an insured or claimant not to get a lawyer
• misleading them about a statute of limitations
• Cancellation and nonrenewal
• failing to follow certain statutory cancellation and nonrenewal rules

In addition to whatever the Commissioner can do, an insurer is liable to its insured for damages the insured suffers as a result of one of these listed acts. A disagreement alone does not create damages. There must be a listed practice, and the damages must result from it.

A deadline that does not apply to life claims: Nevada has a separate 30-day payment rule, but it applies only to motor vehicle damage claims. Under that rule, the 30 days start when the insurer receives a statement of charges for completed repairs from a garage or body shop the insured authorized. It is not a deadline for paying a life insurance death claim. Do not carry it over to life insurance.

Check 5: A beneficiary's death claim is clearly payable under the policy's main coverage. The insurer holds back that payment to pressure the beneficiary into a smaller settlement on a disputed rider. Which practice is this? Does the motor vehicle 30-day rule decide whether the insurer was late?

Answer: Explanation

This matches failing to settle promptly under one portion of the coverage, where liability is reasonably clear, in order to influence settlement under another portion.

The motor vehicle 30-day rule does not apply. It covers repair-payment claims for vehicle damage only.

Client Money Is Held in Trust

Plain-English takeaway: Premiums and return premiums you receive belong to someone else, usually the insurer or the client. You hold them as a fiduciary, meaning a person trusted to handle another person's money for that person's benefit.

This applies to anyone licensed or acting as a producer, surplus lines broker, motor club agent or bail agent who receives money of others. If you divert or appropriate that money to your own use, you are guilty of embezzlement.

Two Lawful Routes

If you do not send the money on immediately, you must choose one of these methods for each insurer or person you receive money for, and then follow it:

• Route A: Remit within 15 days. Send received premiums, less any applicable commission, and return premiums to the insurer or other person entitled to them within 15 days after receipt.
• Route B: Use a separate account. Keep one or more accounts in a commercial bank, credit union or other established financial institution in Nevada. These accounts must be separate from your personal, firm or corporate money. Deposit the premiums (net of commission) and return premiums promptly, and hold them there until they are sent on.

Under Route B:

• Money for several principals may share one account, as long as each principal's amount can be readily determined from your records.
• You may add some of your own money to the account. Allowed purposes include advancing premiums, keeping reserves for paying back commissions, and other contingencies in the business of receiving and sending premiums.
• The account may be a checking account (with or without interest), a time deposit, or a savings account.
• You must be named as trustee on the account. The signature card must contain language that has substantially the same effect as stating that the account is maintained under Nevada's fiduciary-money statute, and that if you die, your estate's executor or administrator becomes the successor trustee.

The Waiver Trap

A principal may waive the segregation requirement in writing, in advance, and specifically. If they do, you may mix that principal's money with your own in any amount.

However, the law says commingling does not change your fiduciary capacity regarding other people's money. The money in the mixed account still belongs to the principal.

Example (fictional): An insurer gives a producer a written waiver in advance. The producer's single account now holds $6,000 of the insurer's premiums along with the producer's own funds. The producer uses $2,500 from the account to pay for a vacation, which leaves less than the $6,000 owed to the insurer.

The waiver allowed the producer to mix the money. It did not allow the producer to spend the insurer's money. Using fiduciary money for personal purposes is diversion, which is embezzlement.

Testing a Trust Account for a Deficit

The Commissioner uses a formula, set out in regulation, to decide whether a fiduciary account has a deficit. Apply it exactly as written.

Side 1: - Start with gross accounts receivable from insureds. - Subtract the uncollected commissions remaining in those receivables. The Commissioner uses the average commission rate to calculate this amount. - Add the total deposits in all accounts identified as trust accounts.

Side 2: - Take the net accounts payable to producers of insurance. - Add all accounts receivable that are more than 90 days old.

The test: If Side 2 is greater than Side 1, the account has a deficit.

Side 1 counts what the licensee holds or expects to collect, after setting aside its own unearned commission. Side 2 adds receivables that are more than 90 days old, so stale collections work against the account. Use each item's label exactly as the rule states it.

Worked Example (Fictional; All Amounts Stipulated)

• Side 1: $10,000 − $1,200 + $4,800 = $13,600
• Side 2: $12,500 + $2,000 = $14,500
• Compare: $14,500 is greater than $13,600, so there is a deficit of $900.

Change one fact: Suppose trust deposits are $5,800 instead of $4,800.

• Side 1: $10,000 − $1,200 + $5,800 = $14,600
• Side 2: still $14,500
• Compare: Side 2 is not greater than Side 1, so there is no deficit.

Magnitude check: Adding $1,000 to trust deposits raised Side 1 by exactly $1,000. That moved the result from $900 short to $100 over.

Curing a Deficit

If you receive notice of a deficit from the Commissioner, you must do both of these within 5 days after receiving the notice:

1. Deposit an amount equal to the deficiency into the trust account.
2. Send the Commissioner a written explanation of the deficiency.

If you do not cure the deficit this way, the Commissioner will treat you as financially irresponsible, which is a ground for license discipline.

Matching Each Money Deadline to Its Starting Event

Not every money deadline is 30 days, and the deadlines do not all start at the same event. Before applying a deadline, identify what starts the clock.

The insurer-report rule is not a grace period. It is the point at which the insurer or agency must report you. After a report:

• The Commissioner may suspend your license until you make the remittance, or until the insurer or agency files a satisfactory release of the debt.
• If your own admission, or an examination of your records, confirms the failure to remit, the Commissioner may suspend your license without a hearing.

Check 6: A producer chose Route A for Insurer X. On May 1, the producer receives a return premium owed to a client. The producer says, "I have 30 days." Is that right?

Answer: Explanation

No. Under Route A, return premiums must be remitted within 15 days after receipt, which means by May 16.

The 30-day return-premium standard sets the point at which a failure is treated as a violation and as financial irresponsibility. It does not give extra time to a producer who chose the 15-day method.

The tempting mistake is to assume every money deadline is 30 days.

Who May Be Paid a Commission

Plain-English takeaway: Commissions for selling, soliciting or negotiating insurance must go only to people who are licensed for that work. Generally, they must also be appointed by the insurer.

The basic rules are:

• Paying and accepting: An insurer or producer may not pay a commission, fee or other valuable consideration to a person for selling, soliciting or negotiating insurance in Nevada if the work requires a license and the person does not have one. A person in that position may not accept it either.
• Appointed agents: An appointed producer may pay commission for selling activity in Nevada only to:
• a licensed and appointed producer of the insurer the insurance was placed with, or
• a licensed producer acting as a broker.

Two narrow exceptions in other chapters of Nevada law are outside this course. - Appointment requirement: Generally, an insurer may not pay a commission to a producer who is not appointed as its agent, and a producer may not accept one from an insurer without that appointment. There are listed exceptions, including renewal and deferred commissions (below), reinsurance brokers, and certain other specified business. - Entitlement: A licensee may not accept any commission or compensation they are not entitled to under the insurance code.

Renewal and Deferred Commissions

Renewal and other deferred commissions may be paid to a person who was licensed at the time of the sale, solicitation or negotiation, where the work required a license.

A current license is not required to receive these. Eligibility depends on whether the person was licensed when the sale happened.

This rule does not give new authority. A producer whose license has lapsed may receive renewals on past sales, but cannot sell new business.

Paying People Who Don't Sell

An insurer or producer may pay or assign commissions to a person who does not sell, solicit or negotiate insurance in Nevada, unless the payment would violate the rebate rules.

For example, assigning part of a commission to the client as an inducement to buy is a rebate. It does not become legal just because the client doesn't sell insurance.

Check 7: In 2024, Taylor was licensed and appointed and sold a client a policy. Taylor's license lapsed in 2026. Can the insurer pay Taylor 2026 renewal commissions on that policy? Can Taylor accept a commission on a new 2026 sale?

Answer: Explanation

The renewal commissions: yes. Taylor was licensed at the time of the 2024 sale, and that is what renewal eligibility depends on.

The new 2026 sale: no. Taylor is not licensed now, so Taylor cannot be paid for current selling activity.

The tempting mistake is to think renewal commissions require a license that is still current.

Records: What to Keep and When the Clock Starts

Every producer must keep complete records of transactions made under their license. For each policy placed or countersigned through the producer, the records must show at least:

• the names of the insurer and the insured
• the policy number and expiration date
• the premium payable
• the names of everyone the producer accepted business from, or promised or paid commissions to
• all premiums collected
• any additional information the Commissioner reasonably requires

The records must be open to the Commissioner's examination at all times. The Commissioner may require you to provide the information in a particular manner or form. Records may be kept electronically, as long as they are retained as the law requires.

Starting event: Records of a particular policy may be destroyed 3 years after the policy or contract expires. The clock starts at expiration, not at the sale. Destruction is permitted at that point, not required.

Example (fictional): A 20-year term policy is sold in 2026 and expires in 2046. Its records may be destroyed in 2049 at the earliest. They may not be destroyed in 2029, which is three years after the sale. If a whole life policy stays in force for decades, the three-year clock has not started yet.

This rule covers producer transaction records. Other rules can set their own retention periods for other documents.

Practice: Mixed Cases

These cases combine skills from the whole lesson. Decide your answer before opening each explanation.

Practice 1: A client asks, "Will this replacement policy cover me better?" The producer gives an accurate comparison. The new policy really does cover the client better, and the client replaces the old one. Is this twisting?

Answer: Explanation

No. Twisting requires a misrepresentation or a misleading comparison. A truthful comparison that leads to a replacement is not twisting. The required replacement procedures still apply.

Practice 2: A producer promises a buyer, "If you take this policy, I'll give you shares in my side business." The producer writes the promise into the application notes so it is "part of the deal." Allowed?

Answer: Explanation

No. The rule prohibits offering securities, or promises of returns and profits, as an inducement to the insurance, whether or not the promise is specified in the policy. Writing it down does not make it lawful. None of the six exceptions apply, and the mutual-fund allowance does not apply either.

Practice 3: A fictional licensee's records show: - gross receivables from insureds: $8,000 - uncollected commissions at a stipulated 10% average rate: $800 - trust deposits: $3,000 - net accounts payable to producers: $9,500 - receivables more than 90 days old: $1,000

Is there a deficit? If the Commissioner sends notice, what must the licensee do, and by when?

Answer: Explanation

• Side 1: $8,000 − $800 + $3,000 = $10,200
• Side 2: $9,500 + $1,000 = $10,500

Side 2 is greater than Side 1, so there is a $300 deficit.

Within 5 days after receiving the Commissioner's notice, the licensee must deposit $300 into the trust account and send a written explanation.

If both sides had been exactly equal, there would be no deficit, because Side 2 would not be greater than Side 1.

Practice 4: Is an insurer engaging in unfair discrimination if it charges two life applicants different rates when they are stipulated to be in different classes with different expectations of life?

Answer: Explanation

Not under the rule taught here. The life rule bars unfair discrimination between persons of the same class and equal expectation of life. A difference that follows a real difference in class or expectation of life is not that kind of discrimination.

Practice 5: A producer receives a premium on June 3. Its contractual due date is June 10. The producer has not remitted it by July 15. Under the insurer-report rule, which date starts the 30 days? What must the insurer or agency do?

Answer: Explanation

The 30 days run from the contractual due date, June 10, not from June 3, the date of receipt. The 30 days end July 10, and the premium is still unremitted on July 15.

The insurer or agency must promptly report the failure to the Commissioner in writing. The Commissioner may then suspend the producer's license.

If the producer chose Route A, the producer was already late on June 18, which is 15 days after receipt.

Practice 6: Before any premiums came in, Harbor Mutual (a fictional insurer) gave a producer named Casey a written waiver that specifically waives the segregation requirement for Harbor's money. Casey's single account now holds $5,000: $3,200 of Harbor premiums (net of commission) and $1,800 of Casey's own money. Casey writes a $2,500 check from the account to pay Casey's office rent. May Casey do this? Does the waiver change who owns the money?

Answer: Explanation

No. The account started with $1,800 of Casey's own money. Paying $2,500 uses all of it plus $2,500 − $1,800 = $700 of Harbor's premiums. After the check, the account holds $5,000 − $2,500 = $2,500, which is less than the $3,200 owed to Harbor.

The waiver was valid: it was written, given in advance, and specific. But all it did was allow Casey to mix Harbor's money with Casey's own. The law says commingling does not alter the fiduciary capacity of the producer. The $3,200 still belongs to Harbor, and Casey still holds it as a fiduciary. Spending $700 of it on Casey's rent is diverting fiduciary money to personal use, which is embezzlement.

The tempting mistake is to think that once funds are mixed under a waiver, the whole balance becomes the producer's to use.

Practice 7: A producer sells a 5-year term policy on June 1, 2025. The policy expires on June 1, 2030. What is the earliest date the producer may destroy the records for this policy? Is June 1, 2028 correct?

Answer: Explanation

The earliest permissible date is June 1, 2033. The three-year clock starts at expiration: June 1, 2030 + 3 years = June 1, 2033.

June 1, 2028 is wrong. That date is three years after the sale (June 1, 2025 + 3 years), and the sale date does not start the clock. Destroying the records in 2028 would mean destroying them while the policy is still in force.

Destruction on or after June 1, 2033 is permitted, not required. The producer may keep the records longer.

Summary

• Misrepresentation is a false or misleading picture of a policy, its dividends, a financial condition, or what a product is.
• Twisting is a misleading statement or comparison aimed at getting someone to change or keep a policy. Attempting is enough. A truthful replacement is not twisting.
• Defamation is a false or malicious statement about an insurer, meant to injure. It includes spreading other people's statements.
• Rebating is knowingly giving or accepting value outside the contract as an inducement. Small gifts are capped at $100 per person per calendar year, added up across all items. Six listed exceptions and a mutual-fund allowance apply only when their conditions are met. A premium loan must charge and collect reasonable interest.
• Unfair discrimination means treating people who are alike in class and expectation of life differently. A sex- or marital-status rate difference needs sound actuarial data. Blindness alone cannot justify different treatment.
• Fraud is knowing, willful and material. An honest error is not fraud. Report suspected fraud to both the Commissioner and the Attorney General.
• Unfair claims practices are the 16 listed acts. An insurer is liable for damages that result from them. The motor vehicle 30-day rule does not apply to life claims.
• Client money is held in trust. Choose Route A (15 days after receipt) or Route B (a separate Nevada account) for each principal. A written waiver allows mixing funds, but does not transfer ownership.
• Deadlines start at different events: 15 days from receipt, 30 days from receipt of a return premium, 30 days from the contractual due date, and 5 days from the Commissioner's notice.
• Commissions go only to people licensed for the work, and generally appointed. Renewals require a license at the time of the sale, not a current one.
• Records may be destroyed 3 years after the policy expires, not 3 years after the sale.

Review: Separate a misleading statement from a misleading policy change

• Misrepresentation: A False Picture of a Policy
• Twisting: Misleading Someone to Change What They Do With a Policy

Review: Use the right calculation and the right clock

• Testing a Trust Account for a Deficit
• Matching Each Money Deadline to Its Starting Event