Verl W. and Frances M. Haderlie - Page 8

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          by petitioner’s beneficiary.  A representative of the Idaho                 
          Department of Insurance and a representative of Royal testified             
          that, short of misrepresentation or wrongdoing by petitioner,               
          there was no reason why Royal could avoid payment of a claim.               
          Additionally, the rebating by the agent, although illegal under             
          State law, did not provide the insurance company with a defense             
          to a claim on the policy.  There is no evidence of wrongdoing or            
          any misrepresentation by petitioner.  If there had been some                
          wrongdoing and/or misrepresentation by petitioner regarding the             
          policy, Royal may have had a defense to payment on the policy.              
          The only wrongdoing was a rebating of the premium to petitioner             
          by Schwab.                                                                  
               Under Idaho's insurance statutes, unauthorized rebating by             
          an insurance agent is illegal.  See Idaho Code sec. 41-1314                 
          (1991).  In this case, rebating also violated the terms of the              
          agreement and contractual relationship between the insurer and              
          the agent, but has no direct effect on the insured.  Royal might            
          have had recourse to recover the rebated portion of the premium             
          (in this case the entire first year premium) from Schwab, but               
          that does not change the fact that petitioner had the benefit of            
          1 year's universal life insurance coverage, along with an option            
          to renew.  As discussed in Wentz v. Commissioner, supra, even if            
          petitioner had become uninsurable during the year, he could have            







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