Domicile, residence, and home state all sound broadly similar, but, like much in insurance, each designation has technical nuances.
There’s no place like home … er… domicile… or residence? Broadly speaking (or writing as it were), one’s domicile, residence, or home state is where they live. But thanks to the insurance industry being the insurance industry, these terms generally aren’t interchangeable.
Because these definitions trespass legal and tax domains, consider yourself warned that this blog is a bunch of nerds having conversations about insurance over sparkling water. It isn’t a replacement for getting an attorney or tax pro to help you navigate definitions and regulations that specifically pertain to you.
What is the difference between a domicile state and resident state?
Generally, a domicile is your legal permanent base, and a residence is where you currently live. You may have multiple residences across this or other countries, but your domicile is your single legal base of operation – where you vote or tag your car or what have you. Specifically in insurance, though, a domicile state is most commonly used to refer to insurance carriers and insurance agencies or business entities, while insurance producers are likely to exclusively concern themselves with resident state information.
Unlike the difference between insurance marketing organizations, field marketing organizations, and even brokerage general agent, the variations between domicile and resident states have regulatory consequences.
What is a resident state?
For individuals and agencies, resident state is what you’ll hear when it comes to licensing – you have to have a resident license in the state you live in to be an insurance producer. Once you have a resident license, you can go around applying for nonresident insurance licenses across the country.
If you happen to have multiple residences, your resident license will be associated with the state your permanent residence (aka domicile) is in; the one you have to pay income taxes in. For other states you might do business in, you’ll need a nonresident license – for instance, if you make sales over video chat from your Colorado cabin a few weeks of the year despite living mostly in Alabama.
There is a notable exception, however, because it wouldn’t be the insurance industry without at least one. Some states, such as Delaware, will allow you to obtain a resident license based on either your residential or business address. So, if you live in Concordville, Pennsylvania, and you commute to an office in Wilmington, Delaware, it may make the most sense to keep up a Delaware resident license.
Business entities, aka agencies, also have to have resident licenses in many states, and laws such as Kansas’s make it clear that a business must obtain a resident license in its domiciled state. Keep in mind, too, that when these state statutes conflict, there is no clear winner – if the state of your residential home address doesn’t match the state you have a resident license in, other states may refuse to recognize your license based on their own rules.
What is a domicile state?
For insurance carriers and business entities working across state lines, it’s much less likely that they have multiple temporary residences, and far more likely that they have a single home base of operation that receives the physical mail and the tax forms. Although, in modern times, it may be perfectly true that their workforce is distributed through home offices and small work spaces throughout the country. Thus, many regulations pertaining to insurance companies or agencies reference their “domicile state.”
The National Association of Insurance Commissioners’ definition is about as close to a “standard” as we’re likely to get. It defines an insurance carrier or agency domicile state as being “The state where an insurer is incorporated or organized.”
So, regardless of where a carrier does the most business or has the most producers, regardless of where an agency injects brand awareness, the state in which they first decided to get their proverbial crud together is their domicile state. There is a process for changing one’s domicile state, however.
Why does domicile state matter to businesses?
Where you file matters quite a lot to the daily operations of your business. Your state’s approach to business taxes, employment law, insurance fees, etc. can all have a substantial impact on your business. While you can’t afford to ignore state regulations in any of the states you do business in, the ones of your domicile state matter most. Additionally, your state’s ability to “play nice” is a factor. If it’s a state that engages in retaliatory fees, or has a reputation of being unreachable, or has a history of making it hard to recognize reciprocal licenses, you could have a real problem engaging in the industry.
What is a home state?
Where is your home state? Colloquially, of course, a home state is like your resident or domicile state. It’s where you live, mostly. And that’s how you find it frequently in state insurance pages, where states like Delaware lump the calculus of how to define your resident state into a bucket of “home state” identity.
Like for the Kansas City Royals or the Kansas City Chiefs, however (they might play in Missouri but LITERALLY they have KANSAS IN THEIR NAME), home state isn’t necessarily as simple as “pick where you want to say you’re from.”
While home state may be synonymous with domicile state or the state of one’s permanent residence, home state definitions get super important and nuanced when they pertain to the surplus lines business. This is thanks to a single piece of legislation, the Nonadmitted and Reinsurance Reform Act of 2010 (NRRA), signed into law by President Barack O’Bama as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
What is the Nonadmitted and Reinsurance Reform Act?
The NRRA, as part of Dodd-Frank, sought to clarify protections for consumers and businesses that were buying surplus lines insurance and reinsurance products. Because these areas of the business are subject to taxes, not protected by state guaranty funds, and generally tend to fall into some gray areas of regulation, they also have the potential to be exploitative.
Prior to the NRRA, states might not be keeping an eye on the surplus transactions in their borders. Or there might be three states involved, each claiming the insured owed the state taxes or requiring a surplus lines producer to be licensed there. With too much oversight, consumers may pay excessive taxes and fees. Too little, and they were unprotected.
Federal activity on insurance tends to be limited. So, when Congress or other federal bodies take mass action with programs like the National Flood Insurance Program or the Affordable Care Act, it provides a rare moment of uniformity.
In this case, the uniformity came with standards such as
- Only an insured’s home state could regulate the surplus lines eligibility and requirements
- The home state is also the only one that can collect premium taxes on the surplus policy
- The states can’t collect fees for surplus lines brokers unless they are using a uniform platform to collect and regulate them, such as the NIPR national producer database
- The states can’t regulate surplus brokers other than using uniform national surplus regulations (you are forgiven for questioning the feasibility of Congress mandating that states follow a national standard when the same mandating body can’t lay out a federal standard…)
- The states also can’t prohibit non-admitted coverage from alien insurers that are listed on the NAIC’s Quarterly Listing of Alien Insurers
- The states can’t hold the surplus broker responsible for “due diligence” as long as they: told the purchaser that admitted market products might exist that have better protection and more regulatory oversight, and the purchaser still asked for the coverage in writing despite the risks
That’s neat, but seriously what does it have to do with a home state definition?
Thanks to the NRRA, in insurance, we can define a “home state” as being:
- The state where the purchaser of a surplus lines policy has their primary residence, or where their primary business address is, OR
- If the risk they insured is located in a different state or states, then the home state is wherever the risk with the greatest taxable premium in that contract is located, OR
- If a single surplus insurance contract is owned by multiple members of an affiliated group and they’re located in different states, then the home state is the one where the person who pays the highest percentage of the premium lives or has a permanent business address (or it could also still be that the home state is wherever the greatest insured risk is located, if trying to assign it based on the premium calculation isn’t working out).
So, tl;dr, the home state in regard to surplus insurance is the insured’s domicile state … probably.
When might your resident, domicile, or home state be different from each other?
On a personal individual level, you may have multiple resident states if you live in different states in different seasons or work across state lines. But your domicile state will always be wherever your principal, primary residence is. And your home state will be the same, as long as you aren’t a business entity insuring something in a different state or with multiple partners.
So, your resident, domicile, and home state may be different in various limited instances, but, on the whole, they’re going to be the same almost all the time.
|Your domicile state is …
|Where you filed your articles of incorporation and pay your business taxes
|Where your permanent residence is
|Your resident state is …
|Where you hold your resident insurance license (most likely where your business address is)
|Where you hold your resident insurance license (most likely the state of your permanent residential address)
|Your home state is …
|Where you pay surplus lines taxes, which may be based on the business address, the address of whatever property you’re insuring, or the state address of the insured property necessitating the largest percentage of the surplus policy premium
|Where you pay surplus lines taxes, which may be based on the state of your residence, business address, or the address of whatever property you’re insuring
While even something as simple as “where are you from” can lead into really introspective or administratively nightmarish considerations, you can escape at least some of the madness by working with compliance solutions that have the rules baked in from the get-go. See how AgentSync can help.