Indiana State Life and Health Insurance Practice Exam

An example of rebating would be?

1. A mutual insurance company paying dividends to its policyowners

2. Reducing the premiums across the board for a specific risk class

3. Offering a client something of value not stated in the contract in exchange for their business

4. Using intimidation in order to restrain or monopolize the business of insurance

The correct answer is: Offering a client something of value not stated in the contract in exchange for their business

Rebating refers to the practice of offering an incentive or consideration to a potential client that is not specified in the insurance contract in order to induce them to purchase a policy. This could involve providing something valuable, such as cash, gifts, or discounts, as a form of persuasion to finalize a sale. In this case, offering a client something of value not stated in the contract directly exemplifies rebating, as it leverages additional benefits outside of the standard contractual agreement to entice the client. In the context of the other choices, paying dividends to policyholders is a standard practice in mutual insurance companies and is not considered rebating, since these dividends are explicitly defined within the policy framework. Reducing premiums for a specific risk class is a legitimate actuarial approach to insurance pricing based on risk assessment and does not involve offering uncontracted incentives. Similarly, using intimidation to monopolize insurance business pertains to unethical practices and regulatory violations, but it does not fall under the umbrella of rebating. Thus, the defined act of offering extra value not outlined in the contract clearly aligns with the concept of rebating, making it the correct choice.