Indiana State Life and Health Insurance Practice Exam

An example of rebating would be?

1. Returning a portion of a premium as inducement to purchase insurance

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

3. A mutual insurance company paying dividends to its policyowners

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

The correct answer is: Returning a portion of a premium as inducement to purchase insurance

Returning a portion of a premium as inducement to purchase insurance is a classic example of rebating. In the context of insurance, rebating refers to offering something of value back to the policyholder as an incentive to buy a policy. This practice is generally considered unethical and is often illegal in many jurisdictions, including Indiana, because it undermines the principle of fair competition and can lead to adverse selection in the insurance market. In contrast, reducing premiums across the board for a specific risk class is a common pricing strategy based on underwriting principles and does not represent an inducement tied to individual policy purchase. Payment of dividends by a mutual insurance company to its policyholders is a form of profit-sharing and is an acceptable practice, while using intimidation to monopolize the insurance business is unethical and illegal but does not fit the definition of rebating.