Which of the following is an example of rebating?

Which of the following is an example of rebating?

• A. Returning a portion of a premium as inducement to purchase insurance
• B. Providing free insurance for the first year
• C. Offering cash rewards for good health
• D. Discounts on future premiums for loyal customers

Answer: (A)

Rebating is specifically characterized as the practice of returning a portion of an insurance premium to the insured as an incentive to purchase the policy. This activity is prohibited in many states, including Kansas, because it can lead to unfair competitive practices and undermine the insurance market's integrity. By providing a portion of the premium back to the buyer, the insurer is essentially providing a financial incentive that could sway purchasing decisions in a way that is not aligned with standard industry practices. In contrast, providing free insurance for the first year, while potentially enticing, does not fall under the technical definition of rebating, as it does not involve the return of premium but rather offers an alternative promotional strategy. Similarly, cash rewards for maintaining good health represents a wellness incentive rather than a rebate on an existing premium. Discounts on future premiums for loyal customers reflect a rewards program based on customer retention, which is usually considered a legitimate practice rather than rebating. Thus, the option that accurately represents rebating is the return of part of a premium directly as an inducement to purchase the insurance.

Rebating is specifically characterized as the practice of returning a portion of an insurance premium to the insured as an incentive to purchase the policy. This activity is prohibited in many states, including Kansas, because it can lead to unfair competitive practices and undermine the insurance market's integrity. By providing a portion of the premium back to the buyer, the insurer is essentially providing a financial incentive that could sway purchasing decisions in a way that is not aligned with standard industry practices.

In contrast, providing free insurance for the first year, while potentially enticing, does not fall under the technical definition of rebating, as it does not involve the return of premium but rather offers an alternative promotional strategy. Similarly, cash rewards for maintaining good health represents a wellness incentive rather than a rebate on an existing premium. Discounts on future premiums for loyal customers reflect a rewards program based on customer retention, which is usually considered a legitimate practice rather than rebating.

Thus, the option that accurately represents rebating is the return of part of a premium directly as an inducement to purchase the insurance.