Illinois Life Producer State-designated Practice Exam

Which of the following is an example of rebating?

1. Offering a premium discount

2. Providing a gift card not mentioned in the contract

3. Insuring a higher risk client

4. Extending payment terms

The correct answer is: Providing a gift card not mentioned in the contract

Rebating refers to the practice of returning a portion of the premium or providing additional advantages, incentives, or gifts to a client as a way to entice them to purchase an insurance policy. Offering something of value that is not disclosed in the policy contract is a clear example of rebating. In this case, providing a gift card not mentioned in the contract falls into this category because it acts as a lure for the client and is not part of the agreed-upon terms when the policy is purchased. This kind of action can be seen as unethical and is often prohibited by insurance regulations, which aim to maintain fairness and honesty in the marketing and sale of insurance products. In contrast, the other options do not constitute rebating. Offering a premium discount can be within the normal practices of insurance pricing and isn’t hidden from the policyholder. Insuring a higher-risk client is a standard underwriting practice that does not involve providing hidden incentives. Extending payment terms is simply a modification of the payment plan and does not offer any uncontracted gain to the client. Thus, the key feature of rebating is the undisclosed value added outside the agreed-upon terms, making the gift card example the most fitting illustration.