Life License Qualification Program (LLQP) 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

Offering a client something of value not stated in the contract in exchange for their business is a clear example of rebating. Rebating generally refers to the act of providing a financial incentive or a benefit to a client as a way to persuade them to purchase an insurance product. This goes against the ethical standards and regulations set by the insurance industry, which require all terms, conditions, and benefits associated with a policy to be transparently stated in the contract. By providing a benefit that is not outlined in the policy, the insurance provider is engaging in a practice that can mislead clients about the true value of their insurance coverage. In contrast, other choices do not fit the definition of rebating. For instance, a mutual insurance company paying dividends to its policyowners is a legitimate distribution of surplus earnings and is an expected provision in mutual insurance contracts. Similarly, reducing premiums across the board for a specific risk class is a practice based on actuarial assessments and reflects the risk level of that class rather than individual inducements. Using intimidation to restrain or monopolize the business of insurance falls into unethical business practices but does not specifically illustrate the concept of rebating in the context of client incentives.