Rhode Island Life Insurance Practice Exam

What is an example of the Unfair Trade Practice known as rebating?

1. Offering lower premiums to compete

2. Paying a higher commission to agents

3. Sharing commissions with the insured

4. Providing gifts to clients for referrals

The correct answer is: Sharing commissions with the insured

Rebating refers to the practice of an insurance agent offering a portion of their commission or other benefits to the policyholder as an incentive for purchasing insurance. This can take the form of money, gifts, or other inducements that are not standard practice in the industry. Sharing commissions with the insured essentially means that the agent is giving back some of their earnings to the individual who is purchasing the policy, which creates an unfair advantage or an uneven playing field in the insurance market. This practice is considered unfair because it could lead to a situation where consumers are influenced to purchase policies not based on their merits or the financial stability of the company, but rather on the personal benefits they might receive from the agent. By offering non-standard incentives, it can undermine competition and lead to potential manipulation of the market. Other options do not represent rebating effectively. Offering lower premiums is a standard competitive practice within the insurance market and does not involve returning commissions or benefits to the policyholder directly. Paying a higher commission to agents is also a common practice and part of the commission structure set by insurance companies, without involving policyholder incentives. Providing gifts to clients for referrals could be seen as a form of marketing or client appreciation, not necessarily tied to the sale or inducement of