Colorado Life Producer License Practice Test

Which of the following is NOT an example of rebating?

1. Rebates of premiums payable on the policy

2. Special favors

3. Advantages in dividends

4. Refunds on policy premiums

The correct answer is: Refunds on policy premiums

Refunds on policy premiums are not considered an example of rebating because they typically occur as part of the policy terms and conditions, often stipulated in the insurance contract. A refund may be issued if a policyholder cancels their policy or if there are overpayments due to clerical errors. Such refunds are standard operating procedures within the insurance industry and do not represent the inducement that rebating implies. In contrast, the other examples illustrate methods of rebating, where something of value is offered to induce a purchase or retention of insurance. Rebates of premiums payable on the policy represent a return of a portion of the premiums paid, while special favors and advantages in dividends involve providing benefits not clearly outlined in the policy or contract terms. These actions can create an unfair advantage in attracting clients, which is why they are typically frowned upon by regulatory bodies.