South Carolina Life and Health Practice Exam

What prohibition does offering a $50.00 handbag for purchasing an insurance policy violate?

1. Coercion

2. Rebating

3. Unfair discrimination

4. Misrepresentation

The correct answer is: Rebating

Offering a $50.00 handbag as an incentive for purchasing an insurance policy violates the prohibition of rebating. Rebating refers to the practice where an individual, typically an agent or broker, offers a portion of their commission or provides additional items to entice a client to purchase an insurance policy. This practice is generally considered unethical and is illegal in many jurisdictions, including South Carolina, because it can lead to unfair competition and misrepresentation of the value of the policy. The core principle behind prohibiting rebating is to maintain fairness and ensure that all customers receive policies based on their intrinsic value rather than receiving additional incentives that may not reflect the true worth or necessity of the insurance product. In essence, insurance should be sold based on its merits, coverage, and benefits rather than ancillary rewards that could potentially cloud the judgment of consumers. This protects the integrity of the insurance industry and promotes informed decision-making among policyholders.