Hawaii Insurance License Practice Exam

What term is used for the return of a portion of the premium to the insured?

1. Rebate

2. Deduction

3. Credit

4. Refund

The correct answer is: Rebate

The correct term for the return of a portion of the premium to the insured is "rebate." A rebate in the insurance context refers specifically to the practice where the insurer returns a part of the premium to the policyholder. This can occur for various reasons, such as after a premium adjustment based on lower-than-expected risks or after an insurer reassesses the underwriting risks that were initially estimated. A rebate serves as a form of incentive for the insured and can help enhance customer satisfaction and loyalty. It is distinct from other concepts; for example, a deduction typically refers to an amount subtracted from gross income for tax purposes, rather than as a return of premiums. A credit generally implies an offsetting amount applied to a balance owed rather than a cash return. Lastly, while the term "refund" could be thought of as similar, in the insurance industry, it often suggests the return of money for overpayments rather than a specific marketing or incentive strategy like a rebate.