Which practice involves returning a part of a commission or premium to the insured?

The practice that involves returning a part of a commission or premium to the insured is known as rebating. In this context, rebating refers specifically to the technique where an agent returns a portion of their commission or a part of the premium paid by the policyholder back to the policyholder as an incentive or inducement to purchase insurance. This practice is often regulated to prevent unfair competition and maintain ethical standards in the insurance industry.

It’s important to understand this concept within the regulatory framework governing insurance practices. Many states, including Delaware, have laws that restrict or prohibit rebating to ensure that every policyholder has a fair and equally informed choice when purchasing insurance.

Underwriting, while a critical aspect of the insurance process, involves evaluating risk and determining the terms and premium of an insurance policy but does not include the return of funds to the insured. Reinsurance pertains to an agreement between insurance companies to share risk but does not involve the insured directly. Dividending refers to a policyholder receiving a distribution of profits from a participating insurance policy, which is different from rebating as it does not involve a return of portion of a commission or premium directly to the insured. Hence, rebating is the correct identification of the described practice.