In the bank discount example, the practice of offering a discount on loans for purchasing insurance is best described as

In the bank discount example, the practice of offering a discount on loans for purchasing insurance is best described as

• A. Rebating
• B. Price advertising
• C. Cross-selling
• D. Premium financing

Answer: (A)

Offering an inducement to buy insurance is rebating. In this scenario, the bank provides a discount on a loan specifically to encourage the borrower to purchase insurance. That tied incentive is exactly what rebating refers to — giving something of value to influence the purchase decision. Such practices are generally regulated or prohibited because they can distort consumer choice and unfairly steer policy selection. Why the other ideas don’t fit as well: price advertising would involve promoting a lower price for the insurance itself, not a loan discount linked to the purchase. Cross-selling is about offering additional products to the same customer, not about inducing a purchase of insurance with a loan. Premium financing is a loan used to pay the insurance premium, not a discount on the loan itself to steer the purchase.

Offering an inducement to buy insurance is rebating. In this scenario, the bank provides a discount on a loan specifically to encourage the borrower to purchase insurance. That tied incentive is exactly what rebating refers to — giving something of value to influence the purchase decision. Such practices are generally regulated or prohibited because they can distort consumer choice and unfairly steer policy selection.

Why the other ideas don’t fit as well: price advertising would involve promoting a lower price for the insurance itself, not a loan discount linked to the purchase. Cross-selling is about offering additional products to the same customer, not about inducing a purchase of insurance with a loan. Premium financing is a loan used to pay the insurance premium, not a discount on the loan itself to steer the purchase.