Final answer:
Nellie's act of offering a term rider for free with the purchase of a permanent life insurance policy is an example of premium rebating, a prohibited sales practice in the insurance industry designed to prevent unfair competition and consumer deception.
Step-by-step explanation:
The student is inquiring about a sales practice that Nellie is using by offering to add a term rider free of charge if a permanent life insurance policy is bought. The correct answer to the question, “Which prohibited sales practice is Nellie using?” is c) Premium rebating. Premium rebating occurs when an insurer or its agent provides a purchaser with an unlawful rebate from the insurance premium.
This is prohibited as it can lead to unfair competition and can be misleading to the consumer. Examples of rebating include offering a free service, like a term rider, that is unaccounted for in the policy's pricing structure when an insurance policy is purchased.