Risk Management in Banking and Insurance · Managing Risk in Insurance Business

Section 64VB: No Risk Without Premium in Advance

Updated 11 October 2026 · Fact-checked

Section 64VB of the Insurance Act, 1938 says an insurer cannot assume risk in India on business where premium is not ordinarily payable outside India until it receives the premium, or it is guaranteed in the prescribed way, or a prescribed deposit is made in advance. Solve questions by checking when the premium was paid and when risk began.

Understand Premium in Advance: Section 64VB

Insurance is a promise to pay on a future event. The insurer takes the risk the moment cover starts. If cover could start before payment, the insurer would carry risk without income, and unpaid premium would turn into a credit problem. Section 64VB removes that problem. It is a no premium, no risk rule.

The core rule is in sub-section (1). No insurer shall assume any risk in India, on insurance business where premium is not ordinarily payable outside India, unless and until the premium payable is received by the insurer. Two alternatives also work: the premium is guaranteed to be paid by a person, in the manner and within the time prescribed, or a prescribed deposit is made in advance in the prescribed manner.

Sub-section (2) deals with timing where premium can be ascertained in advance. Risk may be assumed not earlier than the date the premium is paid in cash or by cheque to the insurer. The Explanation covers post: if the premium is sent by postal money order or by cheque through post, risk may be assumed on the date the money order is booked or the cheque is posted.

The section also protects the policyholder's money. A refund due on cancellation, change in terms or otherwise must be paid directly to the insured by a crossed or order cheque or by postal money order, with a proper receipt. It can never be credited to the agent's account. An agent who collects premium must deposit it, or dispatch it by post, to the insurer in full, without deducting commission, within twenty-four hours of collection, excluding bank and postal holidays.

There is flexibility too. The Central Government may, by rules, relax sub-section (1) for particular categories of policies. The Authority (IRDAI) may specify by regulations the manner of receipt of premium. Exam answers should use the Act's words and keep these three roles separate: the insurer, the agent and the Central Government.

Key rules to remember

Core rule, s 64VB(1): Risk assumed only after: premium received OR premium guaranteed (prescribed manner and time) OR prescribed deposit made in advance; Applies to risk in India on business where premium is not ordinarily payable outside India.
Earliest date of risk, s 64VB(2): Risk start ≥ date premium paid in cash or by cheque to the insurer; Applies where premium can be ascertained in advance.
Postal Explanation: Money order or cheque by post: risk may start on date of booking of the money order or posting of the cheque; The date of posting counts, not the date of receipt or encashment.
Refund rule, s 64VB(3): Refund → directly to insured → crossed or order cheque or postal money order → proper receipt; Never credited to the agent's account.
Agent remittance, s 64VB(4): Premium collected → deposit or post to insurer in full, without commission deduction, within 24 hours (excluding bank and postal holidays); Commission is settled separately.
Relaxation and manner of receipt: s 64VB(5): Central Government may relax by rules for particular categories. s 64VB(6): Authority may specify manner of receipt by regulations; Exceptions come from rules, not from the insurer's own choice.

How to solve Premium in Advance: Section 64VB questions

Use this method for any case or theory question on premium in advance.

1Check scope: is it insurance business in India where premium is not ordinarily payable outside India? If not, 64VB(1) does not apply as stated.
2Identify how the insurer got comfort: premium received, guaranteed in the prescribed manner and time, or a prescribed deposit made in advance.
3List the dates: date of payment, mode (cash, cheque, post) and proposed date of risk commencement.
4Apply sub-section (2) and the Explanation: for cash or cheque handed to the insurer, risk is not earlier than the payment date. For postal money order or posted cheque, risk may start on booking or posting date.
5If the question involves a refund, check the mode (crossed or order cheque, or postal money order), the receipt, and that it did not go through the agent's account.
6If an agent is involved, check full deposit within 24 hours, excluding bank and postal holidays, and no deduction of commission.
7Check for an exception: has the Central Government relaxed the rule by rules for that category of policy? Do not invent one.
8State a clear conclusion in one line, citing the sub-section.

Quickest way: Date test in 30 seconds

When to use it: Use in MCQs and case scenarios that give payment and risk dates.

Write the payment date (or posting date for post) and the risk start date.
If risk start is earlier than that date, the insurer has breached 64VB.
For a refund, ask: direct to insured, crossed or order cheque or postal money order, receipt taken? Any no means breach.
For an agent, ask: full amount, no commission cut, within 24 hours excluding bank and postal holidays?
Pick the option that quotes the Act's wording.

Common mistakes in Premium in Advance: Section 64VB

Saying risk starts only when the cheque is encashed.
Students think of money as received only when it reaches the bank account.
Fix: Sub-section (2) uses payment by cheque to the insurer. For a cheque sent by post, the Explanation says posting date. Do not add an encashment condition.
Treating posting date and receipt date as the same.
The postal Explanation is read quickly.
Fix: For postal money order or cheque by post, risk may be assumed on booking or posting date, which can be earlier than receipt.
Saying the agent can deduct commission before depositing premium.
Students mix up common market practice with the Act.
Fix: Sub-section (4) requires the premium in full, without deduction of commission, within 24 hours excluding bank and postal holidays.
Saying a refund can be paid through the agent or credited to the agent's account.
Agents are the usual contact point with the customer.
Fix: Refund goes directly to the insured by crossed or order cheque or postal money order, with a receipt. It must never be credited to the agent's account.
Claiming that any insurer can waive the rule by agreement.
Students overlook that the exceptions are statutory.
Fix: Relaxation comes only from Central Government rules for particular categories (sub-section 5). Guarantee and deposit work only in the prescribed manner.
Quoting the wrong section, such as confusing 64VB with 64V.
The numbers are close.
Fix: Section 64V deals with valuation of assets and liabilities. Section 64VB is the premium in advance rule.

Worked examples

Example 1

A general insurer in India issues a fire policy for a trader. The trader posts a cheque for the premium on 10 March. The insurer receives it on 13 March. The insurer wants risk to start on 11 March. Can it, under Section 64VB?

Show the solution

The business is insurance in India and premium is ascertainable in advance, so sub-section (2) applies.
The premium is tendered by cheque sent by post. The Explanation says risk may be assumed on the date the cheque is posted.
The cheque was posted on 10 March.
Risk starting on 11 March is not earlier than 10 March.
Therefore the start date of 11 March does not breach the rule. The date of receipt (13 March) is not the test.

Answer: Yes. Under the Explanation to Section 64VB(2), risk may be assumed from the posting date, 10 March, so starting on 11 March is permitted.

Example 2

An agent collects a premium of ₹48,000 on 5 May (a working day), keeps ₹6,000 as commission, and deposits ₹42,000 with the insurer on 6 May. Later, the insurer cancels a different policy and credits the refund of ₹9,000 to the agent's account. Comment on both acts under Section 64VB.

Show the solution

Agent's deposit: sub-section (4) requires the premium collected to be deposited or posted to the insurer in full, without deduction of commission, within twenty-four hours of collection (excluding bank and postal holidays).
The agent deposited ₹42,000 instead of ₹48,000. Deducting ₹6,000 commission is a breach, even though the timing may be within 24 hours.
The refund of ₹9,000: sub-section (3) requires payment directly to the insured by a crossed or order cheque or postal money order, with a proper receipt.
Crediting the agent's account is expressly prohibited. It is a breach.
Both acts therefore contravene Section 64VB.

Answer: Both acts breach Section 64VB. The agent must deposit the full ₹48,000 without deducting commission, and the ₹9,000 refund must go directly to the insured by crossed or order cheque or postal money order with a receipt, never through the agent's account.

Exam tips

Learn the six sub-sections as a list: (1) core rule, (2) timing, (3) refunds, (4) agent deposit, (5) Central Government relaxation, (6) manner of receipt by the Authority.
In case questions, underline the dates and the mode of payment first. Most answers turn on the cheque or posting date.
Quote exact phrases: 'received', 'guaranteed', 'deposit in advance', 'twenty-four hours', 'crossed or order cheque', 'not credited to the account of the agent'.
In theory answers, begin with the purpose: the insurer must not carry risk without premium. Then give the rule and exceptions.
Do not mention any specific relaxation category unless the question supplies it; say it is by Central Government rules.

Practice questions from Managing Risk in Insurance Business

Premium in Advance: Section 64VB: frequently asked questions

What is the purpose of Section 64VB?

It stops an insurer from carrying risk before it has the premium or a prescribed assurance of it. This protects the insurer's finances and prevents unpaid premium from building up. It also protects policyholders through the refund and agent remittance rules.

Is cover valid from the date a cheque is posted?

Where the cheque is sent by post, the Explanation to sub-section (2) says risk may be assumed on the date the cheque is posted. For a cheque or cash paid to the insurer, risk may not begin earlier than the date of payment.

What are the exceptions to Section 64VB?

Sub-section (1) itself allows a guarantee of payment or a prescribed deposit in the prescribed manner and time. Sub-section (5) lets the Central Government relax the requirement for particular categories of policies through rules.

Within what time must an agent deposit the premium collected?

The agent must deposit the premium with, or dispatch it by post to, the insurer within twenty-four hours of collection, excluding bank and postal holidays. The full amount must be sent, without deducting commission.

How must a refund of premium be paid?

The insurer must pay it directly to the insured by a crossed or order cheque or by postal money order and obtain a proper receipt. The refund can never be credited to the agent's account.