Banking and Insurance - Laws and Practice · Functions in Insurance and Compliance related thereto (Part II)

Underwriting, Policy Issuance and Premium Compliance in Insurance

Updated 11 October 2026 · Fact-checked

Underwriting is the insurer's process of assessing a risk, accepting or declining it, and fixing its terms and price. After acceptance the insurer issues the policy. Under section 64VB of the Insurance Act, 1938, risk generally starts only after premium is received, guaranteed or deposited in advance. Answer in order: provision, facts, conclusion.

Understand Underwriting, Policy Issuance and Premium Compliance

Underwriting is the function where an insurer decides whether to accept a risk, on what terms, and at what premium. The underwriter studies the proposal form, the nature of the risk, past losses and any survey or medical report. The aim is to accept risks at a price that is fair to the proposer and sustainable for the insurer.

The usual outcomes are: accept at standard terms, accept with loading (extra premium), restrictions or exclusions, or decline. Good underwriting depends on utmost good faith: the proposer must disclose material facts, and the insurer must not ask for or assume more than it needs.

Once the insurer accepts, it issues the policy (and, before that, may issue a cover note). The policy records the insured, the risk, the sum insured, the period, the premium and the conditions. Policy issuance is a compliance step, not just paperwork, because the law ties the start of risk to payment of premium.

The key compliance rule is section 64VB. An insurer shall not assume any risk in India, on business where premium is not ordinarily payable outside India, unless and until the premium is received, guaranteed to be paid in the prescribed manner and time, or a prescribed deposit is made in advance. This is the 'no premium, no risk' rule. It protects the insurer from credit risk and protects the market from unpaid cover.

The Act also fixes entry capital. Under section 6, an insurer carrying on life, general or health insurance must have paid-up equity capital of ₹100 crore (health insurers exclusively in health business also ₹100 crore), and a reinsurer exclusively in reinsurance ₹200 crore. Preliminary expenses are excluded when counting paid-up equity capital. Note that the section is about capital, not insurable interest. Insurable interest is a principle of insurance law, not a section 6 rule.

Key rules to remember

No premium, no risk (s 64VB(1)): Risk assumed only after: premium received OR guaranteed in prescribed manner and time OR prescribed deposit made in advance; Applies to business on which premium is not ordinarily payable outside India. The Central Government may relax it for particular categories of policies by rules (s 64VB(5)).
Premium ascertainable in advance (s 64VB(2)): Risk may be assumed not earlier than the date premium is paid in cash or by cheque; If tendered by postal money order or cheque sent by post, risk may be assumed on the date the money order is booked or the cheque is posted.
Refund of premium (s 64VB(3)): Refund paid directly to the insured by crossed or order cheque or postal money order, with a proper receipt; never credited to the agent's account; Applies to cancellation, alteration of terms or otherwise.
Agent's deposit of premium (s 64VB(4)): Deposit or post premium in full, without deducting commission, within 24 hours of collection, excluding bank and postal holidays; Commission is settled separately by the insurer.
Manner of receipt (s 64VB(6)): The Authority may specify by regulations the manner of receipt of premium; Added in 2002.
Minimum paid-up equity capital (s 6(1)): Life or general: ₹100 crore; exclusively health: ₹100 crore; exclusively reinsurer: ₹200 crore; Preliminary expenses are excluded in determining paid-up equity capital. Section 6(2) requires net owned funds of not less than ₹5,000 crore for a foreign reinsurer's branch (insurer under s 2(9)(d)).

How to solve Underwriting, Policy Issuance and Premium Compliance questions

Use this method for any case or theory question on underwriting, policy issuance and premium rules.

1Identify the stage: proposal, underwriting decision, premium payment, policy issue, or refund.
2State the governing provision in plain words, with the section number only where you are sure (s 64VB for premium, s 6 for capital).
3List the facts that matter: who paid, how, when, and when the risk was to start.
4Apply the rule: was premium received, guaranteed or deposited before the risk began? Check the date for cheques and postal tenders.
5Check the intermediary points: did the agent deposit the premium within 24 hours, without deducting commission? Was any refund paid directly to the insured?
6Check whether any relaxation or special rule applies, such as rules under s 64VB(5).
7Write a clear conclusion: whether the insurer complied, the effect on cover, and the practical action to take.

Quickest way: Premium-first check

When to use it: Use when a short case asks whether the insurer was on risk or complied with premium rules.

Ask: was premium in hand before the risk date?
If cheque by post, the posting date counts.
If agent collected, was it deposited within 24 hours (excluding bank and postal holidays) and in full?
If refund, was it a direct crossed or order cheque or postal money order to the insured?
Conclude in one line with the section.

Common mistakes in Underwriting, Policy Issuance and Premium Compliance

Treating section 6 as the rule on insurable interest.
Students search the section number and link it to a familiar principle.
Fix: Remember s 6 deals with capital requirements for registration. Discuss insurable interest as a general principle of insurance, without citing s 6.
Saying risk can start on credit as long as the policy is issued.
Students confuse policy issue with premium receipt.
Fix: Under s 64VB risk starts only after premium is received, guaranteed in the prescribed way, or a prescribed deposit is made.
Ignoring the postal tender rule.
The Explanation is short and easily missed.
Fix: For a cheque sent by post, risk may be assumed from the date it is posted; for a postal money order, from the date it is booked.
Allowing the agent to deduct commission from the premium collected.
Students assume this is normal trade practice.
Fix: The agent must deposit or post the premium in full, without deduction of commission, within 24 hours excluding bank and postal holidays.
Crediting a refund to the agent's account.
Agents often handle the customer relationship.
Fix: Refunds go directly to the insured by crossed or order cheque or postal money order, with a receipt; never to the agent's account.
Quoting wrong capital figures, such as ₹200 crore for all insurers.
Students mix up the figures for insurers and reinsurers.
Fix: Life, general and exclusively health insurers: ₹100 crore each; exclusively reinsurers: ₹200 crore.

Worked examples

Example 1

Sunrise General Insurance Ltd. receives a motor proposal from Rohit on 10 March. Rohit posts a cheque for the premium on 12 March, and the insurer receives it on 15 March. Rohit asks that cover start on 12 March. Advise whether the insurer can assume the risk from 12 March.

Show the solution

Provision: under s 64VB(1) the insurer cannot assume risk unless the premium is received, guaranteed or deposited in advance. Under s 64VB(2), where premium is ascertainable in advance, risk may be assumed not earlier than the date premium is paid in cash or by cheque.
Explanation to the section: where a cheque is sent by post, the risk may be assumed on the date the cheque is posted.
Facts: the cheque was posted on 12 March.
Application: the posting date, not the date of receipt, is treated as the date of tender.
Conclusion: the insurer may assume the risk from 12 March, provided the cheque is honoured in the ordinary course and the insurer accepts the proposal.

Answer: Yes. Under the Explanation to s 64VB, risk may be assumed from 12 March, the date of posting, subject to acceptance of the proposal and realisation of the cheque.

Example 2

An agent of Bharat Insurance Co. collects a premium of ₹24,000 on 5 May and deducts his commission of ₹2,400 before depositing ₹21,600 with the insurer on the fourth day, with no bank or postal holiday in between. Later the policy is cancelled and the agent receives the refund. Identify the non-compliances.

Show the solution

Provision: s 64VB(4) requires the agent to deposit or post the premium collected in full, without deduction of commission, within 24 hours, excluding bank and postal holidays.
Deduction: the agent deducted ₹2,400 and deposited only ₹21,600, which breaches the 'in full' requirement.
Timing: deposit on the fourth day, with no holiday intervening, exceeds 24 hours.
Refund: s 64VB(3) requires refunds to be paid directly to the insured by crossed or order cheque or postal money order, with a receipt, and never credited to the agent's account.
Conclusion: three breaches arise, namely deduction of commission, delay, and refund routed through the agent.

Answer: The agent breached s 64VB(4) by deducting commission and by delay beyond 24 hours, and the insurer breached s 64VB(3) by letting the refund go to the agent instead of directly to the insured.

Exam tips

Quote s 64VB(1) in your own words first, then add the sub-section that fits the facts.
In case questions, write the dates explicitly and compare them with the rule on posting of cheques.
Keep section 6 for capital questions and give both ₹100 crore and ₹200 crore figures correctly.
End each answer with a practical compliance point, such as keeping premium receipts or refund records.
Do not name cases or sections you are not sure of; state the rule in plain words.

Practice questions from Functions in Insurance and Compliance related thereto (Part II)

Underwriting, Policy Issuance and Premium Compliance in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Underwriting, Policy Issuance and Premium Compliance: frequently asked questions

What is the underwriting function in insurance?

Underwriting is the process by which an insurer evaluates a risk, decides whether to accept it, and fixes the terms and premium. It uses the proposal form, past experience and reports. The decision may be to accept, accept with loading or conditions, or decline.

Does section 6 of the Insurance Act, 1938 deal with insurable interest?

No. Section 6 deals with capital requirements for registration of an insurer. Insurable interest is a basic principle of insurance, and you should discuss it as a principle rather than attach it to section 6.

What are the compliance requirements for premium collection by insurers in India?

Under section 64VB, an insurer should not assume risk until premium is received, guaranteed in the prescribed manner, or a prescribed deposit is made. Agents must deposit collected premium in full within 24 hours, excluding bank and postal holidays. Refunds must go directly to the insured.

Can the premium rule under section 64VB be relaxed?

Yes. The Central Government may, by rules, relax section 64VB(1) for particular categories of insurance policies. The Authority may also specify by regulations the manner of receipt of premium.