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

A policyholder cancels a policy and becomes entitled to a refund of premium. Under Section 64VB of the Insurance Act, 1938, how must the refund be made?

The insurer must pay the refund directly to the insured by crossed or order cheque or postal money order and obtain a proper receipt. Section 64VB(3) forbids crediting such refunds to the agent's account, preventing leakage through intermediaries.

  1. ACredited to the agent's account for later adjustment against commission
  2. BPaid by the insurer directly to the insured by crossed or order cheque or postal money order, with a proper receipt obtainedCorrect
  3. CPaid in cash to the agent who sold the policy
  4. DHeld by the insurer as credit towards the next renewal premium

Explanation

Section 64VB(3) requires any refund due on cancellation or alteration to be paid by the insurer directly to the insured by a crossed or order cheque or postal money order, with a proper receipt obtained. The refund must in no case be credited to the agent's account, which rules out routing it through the agent.

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