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CS Professional · Banking and Insurance - Laws and Practice · Concept of Insurance

Anand Insurance Brokers pays Rs 8,000 as a reward to Mr. Verma, a retired teacher who is not an insurance agent or intermediary, for introducing a customer who bought a policy in India. Under Section 40 of the Insurance Act, 1938, how is this payment treated?

The payment is prohibited. Section 40(1) allows remuneration or reward for soliciting or procuring insurance business only to an insurance agent or intermediary, in the manner the regulations specify. Mr. Verma is neither, and the Act provides no exemption for small amounts or later disclosure.

  1. APermitted, because the amount is below Rs 10,000
  2. BPermitted, because the recipient has not charged the policyholder any fee
  3. CPermitted, if the payment is disclosed to the Authority afterwards
  4. DProhibited, because remuneration for soliciting or procuring business may be paid only to an agent or intermediary in the manner specified by regulationsCorrect

Explanation

Section 40(1) says no person shall pay or contract to pay any remuneration or reward, by way of commission or otherwise, for soliciting or procuring insurance business in India to anyone except an insurance agent or intermediary, in the manner specified by regulations. Mr. Verma is neither, so the payment is barred. The Act has no small-amount exemption or after-the-fact disclosure route.

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