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

Bharat Gen Insurance Ltd. wants to pay Rs 12,000 as a reward to Mr. Kulkarni, an unlicensed acquaintance, for bringing in a corporate client for a policy issued in India. Mr. Kulkarni is neither an agent nor an intermediary. How does the Insurance Act, 1938 treat this payment?

The payment is prohibited. Section 40(1) allows remuneration or reward for soliciting or procuring insurance business only to an insurance agent, intermediary or insurance intermediary, in the manner specified by regulations. Calling it a gift or keeping it small does not change this, because the section covers commission or otherwise.

  1. AIt is permitted if the amount is below Rs 25,000
  2. BIt is permitted if it is described as a gift rather than commission
  3. CIt is prohibited, as remuneration for soliciting or procuring business may be paid only to an insurance agent, intermediary or insurance intermediary as per regulationsCorrect
  4. DIt is permitted if the policyholder consents in writing

Explanation

Section 40(1) bars any person from paying or contracting to pay remuneration or reward, by commission or otherwise, for soliciting or procuring insurance business in India to anyone except an agent, intermediary or insurance intermediary, in the manner specified by regulations. Calling it a gift does not help, as 'or otherwise' covers it. There is no monetary threshold in the section.

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