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CS Professional · Banking and Insurance - Laws and Practice · Functions in Insurance and Compliance related thereto (Part I)

Kaveri Life Ltd proposes a scheme where the benefit under a policy is not fixed but depends on how sums are distributed among policies that become claims within certain time limits. Separately, it plans to allocate reversionary bonuses after its periodic actuarial valuation. Under Section 52 of the Insurance Act, 1938, which is correct?

The claims-distribution scheme is prohibited, but valuation-based bonuses are permitted. Section 52 bars the dividing principle, where benefits depend on distribution among policies becoming claims within time limits. Its proviso allows life insurers to allocate bonuses after periodic actuarial valuation as reversionary additions or immediate cash bonuses.

  1. ABoth are prohibited as business on the dividing principle
  2. BThe scheme is prohibited, while bonuses after periodic actuarial valuation are permittedCorrect
  3. CBoth are allowed if the Authority is notified
  4. DThe scheme is allowed, but bonuses are prohibited

Explanation

Section 52 prohibits business on the dividing principle, where benefits depend on distribution among policies becoming claims within time limits. The proviso expressly allows bonuses to life policyholders from a periodic actuarial valuation, as reversionary additions or cash bonuses. So the scheme is barred and the bonuses are allowed.

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