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

Meena Sharma, an agent of Bharat Life Insurer, offers her cousin Arun a refund of Rs 2,000 out of her commission of Rs 5,000 if he buys a policy through her, and the refund is not in the insurer's published prospectus or tables. Under Section 41 of the Insurance Act, 1938, which statement is correct?

The offer is a prohibited rebate. Section 41 bars offering part of the commission as an inducement to buy insurance unless allowed by the insurer's published prospectus or tables. A person defaulting is liable to a penalty which may extend to ten lakh rupees. Family relationship gives no exemption.

  1. AIt is lawful because the commission belongs to Meena
  2. BIt is lawful if Arun is a relative
  3. CIt is a prohibited rebate, and a person defaulting is liable to a penalty which may extend to ten lakh rupeesCorrect
  4. DIt is prohibited but carries no penalty

Explanation

Section 41(1) forbids offering, directly or indirectly, any rebate of the whole or part of commission or of premium as an inducement to take out insurance, unless allowed under the insurer's published prospectus or tables. The refund is not so allowed. Section 41(2) provides a penalty extending to ten lakh rupees. Relationship is irrelevant.

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