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

Priya, a licensed insurance agent, receives commission from an insurer on policies issued in India at a rate not permitted by the applicable regulations. Under the Insurance Act, 1938, which statement is correct about the consequence for her?

Priya is liable to a penalty which may extend to one lakh rupees. Section 40(2) permits an agent to receive commission only in accordance with the regulations, and Section 40(3) imposes this penalty on an agent or intermediary who contravenes those provisions.

  1. AShe is liable to a penalty which may extend to one lakh rupeesCorrect
  2. BShe is liable to a penalty which may extend to ten lakh rupees
  3. CShe is liable only to cancellation of licence, with no monetary penalty
  4. DShe faces no liability, because only the insurer can contravene the section

Explanation

Section 40(2) bars an agent or intermediary from receiving commission or remuneration except in accordance with regulations. Under Section 40(3), a contravening agent or intermediary is liable to a penalty which may extend to one lakh rupees, without prejudice to section 102 as it applies to an insurer. The ten lakh figure is not in this section.

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