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

To win a customer, agent Sanjay of Aarav Life Insurance offers to return Rs 3,000 of his commission to Neha if she takes a new policy, and this is not in the insurer's published prospectus or tables. Under Section 41 of the Insurance Act, 1938, what is the position?

The offer is prohibited. Section 41 bars any rebate of commission or premium as an inducement to take a policy unless allowed by the insurer's published prospectus or tables, and a defaulter faces a penalty which may extend to ten lakh rupees.

  1. AIt is permitted because the rebate comes from the agent's own commission
  2. BIt is permitted if Neha agrees in writing
  3. CIt is prohibited, and a person defaulting is liable to a penalty which may extend to ten lakh rupeesCorrect
  4. DIt is prohibited only if the rebate exceeds half of the first premium

Explanation

Section 41(1) bars allowing or offering any rebate of the whole or part of commission, or of premium, as an inducement to take out or renew a policy, except rebates allowed under the insurer's published prospectuses or tables. Source of the rebate and customer consent are irrelevant. Default attracts a penalty up to ten lakh rupees under s.41(2).

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