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CMA Final · Risk Management in Banking and Insurance · Managing Risk in Insurance Business

Under the Insurance Act, 1938, an agent of Tarang General Insurance collects a premium cheque of Rs 24,000 on behalf of the insurer. Which statement correctly states the agent's obligation on collection?

The agent must deposit or post the whole premium to the insurer within twenty-four hours of collection, excluding bank and postal holidays, and must not deduct his commission first. Longer periods or commission deduction at source are not permitted under the Insurance Act, 1938.

  1. AHe must deposit or post the full premium to the insurer within twenty-four hours of collection, excluding bank and postal holidays, without deducting his commissionCorrect
  2. BHe may deduct his commission and remit the balance within thirty days
  3. CHe must remit the full premium within seven days of collection
  4. DHe may hold the premium until the insurer demands it, provided the policy is issued

Explanation

Section 64VB(4) requires an insurance agent who collects a premium to deposit with, or dispatch by post to, the insurer the premium in full, without deduction of commission, within twenty-four hours of collection, excluding bank and postal holidays. Options allowing commission deduction or longer periods contradict this rule.

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