A rebate request, a backdating request and cash into a personal account
Farhan, who runs a hardware shop in Bhopal, has agreed to buy a ₹50 lakh term plan with an annual premium of ₹1,20,000 from a POSP working for XYZ Life. At the last minute he makes three requests. First, he wants ₹10,000 of the premium 'adjusted', since the POSP will earn a fee and Farhan has 'given him good business'. Second, he wants the policy backdated to 28 March so that he can claim the premium under Section 80C in the financial year that has just ended; today is 12 April. Third, he wants to hand ₹1,20,000 in cash to the POSP's personal account so that 'there is no paperwork', and he refuses to give his PAN, saying the shop's books are enough. The POSP is new, his manager wants the case closed this week, and the proposal names Farhan's 12-year-old son as nominee, with no appointee mentioned.
1. How should the POSP handle the request for a ₹10,000 'adjustment', and what is the legal basis?
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Refuse, clearly and in writing, and give the reason.
Section 41 of the Insurance Act, 1938 prohibits any person from offering or allowing, directly or indirectly, a rebate of premium or of commission as an inducement to take or renew a policy. The prohibition catches the giver and the taker, so Farhan's proposal is itself a request to commit an offence, punishable with a fine that may extend to ₹10 lakh. Keeping the refusal in a message protects the POSP if Farhan later claims he was promised a discount.
The economics matter too: the POSP's remuneration is a fee paid by the insurer under his appointment. It is not a discount fund, and using it as one converts a compliant sale into a corrupt one.
He should not negotiate, should not substitute gifts, 'free' health check-ups or paying the first premium himself as an indirect inducement, and should not let the manager's 'close it this week' instruction change the answer. Losing the case is far cheaper than the fine, the cancellation of his appointment and the loss of the insurer's agency that follow a rebate complaint.
2. Farhan wants the policy dated 28 March although the transaction is on 12 April. What does the POSP say about backdating and the tax claim?
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The policy cannot be backdated.
The risk commencement date is the date on which the insurer accepts the risk and receives the premium. An earlier date would mean the insurer was on risk for a period when no premium had been received and no underwriting done, and it would let a customer pick which financial year's tax position to use. The POSP should say plainly that the policy will carry the date of the actual transaction and that the Section 80C deduction belongs to the year in which the premium is actually paid.
On tax: Section 80C is capped at ₹1.5 lakh across all eligible investments, and life insurance qualifies only if the premium is within the prescribed proportion of the sum assured. A pure term plan's death benefit is ordinarily outside the tax net in any case, so the gain from a false date is small.
The cost is not small. A wrong date on a proposal is a misstatement in the contract documents; it can be used to question the policy later, and it exposes both the POSP and the insurer's staff to disciplinary action. Honest dating, with the tax position explained, is the only defensible route.
3. What are the problems with cash payment into the POSP's account, the refusal to give PAN, and the minor nominee?
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Three separate controls are triggered, and all must be fixed before any money changes hands.
Premium routing. Premium must be paid to the insurer through official channels, with a receipt in the insurer's name. A POSP who takes ₹1,20,000 into his personal account is handling client money outside the insurer's books - a misappropriation risk, no proof that risk commenced, and a breach of the conduct rules.
PAN and KYC. PAN is mandatory for a life policy where the annual premium exceeds ₹50,000 under the Income Tax Rules, and KYC under the Prevention of Money Laundering Act applies whatever the mode of payment. 'The shop's books' are not a substitute, and the insurer's system will not issue a policy without verified KYC.
Minor nominee. A 12-year-old can be a nominee only if an appointee - an adult - is named to receive the money during the child's minority. Without an appointee the nomination is defective, and payment would later need a succession process.
The correct instruction is: complete KYC with PAN, pay by UPI, cheque or net banking drawn in the insurer's favour, and correct the nomination on the form.