Regulatory Framework, Acts, Rules and Regulations
This domain tests the statute book behind every sale: the Insurance Act, 1938 as amended in 2015, the IRDA Act, 1999, and IRDAI's current regulations. Questions tend to be about limits, penalties and which section does what.
Core provisions
- Section 64VB: no risk is assumed unless the premium is received in advance; a cheque counts as received on its date if honoured.
- Section 41: rebating is prohibited. Offering or accepting any inducement beyond the stated premium - cash, extra cover, gifts, or paying an instalment from commission - carries a penalty of up to ₹10 lakh after the 2015 amendment, and the agent's appointment can be cancelled.
- Section 40A: commission may be paid only to a licensed insurance agent or intermediary.
- Section 45: after three years from issuance (or revival, or rider addition), a policy cannot be called in question on any ground; within three years it can be questioned only for fraud or misrepresentation, after written communication and an opportunity to be heard.
- Sections 38 and 39: assignment and nomination of a life policy.
- IRDA Act, 1999: constituted the Authority in April 2000 to regulate, promote and ensure orderly growth of the industry.
- 2024 product regulations: Use and File product filing, free look of 30 days, suicide exclusion limited to 12 months, revised surrender-value rules.
- Payment of Commission Regulations, 2023: fixed commission caps were removed; the insurer's board sets commission within its expense-of-management limits.
Worked example
An agent tells a prospect, 'Pay me ₹5,000 in cash and I will pay your first premium instalment from my commission.' This is a rebate under Section 41 whether the money comes from the agent's pocket or the insurer. The penalty can extend to ₹10 lakh, and a policyholder who accepts a rebate is also liable. The correct conduct is to explain the premium and its benefits and refuse any inducement.
Traps
Mixing up Section 41 (rebate) with Section 45 (three-year rule); saying the three-year clock restarts at every renewal; forgetting that free look is now 30 days, not 15; and assuming the old commission caps still apply.