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Important Sections of Indian Insurance Act 1938
Important Sections of Indian Insurance Act 1938
Important Sections of Indian Insurance Act 1938
Life Business: In terms of explanation in Section 27 A of the Act, the Authority has
determined that assets relating to Pension business, Annuity business and Linked Life
Insurance business shall not form part of the Controlled Fund for the purpose of that
section. Without prejudice to Section 27 or Section 27A of the Act, - Every insurer
carrying on the business of life-insurance shall invest and at all times keep invested his
controlled fund (other than funds relating to pension and general annuity business and unit
linked life insurance business) in the following manner:
S.No Type of Investment Percentage
_______ _____________
General Business: Without prejudice to Section 27 or Section 27B of the Act, - Every
insurer carrying on the business of general insurance shall invest and at all times keep
invested his total assets in the manner set out below:
The Authority may if it is satisfied that any insurer for the business transacted by him is
paying any person remuneration, whether by way of commission or otherwise on a scale
disproportionate, according to the normal standards prevailing in insurance business, to
the resources of the insurer, call upon the insurer to comply within six months with such
directions as it may think fit to issue in the matter
(2) Every insurer shall, before the close of the month following every year, submit to the
Authority a statement in the form specified by the regulations made by the Authority
showing the remuneration paid whether by way of commission or otherwise, to any
person in cases where such remuneration exceeds such sum as may be specified by the
regulations made by the Authority.
(3) Where any person not being a chief agent, principal agent or special agent is in
respect of remuneration exceeding the sum of five thousand rupees in any year, the
Authority may, by notice in writing, require the insurer to submit certified copies of the
agreement entered into between the insurer and any such person, and the insurer shall
comply with any such requisition within the time specified in the notice.
(4) Every direction under this section shall be issued by an order made by the Authority:
The Authority may at any time, by order in writing, direct any person (hereinafter in this
section referred to as “Investigating Authority”) specified in the order to investigate the
affairs of any insurer and to report to the Authority on any investigation made by such
Investigating Authority:
(b) to prevent the affairs of any insurer being conducted in a marina detrimental to
the interests of the policy-holders or in a manner prejudicial to the interests of the
insurer; or
(c) generally to secure the proper management of any insurer, it is necessary to issue
directions to insurers generally or to any insurer In particular, he may, from time
to time, issue such directions as he deems fit, and the insurers or the insurer, as
the case may be, shall be bound to comply with such directions:
Provided that no such directions shall be issued to any insurer in particular unless such
insurer has been given a reasonable opportunity of being heard
(2) The Authority may, on representation made to him or on his own motion, modify or
cancel any direction issued under sub-section (1), and in so modifying or canceling any
directions, may impose such conditions as he thinks fit, subject to which the modification
or cancellation shall have effect.
(2) Any scheme prepared under this section shall set out the agreement under which the
transfer or amalgamation is proposed to be effected, and shall contain such further
provisions as may be necessary for giving effect to the scheme.
(3) Before an application is made to the Authority to approve any such scheme, notices of
the intention to make the application together with a statement of the nature of the
amalgamation or transfer, as the case may be, and of the reason there for shall, at least
two months before the application is made, be sent to the Authority and certified copies
four in number, of each of the following documents shall be furnished to the Authority,
and other such copies shall during the two months aforesaid be kept open for the
inspection of the members and policy-holders at the principal and branch offices and
chief agencies of the insurers concerned, namely:-
(a) a draft of the agreement or deed under which it is proposed to effect the
amalgamation or transfer;
(c) actuarial reports and abstracts in respect of the life insurance business of each of
the insurers so concerned, prepared in conformity with the requirements of Part
II of the Fourth and Fifth Schedules and in accordance with the regulations
contained in Part I of the Schedule concerned ;
(e) any other reports on which the scheme of amalgamation or transfer was founded.
The balance-sheets, reports and abstracts referred to in Clauses (b), (c) and (d) shall all be
prepared as at the date at which the amalgamation or transfer if approved by the
Authority is to take effect, which date shall not be more than twelve months before the
date on which the application to the Authority is made under this section:
Provided that if the Authority so directs in the case of any particular insurer there may be
substituted respectively for the balance-sheet, report and abstract referred to in Clauses.
(b) and (c) prepared in accordance with this sub-section certified copies of the last
balance-sheet and last report and abstract prepared in accordance with Sections 11 and 13
of this Act or Sections 7 and 8 of the Indian Life Assurance Companies Act, 1912 (6 of
1912), if that balance-sheet is prepared as at a date not more than twelve months, and that
report and abstract as at a date not more than five years, before the date on which the
application to the Authority is made under this section.
Once the policy has been assigned, the assignee has ownership of the policy and does not
need the consent of the assignor in matters relating to the policy. An assignment once
made cannot be cancelled or altered in any form by the assignor. However, the policy can
be ‘reassigned’ by the assignee in favor of the assignor.
Section 38 of the Insurance Act specifies the legal provisions relating to the assignment
of insurance policies.
Nomination is where the life insured proposes the name of the person(s) to which the sum
insured should be paid by the insurance company after their death. The life insured can
nominate one or more than one person as nominees.
Nominees are entitled for valid discharge and have to hold the money as a trustee on
behalf of those entitled to it. Nomination can be done at either the time the policy is
bought or later. A person having a policy on the life of another cannot make a
nomination. Under section 39 of the Insurance Act 1938, the holder of a policy on their
own life may nominate the person or persons to whom the money secured by the policy
shall be paid in the event of their death.
No person shall after the expiry of six months from the commencement of this Act, pay
or contract to pay any remuneration or reward whether by way of commission or
otherwise for soliciting or procuring insurance business in India to any person except an
insurance agent or an intermediary or insurance intermediary.
(l) Every insurer transacting life insurance business in India shall furnish to the
Controller, within such time as may be prescribed, statements in the prescribed form
certified by an actuary on the basis of premiums currently used by him in regard to new
business in respect of mortality, rate of interest, expenses and bonus loading.
(2) After the 31st day of December, 1950, no insurer shall, in respect of life insurance
business transacted by him in India, spend as expenses of management in any calendar
year an amount in excess of the prescribed limits and in prescribing any such limits
regard shall be had to the size and age of the insurer and the provision generally Made for
expenses of management in the premium rates of insurers:
Provided that where an insurer has spent as such expenses in any year an amount in
excess of the amount permissible under this sub-section, he shall not be deemed to have
contravened the provisions of this section, if the excess amount so spent is within such
limits as may be fixed in respect of the year by the Authority after consultation with the
Executive Committee of the Life Insurance Council constituted under section 64-F, by
which the actual expenses incurred may exceed the expenses permissible under this sub-
section.
Section 41 : Prohibition of rebates
Section 41(1) of the Insurance Act 1938 prohibits any insurance agent/intermediary from
offering any commission/premium rebate as an inducement to any person to take out or
renew or continue a policy of insurance. The section also prohibits any person from
accepting any such rebates offered for taking out
insurance.
Section 42 of the Insurance Act 1938 stipulates the conditions for issuing a licence to a
person or company to act as an insurance agent for soliciting or procuring insurance
business
The Authority or an officer authorized by him in this behalf shall, in the manner
determined by the regulations made by it and on payment of the fee which shall not be
determined by the regulations, which shall not be more than two hundred and fifty
rupees, issue to any person making any application in the manner determined by the
regulations, a licence to act as an insurance agent for the purpose of soliciting or
procuring insurance business:
Provided that the Authority may specify different amounts payable by way of
commission, fee or as remuneration to an intermediary or insurance intermediary or
different classes of business of insurance.
(2) Without prejudice to the provisions contained in this Act, the Authority may, by the
regulations made in this behalf, specify the requirements of capital, form of business and
other conditions to act as an intermediary or insurance intermediary.
As specified in section 45 of the Insurance Act, in the first two years of the policy, if the
insurance company comes to know that some material fact has not been disclosed by the
proposer, it can declare the policy to be null and void. The insurance company can also
keep all the premiums paid. This right can be enforced by the insurance company only
during the first two years of the policy. After two years, fraud must be established by the
insurance company if it wishes to make the policy void. This clause is referred to as the
‘indisputability’clause and applies to life insurance.
The Central Government, if it is of opinion after considering the report that it is necessary
or proper to do so, may appoint an Administrator to manage the affairs of the insurer
under the direction and control of the Authority.
If, upon receipt of a report from the Authority, the Central Government is satisfied that an
insurer, has persistently failed to comply with—
1) any direction given to him under Section 34, Section 34-F or Section 34G,or
2) any order made under Sec. 34-E; or is being managed in a manner detrimental to the
public interest or to the interests of his policy-holders, or share-holders,
The Court may order the winding up in accordance with the Indian Companies Act, 1913
(7 of 1913), of any insurance company and the provisions of that Act shall, subject to the
provisions of this Act apply accordingly. In additional to the grounds on which such an
order may be based, the Court may order the winding up of an insurance company.
if with the sanction of the Court previously obtained a petition in this behalf is presented
by shareholders not less in number than one-tenth of the whole body of shareholders and
holding not less than one tenth of the whole share capital or by not less than fifty
policy-holders holding policies of life insurance that have been in force for not less than
three years and are of the total value of not less than fifty thousand rupees.
Notwithstanding anything contained in any other law, in ascertaining for any purpose of
this Act the solvency or otherwise of an insurer no account shall be taken of any assets of
the insurer consisting of unpaid-up share capital.
Section 54 : Voluntary winding up
(1) With effect from the commencement of the Insurance (Amendment) Act,.1968, there
shall be established a Committee, to be called the Tariff Advisory Committee (hereafter
in this Part-referred to as the Advisory Committee) to control and regulate the rates,
advantages, terms and conditions that may be offered by insurers in respect of general
insurance business.
(2) The Advisory Committee shall be a body corporate having perpetual succession and a
common seal, with power, subject to the provisions of this Act, to acquire, hold and
dispose of property, both moveable and immoveable, and to contract, and may, by the
said name, sue and be sued.
(1) For the purpose of ascertaining compliance with the provisions of Section 64 VA,—
(i) assets shall be valued at values not exceeding their market or realisable value and the
assets hereafter mentioned shall be excluded to the extent indicated, namely:
i. agents' balances and outstanding premiums in India, to the extent they are not
realized within a period of thirty days;
ii. agents' balances and outstanding premiums outside India, to the extent they
are not realisable;
iii. sundry debts, to the extent they are not realizable;
iv. advances of an unrealizable character;
v. furniture, fixtures, dead stock and stationery;
vi. deferred expenses;
vii. profit and loss appropriation account balance and any fictitious assets other
than pre-paid expenses;
viii. such other asset or assets as may be specified by the regulations made in this
behalf.
Section 113 : Acquisition of surrender value of a policy
A policy of life insurance under which the whole of the benefits become payable either
on the occurrence, or at a fixed interval or fixed intervals after the occurrence, of a
contingency which is bound to happen, shall, if all premiums have been paid for at least
three consecutive years in the case of a policy issued by an insurer, acquire a guaranteed
surrender value, to which shall be added the surrender value of any subsisting bonus
already attached to the policy, and every such policy issued by insurer shall show the
guaranteed surrender value of the policy at the close of each year after the second year of
its currency or at the close of each period of three years throughout the currency of the
policy.