IC 14 REGULATIONS OF INSURANCE BUSINESS

LESSON 1 : Development of Insurance Legislation in India and Insurance Act 1938

 The Constitution of India is federal in nature with a division of powers between the

Centre and the States.

 Insurance is included in the Union List, under the exclusive legislative competence of

the Centre.

 The Central Legislature has the power to regulate the insurance industry in India.

 The law regarding insurance is uniform throughout India.

 The development of the insurance industry in India has gone through three stages.

 The origins of insurance law in India can be traced back to the establishment of the

Oriental Life Insurance Company in Calcutta in 1818.

 Other insurance companies like the Bombay Life Assurance Company, the Madras

Equitable Life Insurance Society, and the Oriental Life Assurance Company were

established in subsequent years.

 Indians were charged an extra premium compared to the British until the

establishment of the Bombay Mutual Life Assurance Society in 1871.

 The Indian Life Assurance Companies Act of 1912 was the first statutory measure to

regulate the life insurance business in India.

 Non Life insurance in India also has its origins in the United Kingdom.

 The first general insurance company, Triton Insurance Company Ltd., was

promoted by British nationals in Calcutta in 1850.

 The first general insurance company established by an Indian was Indian

Mercantile Insurance Company Ltd. in Bombay in 1907.

 The Insurance Act of 1938 regulated nonlife insurance, including fire insurance,

marine insurance, and miscellaneous insurance.

 The Insurance Act of 1938, along with subsequent amendments, is the definitive

legislation governing both life insurance and general insurance in India.

 On January 19, 1956, the Central Government took over the management of the life

insurance business of 245 Indian and foreign insurers and provident societies

operating in India.

 The Life Insurance Corporation (LIC) was formed in September 1956 through the

LIC Act, which granted LIC the exclusive privilege to conduct life insurance

business in India.

 An exception was made for companies, firms, or persons intending to carry on life

insurance business in India for the lives of "persons ordinarily resident outside

India."

 The general insurance business was nationalized on January 1, 1973, with the

introduction of the GIC Act.

 Under the GIC Act, the shares of existing Indian general insurance companies and

other insurers were transferred to the General Insurance Corporation (GIC) to

promote the development and regulate the general insurance business in India.

 The GIC was established by the Central Government in November 1972 under the

Companies Act, of 1956, and commenced business on January 1, 1973.

 Prior to 1973, there were 107 companies, including foreign companies, offering

general insurance in India.

 These companies were amalgamated and grouped into four subsidiary companies of

GIC : National Insurance Company Ltd., New India Assurance Company Ltd.,

Oriental Insurance Company Ltd., and United India Assurance Company Ltd.

 In 1993, the Government of India appointed the R. N. Malhotra Committee to create

a roadmap for opening up the insurance sector to private sector participation.

 The committee submitted its report in 1994, and the enabling legislation was passed

in 2000, amending the Insurance Act of 1938 and introducing the IRDA Act of 2000.

 In the same year, the Insurance Regulatory and Development Authority (IRDA)

started issuing licenses to private life insurance companies registered under the

Companies Act of 1950.

 These companies were permitted to engage in Life Insurance Business, General

Insurance Business, and Reinsurance Business.

 Foreign direct investment (FDI) norms restrict foreign participation in Indian

insurance companies to 26% equity or ordinary sharing capital, with the remaining

funding provided by Indian promoter entities.

 The Insurance Association of India consists of all insurers and provident societies

incorporated or domiciled in India as members, while those incorporated or

domiciled outside India are associate members.

 The Insurance Association has two councils: the Life Insurance Council and the

General Insurance Council.

 The Life Insurance Council, through its Executive Committee, conducts

examinations for individuals aspiring to become insurance agents and sets limits for

actual expenses by insurers in accordance with the Insurance Act.

 The General Insurance Council, through its Executive Committee, may set limits for

actual management expenses incurred by insurers in the general insurance business

beyond the prescribed limits in the Insurance Act.

 The General Insurance Corporation of India (GIC) was formed as a government

company under the General Insurance Business (Nationalisation) Act, 1972

(GIBNA).

 GIC's purpose was to superintend, control, and carry on the business of general

insurance as a holding company of four subsidiary companies.

 The functions of GIC include conducting general insurance business, advising, and

assisting subsidiary companies, controlling expenses and investments, and issuing

directions.

 The GIBNA Act emphasizes the importance of competition among subsidiary

companies to improve efficiency in their services.

 GIC was designated as the Indian reinsurer and all domestic insurers were required

to cede 20% of the gross direct premium to GIC.

 GIC and its subsidiaries had a common reinsurance program to retain maximum

business in India and secure favorable terms from foreign reinsurers.

 GIC is currently engaged in the reinsurance business and underwriting direct

general insurance in civil aviation and crop insurance.

 Amendments were made to GIBNA to delink GIC from its subsidiaries carrying out

general insurance business.

 Reforms initiated in the year 2000 led to the formation of the Insurance Regulatory

and Development Authority (IRDA) and the liberalization of the insurance sector for

private sector participation.

 As part of the reform process, GIC was delinked from its four subsidiaries and

transformed into a reinsurance company, with the ownership of the subsidiaries

transferred to the Central Government.

LESSON 9 : International Trends in Insurance Regulation

 Institutions took on more risk than they could afford, bypassed rules, and did not follow

regulations.

 Indian regulators and government had to provide clarifications to alleviate

policyholders' fears.

 IRDA (Insurance Regulatory and Development Authority) implemented stringent

regulations in India to prevent similar situations.

 Insurance regulations are based on common reasons that aim to protect citizens'

welfare and provide financial security.

 The government is interested in protecting its citizens' welfare through insurance

regulation.

 Policyholders may face problems when insurers go bankrupt, wind up their

business, or avoid paying claims.

 Regulations are created to build public confidence in the insurance mechanism.

 Controls like high capital requirements for obtaining licenses are used to ensure

financially strong companies enter the insurance market.

 Maintaining financial solvency is a key requirement, with regulations addressing

risk management, business plans, underwriting and claims practices, actuarial

evaluations, and audit systems.

 Standardization of insurance products is necessary as customers cannot easily

evaluate insurers' promises and policy conditions.

 Pricing of insurance products should be based on proper technical and business

factors, and effective regulation is needed to prevent overpricing or underpricing.

 Regulators aim to create a level playing field by ensuring ethical practices,

standardizing products, setting valuation norms, and protecting policyholders.

 Regulators monitor reinsurance contracts to ensure proper foreign exchange

management and retention of premiums within the country.

 Insurance regulation has undergone reforms globally with contributions from

organizations like the World Bank, WTO, ADB, IAIS, and others.

 Associations like The Geneva Association conduct research on insurance activities

worldwide.

 IAIS is an international organization representing insurance regulators and

supervisors from 190 jurisdictions, issuing global insurance principles and standards.

 IAIS collaborates with other financial sector bodies, provides training and support

and organizes meetings and seminars for insurance supervisors.

 IAIS works towards financial stability and facilitates discussions on insurance sector

developments and regulatory topics.

 IRDA has established rules and regulations for insurance companies regarding

licensing, premium investment, solvency margins, and product standardization and

pricing.

 IAIS issues global insurance principles, standards, and guidance papers and

provides training and support for insurance supervision.

 As per existing rules the minimum capital requirement for starting life insurance

business in India is 100 crores.

 Insurance Association of British Insurers (ABI) is one of the oldest and well

respected entities.

 "The Geneva Association" comprises around 80 chief executive officers from

insurance companies from Europe, North America, South America, Asia, Africa and

Australia.

 Insurance regulators like Financial Services Authority (FSA) of UK, National

Association of Insurance Commissioners (NAIC) which is the apex body of fifty State

level regulators of USA, Australian Prudential Regulatory Authority (APRA), and

Financial Services Authority (FSA) of Japan, Bank Negara Malaysia (BNM) and

Insurance Regulatory and Development Authority (IRDA) of India are well known

insurance regulators.

 International Association of Insurance Supervisors, IAIS

LESSON 8 : FINANCIAL REGULATORY ASPECTS OF SOLVENCY MARGIN
AND INVESTMENTS

 Poor reserving in the insurance industry is considered unacceptable and can

threaten the existence of insurers.

 Maintaining reserves is important due to the time lag between premium receipt and

claims payment.

 Technical reserves are the assets held by insurance companies to meet future claims

or losses.

 Technical reserves include reserves for unexpired risks, incurred but unreported

claims, outstanding claims, and fluctuation reserves.

 Technical reserving directly affects the profitability and solvency of insurers.

 Building in IBNR and reported claims development into subclass reserves:

 Approach of looking at past claims experience and projecting into the future.

 Limitations in changing business environments, long tail classes, and new/emerging

risks.

 Developing a deeper understanding of claims drivers and their potential changes.

 Making judgments on how changes could affect reserves and identifying cost

management steps.

 Simple arithmetic calculations and sophisticated statistical modeling used in reserving

exercises.

 Mechanical calculations may not consider fundamental changes in claims drivers.

 Need for appropriate adjustments to compensate for changes like inflation, rebuilding

costs, legal framework, etc.

 Checklist for claims reserves (compiled by the Institute of Actuaries in the UK):

 Availability and reliability of historical data.

 Homogeneity of risk classification groups.

 Conclusions from past experience and significant changes affecting the future.

 Suitability of proposed projection methods under given circumstances.

 Insurers need to make their reserves work as hard as possible.

 Globally, insurers held USD 22.6 Trillion in reserves by the end of 2009.

 Insurers should have some freedom in deciding where to invest their cash, while still

being monitored.

 Specific guidelines and controls should be in place for investment businesses.

 Guidelines should match the insurer's liability constraints and available matching

investments.

 Insurers globally invest in different ways but follow the same guiding principles:

 Modern Portfolio Theory (MPT)

 Asset Liability Management (ALM)

 MPT suggests selecting assets based on how they change in price relative to other assets

in the portfolio.

 Investing involves a tradeoff between risk and expected return.

 MPT helps select a portfolio with the highest expected return for a given amount of risk

or the lowest risk for a given expected return.

 MPT emphasizes diversification as a form of risk management.

 Arguments against MPT include asymmetric financial returns, variable correlation

between asset classes, and evidence of investor irrationality and market inefficiency.

 Asset Liability management is the process of managing an institution's balance

sheet to account for different interest rate and liquidity scenarios.

 It helps institutions manage risks like credit risk, interest risk, and liquidity risk.

 Indian regulations for insurance premium investments are outlined in the Insurance

Regulatory and Development Authority (Investment) Regulations, 2004.

 The regulations specify the percentage of investments in different categories:

 Central Government Securities: Minimum 20%

 Government securities and other Guaranteed securities: Minimum 30%

 Housing and Loans to State Government for Housing and Fire Fighting

equipment: Minimum 5%

 Approved Investments in Infrastructure and Social Sector: Minimum 10%

 Other Investments governed by Exposure/Prudential Norms: Maximum 30%

 Investments other than Approved Investments governed by Exposure/Prudential

Norms: Maximum 25%

 General accounting principles apply to items like the Balance Sheet, Receipts and

Payments Account, and Profit & Loss Account.

 Three exceptions to general accounting standards for insurers carrying on general

insurance business:

 Cash Flow Statement prepared only under Direct Method

 Accounting for Investments not applicable

 Segment Reporting applies to all insurers

 Premium is recognized as income over the contract period or period of risk. Advance

premiums not relating to the current accounting period are disclosed separately as

"Current Liabilities."

 A premium reserve for unexpired risks is created.

 The ultimate cost of claims includes claims under policies and specific claims settlement

costs.

 Liability for outstanding claims is recognized for both direct business and inward

reinsurance business, including future payments for unpaid reported claims and Claims

Incurred But Not Reported (IBNR).

 Accounting estimates also consider claims cost adjusted for estimated salvage value if

realization is certain.

 Detailed procedure for determining the value of various investments, including real

estate, debt securities, equity securities and derivative instruments, unlisted and non

actively traded equity securities and derivative instruments, and loans.

 Loans to be measured at historical cost.

 Catastrophe reserves to be created according to prescribed norms.

 Stakeholders have varied interests, including shareholders, government,

underwriters, and company management.

 Two main sets of reserves: premium reserves (unearned premium and unexpired risk)

and claims reserves (open claims reserve and IBNR).

 Insurance companies follow Modern Portfolio Theory and Asset Liability

Management in their investment strategies.

LESSON 6 : FINANCIAL REGULATORY ASPECTS OF SOLVENCY MARGIN
AND INVESTMENTS

 Insurance Regulatory and Development Authority (Protection of Policyholders'

Interests) Regulations, 2002 provides added protection to policyholders.

 Duties and obligations of insurers and intermediaries are prescribed in these

regulations.

 Keywords to understand the regulations include cover, proposal form, material

information, and prospectus.

 The proposal form is filled by the proposer to provide essential information for the

insurer to decide on accepting the risk.

 Material refers to important and relevant information for underwriting the risk.

 A proposer must disclose all material information to the insurer.

 Misrepresentation of health status in life insurance is material, while

misrepresentation of social status is not.

 Prospectus is a document issued by the insurer to prospective buyers, describing the

insurance product and any associated riders.

 PreSale:

 Intermediaries explain the benefits, terms, and conditions of the policy to

prospective customers.

 Customers are informed about complaint handling procedures and mechanisms.

 Includes the point of sale and filling of the proposal form.

 PostSale:

 After Sales services such as issuing policy bonds and addressing policy related

requests.

 Grievance redressal procedures and complaint handling.

 Policyholders' servicing and claim settlement.

 Transparency and complete information are essential during the sale and promotion

of insurance products.

 Prospectus should clearly state the scope of benefits, and insurance coverage, and

explain warranties, exceptions, and conditions.

 Allowable riders should be specified, and their premiums should not exceed 30% of

the main product's premium.

 Insurers, agents, and intermediaries must adhere to the codes of conduct prescribed

by IRDA, the Insurance Act, and professional bodies or associations.

 Proposals for life or general insurance must be in written form, except for marine

insurance.

 Forms and documents can be provided in languages recognized under the

Constitution of India.

 Proposal forms should adhere to the provisions of Section 45 of the Act, and life

cover forms should prominently state these requirements.

 If a proposal form is not used, the insurer must record the obtained information

orally or in writing and confirm it within 15 days, incorporating it into the cover note

or policy.

 The insurer has the burden of proof regarding any unrecorded information that is

claimed to be suppressed or misleading.

 The insurer should inform the proposer about the availability of nomination and

encourage them to utilize this facility.

 Proposals should be processed promptly, and decisions should be communicated in

writing within 15 days of receipt by the insurer.

 The policy bond is a legal document that outlines the terms and conditions of the

insurance contract.

 It is given after the proposal is accepted and serves as a reference for servicing

interactions and claim settlements.

 The insurer should ensure that the policy document is easy to understand, using

simple language, avoiding jargon, and being attractive to the consumer.

 Freelook period is an option offered by insurance companies to allow customers to

cancel a policy if they are dissatisfied with its terms and conditions.

 The freelook period must be exercised within 15 days of receiving the policy.

 It gives customers the chance to review the policy's fine print, understand its

workings, and assess charges and suitability for their needs.

 To cancel the policy, the customer needs to send the original documents and

cancellation application form to the insurance company's customer service

department or local branch.

 The premium paid is refunded after deducting costs related to medical tests, stamp

duty, and the risk premium for coverage during the freelook period.

 In unit linked insurance plans, any changes in the net asset value (NAV) during the

freelook period are adjusted through additions or deductions from the premium.

 Other charges mentioned above (medical tests, stamp duty, risk premium) still apply

during the freelook period.

 Freelook provision allows customers 15 days from policy receipt to reconsider their

purchase decision.

 It applies to life insurance plans and allows cancellation if the customer disagrees

with or is not comfortable with the policy's terms and conditions.

 The free look period enables customers to review the policy's fine print, understand

its workings, and study charges (especially for unit linked plans) before committing to

a long term financial commitment.

 The objective of the free look period is to make the insurance buying process

transparent and customer friendly.

 Insurance companies benefit by offering a free look period, as it encourages

policyholders to stay longer and reduces premature exits.

 To cancel the policy within the free look period, the customer needs to send the

original policy documents and a cancellation application to the customer service

department or local branch.

 The change in NAV is accompanied by the continuation of other charges mentioned

earlier.

 Life insurance policies should clearly state the name of the plan, whether it

participates in profits, the basis of participation, benefits payable, contingencies,

riders, commencement and maturity dates, premiums, grace period, surrender

value, age at entry, policy requirements for conversion, surrender, nonforfeiture,

revival, exclusions, provisions for nomination, assignment, home loans, special

clauses or conditions, insurer's address for communications, and required claim

documents.

 For unit linked policies, in addition to other deductions, the insurer can repurchase

the units at the current price upon cancellation.

 For age dependent premium policies, the insurer should ensure age admission before

issuing the policy document.

 A general insurance policy should state the insured's name and address, as well as

the name and address of any banks or other parties with a financial interest in the

insured property.

 It should provide a detailed description of the property or interest insured.

 The policy should specify the location(s) of the insured property, along with

respective insured values.

 The period of insurance and sums insured should be clearly mentioned.

 The policy should outline the perils covered and those that are not covered.

 Any franchise or deductible applicable should be stated.

 The premium payable should be mentioned, and if it is provisional subject to

adjustment, the basis of adjustment should be provided.

 Terms, conditions, and warranties of the policy should be clearly stated.

 The insured should be informed about the necessary actions to be taken in the event of

a contingency that may lead to a claim.

 The obligations of the insured and the rights of the insurer upon the occurrence of an

event giving rise to a claim should be outlined.

 The policy should include provisions for cancellation based on misrepresentation,

fraud, nondisclosure of material facts, or noncooperation by the insured.

 The insurer's address for communication regarding the insurance contract should be

provided.

 Details of riders attached to the main policy should be mentioned.

 The insurer is required to periodically inform the insured about the claim lodgment

requirements and the procedures to be followed for prompt claim settlement.

 Insurers must have proper procedures and effective mechanisms to address

complaints and grievances of policyholders.

 Information about the grievance redressal procedure and the Insurance

Ombudsman should be communicated to policyholders in the policy document.

 Policyholders can approach the Grievance Redressal Authority of the insurer for

complaints related to the settlement of claims or disputes regarding deficient service.

 The Insurance Ombudsman, established by the Central Government, is responsible

for resolving complaints regarding claim settlement by insurance companies.

 Complaints handling procedures should be in place to ensure prompt resolution of

policyholders' concerns.

 Insurers should periodically inform policyholders about the requirements and

procedures for lodging claims and enable early settlement of claims.

 Insurers must provide certified copies of the questions and answers from the

policyholder's proposal and medical report.

 Notice must be given to the policyholder before the lapse of a life insurance policy if

the premium has not been paid, informing them of the available options.

 Life insurance policies should state the primary documents required for claim

submission.

 Upon receiving a claim, the insurer should process it without delay and raise any

queries or additional document requirements all at once within 15 days.

 A claim under a life policy should be paid or disputed with relevant reasons within

30 days of receiving all necessary papers and clarifications.

 If an investigation is warranted, it should be initiated and completed within 6 months

from the time of lodging the claim.

 If there is a delay in payment due to identification issues, the insurer should hold the

amount for the payee, earning interest at the applicable savings bank account rate.

 If there is a delay in claim processing by the insurer, they should pay interest on the

claim amount at a rate of 2% above the bank rate prevalent at the beginning of the

financial year.

 The insured or claimant should notify the insurer of any loss under the insurance

contract promptly or within the extended time allowed by the insurer.

 Upon receiving the communication, a general insurer must respond immediately and

provide clear instructions on the necessary procedures.

 If a surveyor is required for assessing the loss, they should be appointed within 72

hours of receiving the intimation from the insured.

 The surveyor should adhere to the code of conduct and submit their findings to the

insurer within 30 days of their appointment, with a copy of the report available to the

insured upon request.

 In exceptional circumstances, the surveyor may request an extension from the

insurer, but the report should not take more than 6 months from the date of

appointment.

 If the insurer finds the survey report incomplete, they can request the surveyor to

provide an additional report on specific issues within 15 days of receiving the original

report. This request can only be made once.

 The surveyor must furnish the additional report within 3 weeks of receiving the

communication from the insurer.

 Upon receipt of the survey report or additional report, the insurer has 30 days to

offer a settlement to the insured. If the insurer decides to reject the claim, they must

do so within 30 days of receiving the report.

 Once the insured accepts the settlement offer, the payment should be made within 7

days. In case of payment delay, the insurer is liable to pay interest at a rate of 2%

above the prevailing bank rate at the beginning of the financial year in which the

claim is reviewed.

 IRDA proposes to introduce Key Feature Documents for insurance products to

ensure fair treatment to policyholders.

 The Key Feature Document will have the same legal validity as the comprehensive

document.

 The Key Feature Document should be separate from other literature and developed

in a clear format with appropriate titles and subtitles for easy understanding.

 It should use simple language and provide examples related to the cover and benefits

offered.

 The risks involved for the policyholder and their obligations or commitments should

be explicitly stated.

 The title of the document should be prominent and in at least 14 size fonts (such as

Times New Roman).

  Key Feature Documents should be available in local languages based on the region

where the policyholder resides.

 Forms and documents should be available in languages recognized under the Indian

Constitution.

LESSON 5 : POLICY HOLDERS RIGHTS OF ASSINGNMENT, NOMINATION

AND TRANSFER

 Section 38 of the Insurance Act 1938 deals with the assignment and transfer of
insurance policies.

 A transfer or assignment of a life insurance policy must be made by an endorsement

on the policy or a separate instrument.

 The transfer or assignment is complete upon execution of the endorsement or

instrument, but it is not operative against the insurer unless notice of the transfer or
assignment is delivered to the insurer.

 The notice must be in writing and include the endorsement or a certified copy of the
instrument.

 The notice must be delivered to the insurer at the place of business mentioned in the
policy or their principal place of business in India.

 The date of delivery of the notice to the insurer determines the priority of claims
under the transfer or assignment.

 If there are multiple instruments of transfer or assignment, the priority of claims is

determined by the order of delivery of notices.
 Upon receiving the notice, the insurer must record the transfer or assignment,
including the date and the name of the transferee or assignee.

 The insurer must provide a written acknowledgment of the receipt of the notice upon
request, for which a fee not exceeding one rupee may be charged.

 The written acknowledgment serves as conclusive evidence that the insurer has
received the notice.

 Subject to the terms and conditions, the insurer must recognize the transferee or
assignee named in the notice as the sole beneficiary of the policy from the date of
receipt of the notice.

 The transferee or assignee assumes all liabilities and equities that the transferor or
assignor had at the time of the transfer or assignment.

 The transferee or assignee has the right to initiate legal proceedings related to the
policy without the consent of the transferor or assignor.

 Assignments or transfers of policies made prior to the enactment of this Act are not
affected by the provisions of this section.

 Assignments that include conditions stating that they will be inoperative or that the
interest will pass to another person upon the occurrence of a specified event during
the insured person's lifetime, or assignments in favor of survivors of a group, are
valid.

 The assignment can be made by endorsing the policy itself or through a separate
instrument signed by the transferor or assignor, or their authorized agent, and
attested by at least one witness.
 The assignment is complete upon the execution of the endorsement or instrument.

 Assignments made before the enactment of this Act are not affected by these
provisions.

 Conditional assignments are valid only if the specified event occurs during the
lifetime of the insured.

 The transfer of a policy of life insurance is covered by Section 38 of the Insurance

Act 1938, while the Transfer of Property Act 1882 applies to aspects not covered by
the Insurance Act.

 The assignor cannot be a minor, but the assignee can be anyone, including a minor.

 Both absolute and conditional assignments are recognized under the Act.

 An absolute assignment transfers all rights, titles, and interests in the policy to the
assignee, and the policy becomes part of the assignee's estate.

 A conditional assignment creates an immediate vested interest in the assignee but can
be divested based on specified contingencies.

 The Law Commission recommends making a clear distinction between absolute and
conditional assignments and introducing safeguards to prevent misuse.

 Section 39 of the Insurance Act of 1938 deals with the nomination by the
policyholder.

 The Law Commission recommends amending Section 39 to distinguish between a

"beneficial" nominee and a "collector" nominee.
 A transfer or assignment of a policy made in accordance with Section 38
automatically cancels a nomination.

 The provisions of this section do not apply to policies to which Section 6 of the
Married Women's Property Act, 1874 applies or has applied.

 If a nomination is made in favor of the wife or wife and children, it is deemed not to
be governed by Section 6 of the Married Women's Property Act, 1874.

 Nomination can be made when effecting the policy or before the policy matures for
payment.

 Nomination is typically done in favor of someone who is close to the policyholder.

 Policyholders should have the option to specify whether the nominee will collect the
money on behalf of the legal representatives (collector nominee) or become the
absolute owner of the funds (beneficial nominee).

 Section 41 of the Insurance Act of 1938 prohibits the offering or acceptance of

rebates as inducements for taking or renewing insurance.

 Noncompliance with the provisions of this section can result in a fine of up to five
hundred rupees.

 Section 45 of the Insurance Act of 1938 provides protection to policyholders by

limiting the insurer's ability to question a life insurance policy after a certain period.

 Similarly, policies issued after the Act's implementation cannot be called into question
by the insurer after two years from the date of policy issuance.
 Insurers are entitled to request proof of age at any time.

 The Law Commission has recommended that after five years, no life insurance policy
should be repudiated on any ground.

 In Australia, a policy cannot be avoided solely based on incorrect statements unless

they were fraudulently untrue or materially related to the risk within three years
preceding the date of avoidance or the death of the insured.

 In the United States, "Incontestable Clauses" are used in policies, which prevent
challenges or contests on grounds of error or misstatement after a certain period. If
death occurs during the contestable period, the insurer can challenge claims based on
errors or misstatements at any time.

 Section 64VB of the Insurance Act, of 1938 states that an insurer cannot assume any
risk in India unless the premium is received or guaranteed to be paid within the
prescribed time. Refunds of premiums should be paid directly to the insured, and
insurance agents must deposit collected premiums with the insurer within 24 hours,
excluding holidays.

 Rule 59 of the Insurance Rules 1939 lists the relaxations provided by the Central
Government:

 Policies issued to Government and semi Government bodies : The risk can be covered
based on an undertaking by the proposer to pay the premium within 30 days of
intimation or within a further period determined by the Controller.

 Policies under certain schemes (Sickness Insurance, Group Personal Accident

Insurance, Medical Benefits Insurance, and Hospitalization Insurance) : Premiums
can be accepted in installments, with each instalment covering a specific period to be
received within 15 days from the commencement of that period.
 Fidelity Guarantee Insurance : Policies covering Government and semi Government
employees may be issued without an upfront premium if it's not a renewal, with the
condition that the premium is paid within thirty days from the date of appointment.

 Policies covering risks where exact premium cannot be ascertained without

reference to the Head office, Principal office, etc. : The risk can be assumed if there is
a deposit made by or on behalf of the insured with the insurer at a suitable rate, not
less than 2.5 per mile.

 Declaration policies : Risk can be assumed if at least 75% of the calculated premium
based on the sum assured has been received before the assumption of the risk.

 Policies issued based on adjustable premium : Risk in such policies (e.g., workmen's
compensation, cash in transit) can be assumed based on the receipt of a provisional
premium determined by a fair estimate.

 Annual insurances connected with aircraft hulls, other aviation risks, and marine
hulls may allow delayed payment of premium or payment through up to four
installments.

 Short period covers for insurance connected with aircraft hulls, other aviation risks,
and marine hulls are also eligible for such facilities.

 Certain policies issued for more than one year, such as Machinery Erection policies,
contractors All Risk policies, Schedule, and Consequential Loss Policies, Marine
covers other than Hulls, coinsurances, and policies of reinsurance, may also be
eligible for relaxation from Section 64 VB under rule 59 of the Insurance Rules.

 Amendments to the Insurance Act, of 1938, are being considered, as discussed in the
190th Law Commission Report and the Insurance (Amendment) Bill 2009.
 The insured can nominate a family member/s to receive policy money upon their
death.