Fundamentals of Insurance Unit 2 Fundamentals of Agency Law

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Fundamentals of Insurance Unit 2 Fundamentals of Agency Law

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Fundamentals of Agency Law



(A) Multiple choice question and answers:

1. Which one of the following statements is incorrect? 

(a) An agency relationship may be created through necessity.

(b) An agency relationship may be created through estoppel.

(c) All agents are entitled to be paid for their services. 

(d) An agent creates a legal relationship between a third party and a principal.

Ans: (c) All agents are entitled to be paid for their services.

2. An agency relationship which is made retrospectively is known as an agency by:

(a) Estoppel.

(b) Ratification.

(c) Necessity.

(d) Commerce.

Ans: (b) Ratification. 

3. When does apparent (ostensible) authority of an agent arise? 

(a) When the agent acts with the usual authority of his job. 

(b) When the principal gives the agent implied authority to act.

(c) When the agent has actual authority to act. 

(d) When the principal represents to a third party that an agent has authority to act when in fact he does not.

Ans: (d) When the principal represents to a third party that an agent has authority to act when in fact he does not.

4. Which one of the following is not a duty of an agent? 

(a) Duty to exercise care and skill.

(b) Duty to take a commission.

(c) Duty to account. 

(d) Duty to avoid a conflict of interest. 

Ans: (b) Duty to take a commission.

5. What is an undisclosed agency? 

(a) Where a third party is not informed of the existence of the principal and believes the agent is acting on his own behalf.

(b) Where the agent indicates through conduct he is acting as an agent. 

(c) Where the principal is not in existence.

(d) Where the third party knows there is a principal but does not know his name.

Ans: (a) Where a third party is not informed of the existence of the principal and believes the agent is acting on his own behalf.

6. Which is correct for substituted agent or Co-agent? 

(a) A Co-agent works under the rules, regulations, and instructions of the principal. 

(b) There is an agreement or contract between the co-agent and the principal.

(c) Co-agent is not affected by the termination of the original agency.

(d) All of these.

Ans: (d) All of these. 

7. The termination of an agent’s authority terminates the authority of the sub-agent appointed by the agent. 

(a) True.

(b) Partly true.

(c) False.

(d) Partly false.

Ans: (a) True.

8. When agent is liable to pay compensation to principal? 

(a) All the choices incorporated here.

(b) Misconduct.

(c) Negligence.

(d) Giants of skills.

Ans: (a) All the choices incorporated here.

9. To whom the agent is responsible? 

(a) Principal.

(b) Sub agent.

(c) None of these.

(d) Contractor. 

Ans: (a) Principal.

10. When the consent of a party is obtained by coercion undue influence, fraud or misrepresentation, the contract is: 

(a) Voidable.

(b) Void.

(c) Illegal.

(d) Valid.

Ans: (a) Voidable. 

11. Termination of an agency with public authority or a public body may attract judicial intervention in writ petition: 

(a) If the termination be unreasonable.

(b) If the termination be arbitrary.

(c) If the termination be unconscionable.

(d) All of them.

Ans: (d) All of them. 

12. A person can not be appointed as agent unless he has attained the age of –

(a) 21 years.

(b) 30 years.

(c) 18 years.

Ans: (c) 18 years. 

13. Licence once issued shall be valid for a period of –

(a) 3 years.

(b) 5 years.

(c) 1 years.

Ans: (a) 3 years. 

14. To become a composite insurance agent he should complete at least training of – 

(a) 100 hours.

(b) 150 hours.

(c) 200 hours.

Ans: (b) 150 hours.

15. A licence may be renewed after expiring of licence for existing insurance agent after go for training of –

(a) 35 hours.

(b) 30 hours.

(c) 25 hours.

Ans: (c)  25 hours.

(B) Fill in the blanks:

1. An agent is a person who is authorised to act on another person’s __________.

Ans: Behalf. 

2. The relationship between an agent and his principal is created by __________.

Ans: Contract. 

3. The person for whom agent acts is called his __________.

Ans: Principal.

4. Express actual authority means an agent has been expressly told he or she may act on behalf of a __________. 

Ans: Principal.

5. Implied actual authority also called __________.

Ans: Usual authority. 

6. An agent’s __________ can be terminated at any time.

Ans: Authority. 

7. A special agent is one who is appointed to do a __________ act. 

Ans: Particular. 

8. An __________ is a contract a principal and agent enter into that says the principal cannot employ another agent other than the one stated. 

Ans: Exclusive agency contract.

9. __________ agency is the most common form of agency. 

Ans: Express. 

10. Agency by __________ occurs when (1) a person misrepresents himself or herself as another’s agent when in fact he or she is not and (2) the purported principal accepts the unauthorised act. 

Ans: Ratification.

11. Apparent agency is also referred to as __________.

Ans: Agency by estoppel.

12. A principal accepts an agent’s unauthorised contract through __________ of the contract. 

Ans: Ratification.

13. __________ is not a method of terminating an agency relationship by acts of the parties. 

Ans: Bankruptcy of the principal.

(C) Say True or False: 

1. There are three kinds of agent authority recognised in the law. 

Ans: True. 

2. A claimant may not recover from the principal unless the agent is acting within the scope of employment. 

Ans: True. 

3. One of the primary advantages of an insurance career is the ability to get paid repeatedly. 

Ans: True. 

4. Insurance companies does not pay different commission amounts and percentages on the level of production from each agent. 

Ans: False. (Insurance companies) 

5. Insurance agents are, in general, licensed to conduct business on behalf of Insurance public. 

Ans: False.

6. Insurance intermediaries bring innovative marketing practices to the insurance market place. 

Ans: True.

(D) Answer the following Question:

1. What is principal person? 

Ans: The principal person is the main reason for whom an agent perform some activities. 

2. What is special agent? 

Ans: Special agent implies such type of agent who is to perform a specific act or represent his principal in a particular function only. 

3. What is General agent? 

Ans: General agent implies such type of agent who is to perform all types of activities within the care of business. 

4. What is composite insurance agent? 

Ans: Composite insurance agent means an insurance agent who holds a licence to act as an insurance agent for a life insurer and a general insurer. 

5. What is corporate agent? 

Ans: Corporate agent means a person other that an individual as specified in clause.

6. What is express authority of agent? 

Ans: An authority is said to be express, when it is given by words spoken or written. Express authority is that which the principal directly grants to the agent and includes all such powers as are proper and necessary for achieving the purposes for which the agency was created. 

7. What is implied authority of agent? 

Ans: An authority is said to be implied when it is to be inferred from the circumstances of the case. Authority may be implied from the situation of parties, circumstances of the particular case the usage of trade or business or the conduct of the principal.

8. What is ostensible and apparent authority? 

Ans: The principal is bound and liable by such acts or obligations when an agent, without authority acts to third party on behalf of his principal and the party dealing with him are entitled to presume that he has authority to do all such lawful acts as are necessary or incidental to such a business. such authority is called apparent authority of an agent.

9. What are Regulatory Agencies? 

Ans: A regulatory agency is a governmental body that is created by a legislature to implement and enforce specific laws. An agency has quasi-legislative functions, executive functions, and judicial functions. 

10. How can the authority issue a duplicate licence? 

Ans: The authority may issue a duplicate licence in order to replace a licence lost, destroyed or mutilated, on the payment of a fee of Rs. 50.

11. When can a licence once issued be cancelled? 

Ans: A licence once issued can be cancelled if the person acquires any of the disqualifications.

For Example: lf the person is a minor, an insane or found guilty of criminal misappropriation by the court of competent jurisdiction.

12. What is personal statement? 

Ans: The from of personal statement includes questions on the family history, personal history, height, weight etc. In case of female prospect additional questions are asked about her health and family. 

13. What is Agent’s confidential Report? 

Ans: The agent’s confidential report serves as a check or the information supplied by the prospect in the proposal form and personal statement. It also helps the insurer to get full knowledge about the person to be insured. 

14. What is material information? 

Ans: Material information are those information which have physical evidence and which are the key to accept the proposal.

15. What is assignment of policy? 

Ans: Assignment of policy implies the transfer the policy in favour of other by the policy holder. After assignment, the policy holder looses all rights; title and interests under the policy contract.

16. What is nomination? 

Ans: Nomination is a process of registering a name of person not policy holder, for the purpose of accepting maturity value of policy after death of the policy holder. 

17. Who can be nominated? 

Ans: Any person can be appointed as nominee. In case of minor nominee, appointee shall get the policy amount because a minor cannot give valid discharge to the insurer.

18. What is proposal for insurance? 

Ans: A proposal for insurance is an application in the standard form which is made by a person who has made up his mind to go in for life insurance.

19. Define Agent. 

Ans: Insurance agent is a person who meets the prospective customers and motivates them to take insurance policies. According to section 182 of Indian contract Act 1872, ‘A agent is a person employed to do any act for another or to represent others in dealing with third persons.’


1. What Insurance Sales Agents Do?

Ans: Insurance sales agents help insurance companies generate new business by contacting potential customers and selling one or more types of insurance. An agent explains various insurance policies and helps clients choose plan that suit them. 

2. Give the meaning of Insurance Intermediaries.

Ans: Insurance Intermediaries facilitate the placement and purchase of insurance, and provide services to insurance companies and consumers that complement the insurance placement process. 

Traditionally insurance intermediaries have been categorised as either insurance agents or insurance brokers. The distinction between the two relates to the manner in which they function in the market place.

3. What do you mean Insurance brokers? 

Ans: An insurance broker exclusively represents the insured person (but not the insurance company). On behalf of the insured person, the broker searches insurance companies for the best available coverage suitable to the needs of the insured person. Usually, this type of insurance relates to commercial activities, the coverage is specialised, and the insurance is for a large amount. A broker might be a company or a person, working on a commission basis. 

4. Give a brief difference between independent agents and employed agents. 

Ans: Independent agents are self employed and represent insurance companies and earn a commision on the policies that they help to write. Agents are restricted to representing no more than four insurance companies. No more than two of them can be life insurance companies. 

On the other hand, employed agents who work exclusively for one insurance company. In addition to being paid a basic salary, they also earn commission on the business that they bring in. 

5. Briefly explain the classes of agent. 

Ans: There are three broad classes of agent: Universal agents hold broad authority to act on behalf of the principal, e.g. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client. 

General agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and. 

Special agents are authorised to conduct either only a single transaction or a specified series of transactions over a limited period of time. 

6. Write five disqualifications of insurance agent? 

Ans: (i) If he has not attained the age of 18 years. 

(ii) If he is of unsound mind. 

(iii) If he is guilty of misappropriation or criminal offence or criminal breach of trust or cheating or forgery.

(iv) If he is found to be knowingly participating in any fraud, dishonesty or misappropriation against corporation or any of its subsidiaries. 

(v) If he does not possess a valid licence in force. 

7. Mention five reasons of termination of Insurance agency? 

Ans: (i) If an agent is found to be of unsound mind by a court of law.

(ii) If an agent is found to be guilty of criminal misappropriations or criminal breach of trust or cheating or forgery.

(iii) If an agent is found to be knowingly participated in any fraud, dishonesty or mis representation against corporation. 

(iv) If he has failed to discharge his functions.

(v) If he acts in a manner prejudicial, to the interest of the corporation. 

8. Mention five events for which appointment of agents can be terminated? 

Ans: Due to following events, appointment of agent can be terminated: 

(a) Cancellation of the licence. 

(b) Non renewal of the licence.

(c) Legal disqualifications like false age proof. Permanent incapacity, criminal breach of trust, cheating or forgery or an abetment of or attempts to commit any such offence, conviction for criminal misappropriation etc.

(d) If agent is not completing minimum business target given by the Insurance Company.

(e) If he is violating the code of conduct. 

9. On which events the appointment of agents can be terminated? 

Ans: On the happening of the following events, the appointment of agents can be terminated: 

(i) Cancellation of the licence.

(ii) Non-renewal of the licence.

(iii) Legal disqualifications like false age proof, permanent incapacity, criminal breach of trust, cheating or forgery or an abetment of or attempt to commit any such offence, conviction for criminal misappropriation etc.

(iv) If agent is not completing minimum business target given by the Insurance Company.

(v) If he is violating the code of conduct. 

10. What are the minimum amount of business to be secured by an agent? 

Ans: (a) If he is working in a city or a town with an ascertained population of five lakh or above, proposals resulting into policies for not less than Rs. 75,000/- sum assured on at least twelve different lives. or 

(b) If he is working in a city or town with ascertained population of one lakh or above, but less than five lakhs proposals resulting in to policies for not less than Rs. 60,000/- sum assured on at least 12 different lives, or 

(c) lf he is working in any others place with an ascertained population of less than one lakh proposals resulting into politics for not less than Rs. 40,000/ sum assured on at least 12 different lives. 

11. What are business of an agent for each year subsequent to first year? 

Ans: An agent shall bring in the following business each year subsequent to first year: 

(a) Where population exceeds five lakhs or above-population resulting into policies for not less than Rs. 1,00,000/- sum assured on at least twelve different lives. or

(b) Where population exceeds one lakh but does not exceed five lakhs proposals resulting into policies for not less than Rs. 75,000/- sum assured on at least twelve different lives. or

(c) Where population does not exceed one lakh proposal resulting into policies for not less than Rs. 60,000/- on at least twelve different lives.

12. Mention the exemption from the minimum amount of business of an agent.

Ans: The exemption from the minimum amount of business of on agent are: 

(i) Not less than 21 years. or 

(ii) At least 15 years and he is at least 55 years of age. 

(iii) 15 years and at any time subsequent to There is business in force in the books of the corporation under his agency yielding a renewal premium income of not less than Rs. 4,000/- per annum. 

13. Write briefly on proposal form and other forms for grant of cover. 

Ans: The person who has made up his mind to go in for life insurance has to make an application, in the standard from, which is called the proposal’ for insurance and the person who is proposing for insurance is called the proposer. The proposal form is the first and the most important source of information. The proposer should give correct, complete and comprehensive answers to all the questions in the proposal form because insurance is a contract of utmost food faith.

The proposal form is divided into two parts:

(i) Application form.

(ii) Personal Statement.

The contents of the two forms are: 

(i) Application form: It includes questions pertaining to name, address, date of birth, term of insurance, sum to be assured, mode of premium payment, object of insurance, name of the nominee etc. 

(iii) Personal Statement: It includes questions on the family history, personal history, height, weight etc. In case of female prospect, additional questions are asked about her health and family. 

14. Mention necessary qualification for obtaining a licence for insurance agent? 

Ans: (a) A person must have completed 18 years of age.

(b) He is found to be of sound mind by a court of competent jurisdiction. 

(c) A person must have passed at least the 12th standard or on equivalent examination if he is to be appointed in a place with a population of 5000 or more of 10th standard in other case. 

(d) He must not be disqualified by any law. If he is qualified then he has to submit an application. There are two separate forms, one for individuals and another for those other than individual, in which applications for licensed are to be made the application for the licences should be accompanied by proofs: 

(i) Of fees having been remitted to the authority. 

(ii) Of age.

(iii) Of qualification. 

(iv) After that he must have undergone for 100 hours training in life or general insurance business as the case may be from a recognised institute of IRDA. After that he has to appear in a written test and if he qualifies the test in that case licence is to be issued. If he wants to become a composite insurance agent then he should have completed at least 150 hours training in life and general insurance business which may be spread over 6 to 8 weeks.

15. State the principal duties that an insurance agent owes. 

Ans: An agent owe the principal number of duties. 

These include:

(i) A duty to undertake the task or tasks specified by the terms of the agency (that is, the agent must not do things that he has not been authorised by the principal to do). 

(ii) A duty to discharge his duties with care and due diligence. and

(iii) A duty to avoid conflict of interest between the interests of the principal and his own (That is, the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal).

(iv) An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal.

(v) An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the agency. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. 

(vi) In return, the principal must make a full disclosure of all information relevant to the transaction that the agent is authorised to negotiate and pay the agent either a pre-arranged commission, or a reasonable fee established after the fact. 

16. What are the areas of agency relationships? 

Ans: Agency relationships: 

Agency relationships are common in many professional areas:

(i) Employment. 

(ii) Real estate transactions (real estate brokerage, mortgage brokerage). In real estate brokerage, the buyers or sellers are the principals themselves and the broker or his salesperson who represents each principal is his agent. 

(iii) Financial advice (Insurance agency, stock brokerage, accountancy).

(iv) Contract negotiation and promotion (business management) such as for publishing, fashion model, music, movies, theatre, show business, and sport. 

(v) An agent in commercial law (also referred to as a manager) is a person who is authorised to act on behalf of another (called the principal or client) to create a legal relationship with a third party. 

17. Write a note on Insurance Commission. 

Ans: The vast majority of insurance agents are paid entirely with commissions. If an agent does not sell enough insurance policies to earn enough commissions to pay the bills, there is no safety net that will provide the necessary income. This fact is what makes career as an insurance agent a risky endeavour, but also what makes it attractive to motivated entrepreneurial-minded people. No salary also means no cap on income, and insurance agents will realise exactly what their skills are worth. By understanding how agent compensation works, you will have an easier time deciding whether or not a career in the insurance industry fits your needs and personality. 

18. What do you mean by immediate commission? 

Ans: After the successful sale of an insurance product, regardless of the specific type of policy, the agent who is responsible for acquiring the new client and closing the deal will be paid an immediate commission. The type of policy sold will determine how much commission is earned and different lines of mission. The type of policy sold will determine how much commission is earned, and different lines of insurance pay higher or lower percentages. 

For example, a life insurance policy commission will typically range between 50 and 90% of the client’s initial annual premium, meaning a policy that costs the client $ 1,000 per year will pay the agent a one-time commission between $ 500 and $ 900. Automobile insurance, on the other hand, pays a much smaller commission and is usually between 10 and 15% of the client’s annual premium. 

19. How an insurance agent can create agency relationship with the public? 

Ans: Agency relationship can be created in any of the following ways: 

(i) by express agreement.

(ii) by implied agreement.

(iii) by operation of law.

(iv) by subsequent ratification of an unauthorised act. 

Two of these are explained below: 

(i) Agency by express agreement: When an agency is created by words, spoken or written, it is as an agency created by express agreement. A written agreement may take the form of a power of attorney or a board resolution or a clause in an appointment order etc.

(ii) Agency by implied agreement: Where the principal does not expressly give authority to the agent, but such authority is inferred from the conduct, situation, or relationship of parties, in such cases, courts imply an agency relationship. 

20. Write a note on the advantage of insurance career. 

Ans: One of the primary advantages of an insurance career is  the ability to get paid repeatedly. As compensation for assisting clients and handling any questions or concerns that may arise, insurance companies pay residual commissions, of ten called ‘trails’, to the agent who initially sold the policy overtime, the number of clients you have will contribute to grow, which increases the amount of residual income every year. On the client’s policy anniversary date, the insurance carrier will pay the annual renewal commission percentage. Most insurance policies have residual trails that range from 0.5 percent to as high as 2.5%. The amount is minimal compared to the up-front commission earned on the sale. Automobile insurance, however, pays a trail amount every close to the up-front commission of 10 to 15%.

21. What are the modes of termination of agency? 

Ans: According to Section 201 of the Indian contract Act, 1872, Termination of agency takes place in the following circumstances: 

(i) By revocation of authority by the principal.

(ii) By renunciation of his authority by the agent.

(iii) On the performance of the contract of the agency.

(iv) On the death of either principal or agent.

(v) By insanity of either principal or agent. 

(vi) With the expiration of the time period fixed for the contract of the agency. 

(vii) By an agreement made between the principal and his agent. 

(viii) With the insolvency of principal or agent ( in few cases).

(ix) When the principal and his agent is an incorporated company, by its dissolution

(x) With the destruction of the subject matter. (section 56).

22. What are the essential requirements of Agency? 

Ans: There are certain requirements that are necessary for an agency. The following are the requirements: 

(i) Principal Must be competent to contract: Any person of sound mind and with the age of majority by law can employ an agent.

(ii) Competence of Agent is not Mandatory: Any person can become an agent between the principal and the third person. Generally, an agent does not have any personal liabilities towards the principal while contracting. Therefore the agent doesn’t need to be competent to contract. 

(iii) No Consideration is Necessary: No remuneration is necessary while appointing an agent. The agent receives payment by the way commission for the rendered services. 

23. Write a short notes on following:

(a) Surveyor. 

Ans: Surveyors are professionals who assess the loss or damage. An insurance surveyor must possess a licence issued by the controller of insurance under ministry of finance. Govt of India licence are issued to technically qualified a people who are engineering graduates or diploma holders in any discipline, chartered accountants, Graduates in medical sciences or associations in insurance of the chartered insurance institute of London or Federation of Insurance Institutes of India. A Surveyor after obtaining the licence, may be empanelled by any or all of the insurance companies surveyors are remunerated by the schedule of survey fixed by GIC. 

(b) Brokers. 

Ans: Brokers are allowed in the non life insurance business. They arrange to place the business of their clients with insured on terms that are standard or negotiated. This becomes necessary when the needs of the proposes are unique and not met by the benefits under the standard plans of insurance. Brokers understand the nuances of the business well and Also know the policies of the insurances. A broken usually does business with more than one insurance company. He collects commission from the insurer with whom the business is placed and does not charge the prospect. This system works in some countries. 

(c) Agents Compensation. 

Ans: The method of remunerating agents varies according to the plans & policies of the insurance and term of the policies. A life insurance agent works on commission which is a stated percentage of premium. In general insurance sector, commission structure varies from time to time. Company pays the commission as per the profitability of the individual insurance products. The rates of commission ranges from 5 to 15% of the premium and if the company is in loss, in that case the company can avoid to pay the commission on that. 

The method of remunerating agents are specified below:

(i) The premium differs between first year premium and subsequent premium as in endowment policies, the commission payable is 25% of the first years premium, 7.5% of the second and third years renewal premium and 5% of subsequent renewal premium. 

(ii) When the business exceeds specified levels, the first year’s premium can increase by 10% making it 35% instead of 25%.

(iii) In money back 15% in the first year’s premium, 10% of the second and third years premium and 6% of the subsequent premium. 

(iv) When the business exceeds by specified levels, the first year’s commission goes up by another 6% making it 21% instead of 15%. 

(d) Insurance Intermediaries.

Ans: Under IRDA, only insurance agents are allowed to carry insurance business and act accordingly. The agents are authorised and hold responsible for the job of licensed insurance agents. There are different kinds of agents recognised under the contract Act. Agency and brokerage systems are most common and contribute their maximum share in the field of insurance business, specially life insurance. These brokers deal with exchange of reinsurance business on international basis. These brokers are also allowed to work for non-life insurance business, with more than one company. He can charge commission in this regard from the insurance company. He cannot charge the prospects for any such commission. 

Again for instance, in the airline industry, there is a system of general agent, who has the authority to act on behalf of the principal on all matters but within a specific limit. This type of agent system also exists in the shipping business where the general agents represent foreign shipping companies to deal with local authorities like the ports or the stevedores etc. In advanced countries like U.K. the broker has to register himself with the Insurance broker Registration Council and a high standard of professional skill and conduct is expected from such brokers.

24. What are the Documents Required to Obtain Insurance Company Licence? 

Ans: A candidate who wants to obtain insurance company licence needs to file an application to the IRDAI in form IRDAI/R1 for an issuance of a demand for the registration application. 

Documents that will support the Application are:

(i) Applicant is company formed under Companies Act 2013.

(ii) Certified of MOA and AOA.

(iii) Details of the directors such as-name, address and occupation. 

(iv) Certified copy of the annual report of Indian promoters and foreign investors for the preceding last five years. 

(v) Certified copy of the shareholding agreement between Indian promoters and foreign investors of the applicant. 

(vi) Five-year business plan accepted by the Board of Directors. 

25. What is the Registration procedure of Obtaining Insurance company Licence? 

Ans: (i) A candidate can record an application for extra security or General Insurance organisation or health Insurance Business solely or Reinsurance business.

(ii) In the wake of accepting an application, the Authority may ask additional data or explanation identified with the thought of an application. 

(iii) After fulfilment, the Authority may concede approval and candidate at that point document a further application in form IRDAI/R2 for award of certificate of registration. 

(iv) The Authority may dismiss the application for issuance of an order for an registration form by recording the exploration recorded as a hard copy. 

(v) A candidate who is wronged by the choice will record an intrigue to Securities Appellate Tribunal inside 30 days of dismissal correspondence got.

26. How Suspension of Certificate of Insurance Company License? 

Ans: (i) Neglects to conform to the arrangements of the activities identified with the estimation of benefits and Liabilities.

(ii) The insurer is in liquidation or is declared as a wiped out. 

(iii) The business or a class of the matter of the guarantor has been moved to any individual or has been moved to or amalgamated with the matter of some other safety net provider without the approval of the Authority. 

(iv) Default in consenting the provisions of the Act, or rule or Regulations or direction or order gave by the Authority.

(v) Any case stays unpaid for over 3 months after the judgement is passed in court.

(vi) Insurer conveys business other than Insurance business or recommended business.  

(vii) Defaults in consenting to the necessity of Companies Act, 2013, General Insurance Business Act, 1972 or Foreign Exchange Management Act, 1999 or prevention of money laundering Act, 2002. 

(viii) Neglects to pay the yearly charges determined under Act. 


1. What do you mean by Insurance Agents? Explain the procedure for becoming an insurance agent.


Write a note on the concept of Insurance Agents. Explain the procedure for becoming an insurance agent.

Ans: Insurance Agents are in general, licensed to conduct business on behalf of Insurance companies. Agent represent the insurer in the insurance process and usually operate under the terms of an agency agreement with the insurer. The insurer – agent relationship can take a number of different forms. 

In some markets, agents are independent and work with more than one insurance company (usually a small number of companies) in others, agents operate exclusively either representing a single insurance company in one geographical area or selling a single line of business for each of several companies. Agents can operate in many different forms – independent, exclusive, insurer-employed and self -employed..

Following are the procedure for becoming an insurance agent:

The applicant being a corporate agent shall ensure that depending upon the nature of the entity, the partnership deed, Memorandum of association, or any other evidencing the contention object soliciting insurance business as a corporate agent. The corporate insurance exclusion shall possess the minimum qualifications of a pass 12th standard or equivalent examination conducted by any recognized board/institution.

Training: When an applicant is seeking licence for the first time to act as a corporate agent, shall have completed from an approved institution all least, one hundred home practical training. 

Under the IRDA (licensing of agents) Regulation 200. The following stage should be observed in recruitment of new agents. 

1st stage: Application: At the first stage, application from should be collected for Agency Annexure A by branch along with two passport size photo copies. Moreover, qualification certificate. (XII standard for urban and X th standard for rural) and age certificate should be furnished. After thorough scruting, the application form, should be sent to divisional office. 

2nd stage: Training: To be an insurance agent, he is to do 85/90 home compulsory classroom training at division office and or regional office. This classroom training is very much essential for building up confidence. Moreover, agents have to do 15/10 home practical training imparted by the concerned branch office. 

3rd Stage: Submission of fees: In this stage, the person is to submit examination fees of Rs 200/- and two passport size photo copies, age certificate and qualification certificate so that he can appear the examination. 

4th Stage: Apply for licence: After passing examination the person can apply for the license by paying demand draft of Rs 250/- payable in favour of license is through internet and get it signed by the designated person of the insurance company. The license is valid for 3 years only.

2. Write a note on powers of the agent. Discuss the rights of the agent towards his principal.

Ans: Not only is the power of the agent restricted to actions expressly given under the Agency Arrangement, but the agent still has the implicit authority to carry out all acts which are incidental to the main act. The Act also specifies that in all emergencies, the agent has the powers to perform all the things to protect the principal, as a person of prudence might do to protect himself in the case of an emergency. 

An agent possess the following rights against the principal: 

(i) Right to Receive Remuneration: the agent is entitled to receive the agreed remuneration but in the absence of any contract or agreement, he receives reasonable Remuneration. 

(ii) Right of Retainer: The agent has the right to retain all money due to him in respect of the remuneration, out of any sum received on account of the principal in the business of the agency. 

(iii) Right of lien: An agent can retain goods, papers and other property, whether movable or immovable, until the principal pays him the amount due for commission disbursement and services rendered. 

(iv) Right of Indemnification: An agent can claim Indemnity only in respect of lawful acts done by him in exercise of the authority in the course of agency business. 

(v) Right of Compensation: The agent has a right to be compensated for injuries sustained by his by the negligence of the principal or any loss due to principal’s want to skill. 

(vi) Right to stoppage in Transit: The agent has the right to stop the goods in transit, in case if he does not receive the money due from the principal. 

3. Mention the duties of an agents towards principal. Write short notes on Agents Regulation. 

Ans: Duties of an Agent to Principal: 

(i) The primary duty of an agent is to carry out the work undertaken according to directions of principal. 

(ii) He must perform the work with proper care, skill and diligence. 

(iii) It is his duty to pay to his principal of all the money received on his account. The agent is however, entitled to deduct his lawful charges. 

(iv) It is the duty of an agent, in case of difficulty to use all reasonable diligence in communicating with his principal and obtain his instructions. 

(v) It is the duty of an agent to render accounts to the principal when the principal demands. 

(vi) He should not use any information obtained by him in the cause of the agency against his principal. 

(vii) Agent must not place himself in such a position that his duty and his interest will conflict. 

(viii) The agent must not delegate his work to another which has been delegated to him by his principal. 

For becoming an insurance agent a licence is required under section 42 of the Insurance Act, 1938 which is regulated by the Insurance Regulatory and Development Authority. (IRDA), constituted by the IRDA Act of 1999. The IRDA has issued the IRDA (Licensing of Insurance Agents) Regulations, 2000. 

The Insurance Act, 1938 prescribes that no licence shall be granted to the person if he suffer from any of the following disqualifications:

(i) That a person is a minor. 

(ii) That he is found to be of unsound mind by a court of competent jurisdiction. 

(iii) That he had been found guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit any such offence. 

(iv) That he is found guilty of or knowingly participating in on conniving at any fraud, dishonesty or misrepresentation against an insurer or an insured.

(v) That he is not possessing the requisite qualification required as per law.

(vi) That he has not passed such examinations as are specified by the Regulations. 

(vii) If he is found violating the code of conduct.

In the case of a firm or company desirous of becoming an insurance agent, all the partners or directors must fulfil all the requisite conditions. Applications for grant of licence can be made in the prescribed from along with Rs. 250 as application fee. Secondly, he must have gone for 100 hours training from a recognised Institute of Insurance Regulatory Development Authority (IRDA). After that he has to appear in a written test and if he qualifies the test, in that case licence is issued. Licence once issued shall be valid for 3 years. This licence can be cancelled, if the agent acquires any of the disqualifications.

4. Write briefly about the duration of licence issued to an insurance agent. What are the qualifications and disqualifications of an insurance agent for obtaining a license? 

Ans: The validity of licence issued to an insurance agent is for a period of 3 years and after obtaining that licence he can act as an agent for a life insurance or a general insurance. He can work as a composite agent for a life insurance as well as general insurance. 

If the licence is going to be expired, an application must be submitted along with a fee of Re. 250 in order to renew the licence, within the prescribed period i.e at least 30 days before the expiry.

An additional fees of Rs.100 must be paid along with the application if it is the case of late application and the application is before the date of expiry. But if the application is after the date of expiry, an additional fees of Rs. 1000 is payable. 

Normally, the application of renewal of licence are refused after expiry of licence. But if the authority is satisfied by the reasons mentioned by the agent, the renewal is possible. 

As 25 hours training is compulsory for every existing insurance agents and a 50 hours training is compulsory for composite insurance agents. 

An insurance agent can obtain a licence if he fulfils some required qualifications. The IRDA has prescribed certain qualifications as well as disqualifications for a person as per the Insurance Act, 1938. 


Before a licence is issued to a person, he is certified of the following:

(i) A person must have completed 18 years of age.

(ii) He is found to be of sound mind by a court of competent jurisdiction.

(iii) A person must have passed at least the 12th standard or an equivalent examination if he is to be appointed in a place with a population of 5000 or more or 10th standard in other case. 

(iv) He must not be disqualified by any law. If he is qualified, he has to submit an application, which are of two types-one for the individuals and another for those other than the individuals. 

The application must be submitted along with proofs like age, qualification, fees having been remitted to the authority. 

(v) He must have undergone for 100 hours training in life or general insurance business as the case may be from a recognised Institute of IRDA. After that he has to appear in a written test. If he qualifies the test the licence is issued. 


The following disqualifications may restrict a person from obtaining a license:

(i) He is a minor.

(ii) He is found to be unsound mind by a court of competent jurisdiction.

(iii) He has been found guilty or criminal mis-appropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit any such offence, by court of competent jurisdiction.

5. Write five right of on insurance agent? Discuss the different working of an insurance agent before and after the issue of the policy?  

Ans: (i) To receive commission: A remuneration for the discharge of his functions as an agent shall be paid by way commission as set out in schedule II of LIC Agents Regulation Act 1972.

(ii) To receive Bonus commission: In addition to the commission he has the right to receive Bonus commission as set out in the schedule III Agents Regulation Act 1972.

(iii) To appoint nominee to receive commission and other benefits: An agent has the right to appoint nominee during his lifetime to receive commission and other benefits. 

(iv) To receive other benefits: An agent is entitled for all other benefits and perquisites which the corporation may extend from time to time to the agent’s. For example, loans for conveyance, telephone advance, loan for the construction of house at concessional rates of interest, etc.

(v) Right to appeal: The agent has a right to appeal before the competent authority in case his agency is terminated without sufficient cause. 

The working of an insurance agent can be divided into two parts:

(a) Before the issue of the policy.

(b) After the issue of the policy.

(c) Before the issue of the policy: 

(i) To contact the prospective customers: A successful agent is one who makes at least 3-4 calls to his prospective customers and try to make them understand the need of insurance. He should explain them the advantages and disadvantages of the various plans and suggest the suitable one as per their requirements. The regular contacts will create a good impression and will fetch new business. 

(ii) To fill the proposal form: When the prospective customer agrees for the insurance the agent should give him appropriate form. This proposal form is to be filled in by the customer and to be signed by the customer.

(iii) To collect first premium and age proof: The insurance agent also collects the first premium, according to the standard tables prepared by the corporation for this purposes, and also the age proof. The age proof is necessary to calculate the exact amount of premium. The agent should explain that it is always better to get the age admitted while submitting the proposal for insurance. This will avoid complications later on at the time of unfortunate death of assured. However, if the age is, for any reasons, not available at the proposal stage, it should be submitted afterwards at the earliest. 

(iv) To fill-in Agents confidential report: the agent should also submit the confidential report giving therein the observation about health, habits and financial status, sources of income, details of present and past employment and personal history of the assured. The Agent’s recommendation is very important in considering the proposal.

(v) To submit the proposal form: The agent should submit the proposal form along with the confidential report to the concerned branch and also to deposit the first premium. 

(vi) To assist in completing the various queries: When the proposal is under written at the branch level, certain queries may arise, the reply thereof is essential for the completion of the proposal. The agent should assist in getting these queries answered.

(b) After the issue of policy: 

(i) To get the age admitted: lf the age of the proposer is not admitted earlier, the agent should see that this is admitted at the earliest.

(ii) To get nomination or Assignment registered: Nomination is necessary for the early settlement of death claim and therefore it should be done while filling in the proposal form itself. However, nomination can be made even after the issue of the policy and it should be registered with the corporation. Similarly, the policy can be assigned, if the policy holder desires to obtain the policy loan, from the corporation. The agent should help the policy holder in getting these things done. 

(iii) Revival of a lapsed policy: If the premium is not paid within days of grace, the policy is lapsed. The agent should keep a watch that the policy holders deposit their premiums in time. This is necessary to avoid lapse of the policy. However, if the policy is lapsed for any reasons, the agent should make effort in reviving the same.

(iv) Surrender of a policy: If the policyholder is not in a position to continue the policy and wishes to surrender it, the agent should assist in getting the surrender value payment. 

(v) To assist for policy loan: For temporary requirement, loan can be obtained under the policy. Loan is available to the extent of 90% the surrender value. The agent should fill in the loan papers and assist in getting the loan at the earliest. 

(vi) Settlement of claim: When the policy is matured for payment due to the expiry of the policy terms or due to the death of the policy holder as the case may be, the agent should contact the assured immediately. The work of the agent is more important particularly when there is a death claim. The agent should assist the claimant to fill in all the required forms so that the death claim can be settled quickly. 

6. What do insurance sales agents do? What are the essentials for a successful insurance salesman? 

Ans: Insurance sales agents contact potential customers and sell one or more types of insurance. These agents explain various insurance policies and help clients choose the plans that suit them. Explains various insurance policies and products to potential and existing clients; guides clients in selecting coverage to best meet their needs. Suggests modifications and updates to clients existing insurance policies. Builds customised insurance policies and packages to meet clients needs.

Successful speaking the personal quality of a successful salesman may be grouped under various categories:

(a) Physical characteristics: Physical characteristics is a composition of various characteristics such as, his personal appearance, his manners, way of addressing, posture, voice, demean our etc. A salesman suffering from want of any of these characteristics will be greatly handicapped in handling his customers freely while a salesman who has these qualities. Will radiate with self confidence and conviction.

(b) Mental characteristics: A salesman must have mental qualities which includes presence of mind, imaginations, judgement, self confidence, memory and general intelligence. 

(c) Social Characteristics: Insurance salesman has constantly to deal with all types of people and influence their minds. Tact is needed for the accomplishment of this task effectively. Different types of insurance prospects need different treatments and the insurance salesman must be able to tackle it. 

(d) Vocational characteristics: Salesmanship is highly skilled vocation demanding a special discipline. It is to be distinguished from routine, mechanical centrally directed and controlled jobs. This demands a quality of leadership, imagination creative and constructive thinking.

7. State the liabilities of an insurance agent authority. Explain in details about the various kinds of agent authority.

Ans: The liabilities of an insurance agent are as follows: 

Liability of agent to third party: If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, So long as the relationship of the agency and the identity of the principal have been disclosed. When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of authority. 

Liability of agent to principal: lf the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to Indemnify the principal for any resulting loss or damage.

Liability of principal to agent: If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorised or merely necessary in promoting the principal’s business.

The various kind of agents authority:

An agent who acts within the scope of authority conferred by his or her principal binds the principal in the obligations he or she creates against third parties. There are essentially three kinds of authority recognized in the law: Actual authority (Whether express or implied), apparent authority, and ratified authority (explained here). 

(i) Actual authority: Actual authority can be of two kinds. Either the principal May have expressly conferred authority on the agent, or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of fact. An agent, as a general rule, is only entitled to indemnity from the principal if he or she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority. In tort, a claimant may not recover from the principal unless the agent is acting within the scope of employment.

(a) Express actual authority: Express actual authority means an agent has been expressly told he or she may act on behalf of a principal.

(b) Implied actual authority: Implied actual authority, also called “usual authority” is an authority agent has by virtue of being reasonable necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation.” 

(ii) Apparent authority: Apparent authority (also called “ostensible authority”) exists where the principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent was authorised to act, even if the principal and the purported agent had never discussed such a relationship. 

For example, where one person appoints a person to a position which carries with IT agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. If a principal creates the impression that an agent is authorised but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed “agency by estoppel” or the “doctrine of holding out”, where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.

8. Discuss in details about the various types of payout options granted by the Insurance Company of agents/ intermediaries. 


What are the methods or techniques of payout options for Insurance agents/ intermediaries? 

Ans: The methods or techniques of payout options are discussed below: 

Some types of insurance products, primarily those within the life insurance category, offer agents more than one choice of commission structures. Agents may choose a larger initial commission in exchange for a very small, or non-existent, residual trail, or a reduced up-front payout in exchange for a larger trail. Your ability to choose the payout structure of insurance commissions gives you the flexibility to control both your current and future income potential. 

(i) Overfunding Life Insurance: Another compensation aspect that is unique to life insurance agents involves permanent policies that are “overfunded,” wherein the total annual payment is more than what is required to maintain the coverage. When the total annual payments to a permanent life insurance contract exceed the necessary premium, most insurance companies will immediately send an additional commission payment to the sales agent that is equal to a small percentage of the overfunded amount, and will continue to send the extra commission every time an excess payment is made by the client. 

(ii) Monthly As-Earned: Some Types of insurance, typically health insurance and related employee benefit policies, pay sales agents a minimal up-front commission and continue to pay the same amount every month. This method of compensation is called “as-earned” and serves to protect the insurance carrier from paying larger up-front commissions on policies that may not remain in force for the entire year. As-earned commissions are advantageous to the insurance sales agent because they can effectively create a regular monthly salary. 

(iii) Commission Scales: Insurance companies pay different commission amounts and percentages based on the level of production from each agent. Each carrier has its own commission scale and requirements for achieving higher levels of compensation. Those agents who submit more new business and acquire clients with larger policies than other agents are rewarded for their success with increased commission percentages. Most insurance companies require agents to maintain a certain level of sales and production to continue receiving these increased commission percentages, and will decrease compensation lower amounts if quotas and other criteria are not met.

(iv) Bonus Tripes: Agents who meet or exceed predefined sales goals and production quotas can qualify for luxurious vacations and tripes to exotic resorts around the world. Almost every insurance company offers these trips to sales agents, and the estimated value of the vacation is included in the agent’s annual 1099 income statement. Many carriers will pay this amount to any sales agent who qualified for the trip but did not actually go on the vacation. 

9. Discuss in details about the classification of Agents. 

Ans: The classification of agents can be categorised into two parts. These are explained below: 

(i) Classification based on the extent of their authority:

(a) General Agents.

(b) Special Agents.

(c) Universal Agents.

(ii) Classification based on the nature of work performed: 

(a) Mercantile Agents.

(b) Non-mercantile Agents (advocates, wife, etc.)

(i) Classification based on the extent of their authority: 

(a) General Agent: A general agent is one who has the authority to do all acts connected with a trade, business or employment such as solicitor, broker, and commission agents. For instance, a managing director of a Company may have an implied authority to bind the company by doing anything necessary for carrying out the business of the company in ordinary course.

(b) Special Agents: A special agent is one who is appointed to do a particular act. He represents his principal in some particular transaction. E.g. an agent employed to sell a piece of land or to bid at an auction. As soon as the particular act is performed, his authority comes to an end. A special agent has no apparent authority beyond the limits of his appointment and the principal is not bound by his acts exceeding those limits whether the aggrieved party has its knowledge or not. Thus a person dealing with such agent should make due enquiries from the principals to the extent of his authority. 

(c) Universal Agent: A universal agent is an agent who is authorised to do all the acts, which his principal can lawfully do under the provisions of the law of the land. Thus, he enjoys extensive powers where his authority is unlimited.

(ii) Classification based on the nature of work performed: 

(a) Mercantile Agent: Section 2 (9) of the Sale of Goods Act, defines the term ‘Mercantile Agent’ as an agent who has the authority to sell the goods or to consign the goods for the purpose of sale or to buy the goods or to raise the money on the security of the goods on behalf of his principal. Thus a Mercantile Agent deals with buying or selling of goods.

(b) Non Mercantile Agents: Persons in this category are advocates, spouse, and attorneys.

10. What are the factors that intermediaries bring to the insurance market place? 

Ans: There are several factors that intermediaries bring to the insurance marketplace that help to increase the availability of insurance generally: 

(i) Innovative marketing: Insurance Intermediaries bring innovative marketing practices to the insurance marketplace. This depends and broadens insurance markets by increasing consumers’ awareness of the protections offered by insurance, their awareness of the multitude of insurance options, and their understanding as to how to purchase the insurance they need.

(ii) Dissemination of information to consumers: Intermediaries provide customers with the necessary information required to make educated purchases/informed decisions. intermediaries can explain what a consumer needs, and what the options are in terms of insurers, policies and prices. Faced with a knowledgeable client base that has multiple choices, insurers will offer policies that fit their customer’s needs at competitive prices.

(iii) Dissemination of information to the market place: Intermediaries gather and evaluate information regarding placements, premiums and claims experience. When such knowledge is combined with an intermediary’s understanding of the needs of its clients, the intermediary is well-positioned to encourage and assist in the development of new and innovative insurance products and to create markets where none have existed.

(iv) Sound Competition: Increased consumer knowledge ultimately helps increase the demand for insurance and improve insurance take-up rates. Increased utilisation of insurance allows producers of goods and services to make the most of their risk management budgets and take advantage of a more competitive financial climate, boosting economic growth.

(v) Spread insurers’ risks: Intermediaries help insurers in the difficult task of spreading the risks in their portfolio. Intermediaries work with multiple insurers,a variety of clients, and, in many cases, in a broad geographical spread. They help carriers spread the risks their portfolios according to industry, geography, volume, line of insurance and other factors. This helps insurers form becoming over-exposed in a particular region or a particular type of risk, thus freeing precious resources for use elsewhere.

(vi) Reducing costs: By helping to reduce costs for insurers, broker services also reduce the insurance costs of all undertakings in a country or economy. Because insurance is an essential expense for all businesses, a reduction in prices can have a large impact on the general economy, improving the overall competitive position of the particular market.

(vii) Search costs: Intermediaries reduce the search costs to insurance buyers looking for the right coverage and the right insurer for their risks, and they reduce sales and marketing costs to insurance companies in search of insurance buyers.

Intermediaries know the insurance market place. They know their clients’ risks; they know the insurers willing to cover those risks; and they know the best way to secure that coverage.

(viii) Self-insurance: Self-insurance can take Many forms. Policyholders can assume higher deductibles or accept lower amounts of insurance coverage. Self insurance programme, however must be carefully balanced with a managed loss control program to minimise the exposure a business faces and to protect third parties that are injured. That is where skilled intermediaries come in-to act as consultants in designing programs.

11. What do you mean by insurance brokers? Explain the procedure for cancellation of Insurance Broker License.

Ans: An insurance broker is a professional who acts as an intermediary between a consumer and an insurance company, helping the former find a policy that best suits their needs. Insurance brokers represent consumers, not insurance companies; therefore, they can’t bind coverage on behalf of the insurer.For example, a broker offering personal lines of insurance can usually help their clients get home, car, life, and travel insurance. A commercial insurance broker would specialize in the insurance needs of businesses rather than individuals.

Procedure for cancellation of Insurance Broker License:

(i) The authority shall issue a final order for cancellation of insurance broker licence and the insurance broker shall cease to act an insurance broker from the date of the final order.

(ii) A notification of cancellation of licence shall be made through newspapers-one English and one local language and the same shall be displayed on company’s website. 

(iii) The authority has the power to dispose of the deposit of the insurance broker in such a case. 

(iv) An insurance broker whose licence has been cancelled shall continue to service contracts already concluded through him for a period of six months from the date of cancellation of registration within which suitable arrangements shall be made to for having the contracts attended by another insurance broker.

(v) The insurance broker who undertakes to service the contracts from the insurance broker whose licence has been cancelled shall submit an application of request to the insurer to for serving the contracts through the term.

(vi) Only after obtaining approval for take-over of obligations of policy service from the insurer can the registered insurance broker collect Remuneration on current contracts in vogue with prospective effect from the date of service of the contracts. 

The insurer broker whose licence has been cancelled shall pay Remuneration to Contracts in vogue with prospective effect from the date of allotment of service of the contacts to the insurance broker to whom the insurer has given the authority.

12.  When Agency termination takes effect? Discuss in details about the Termination of Agent Appointment.

Ans: Termination of an agency takes its effect when it becomes known to an agent. When the principal revokes the agency, it comes into effect only when it is known to the agent. However, in the case of third parties, termination comes into effect only when such termination of agency comes to their knowledge.

According to Section 210 of the Indian contract Act, 1872 termination of an agent’s authority also terminates the sub-agents authority appointed by the agent. As per Section 209 of Indian contract Act, 1872 it is the duty of an agent to protect his principal’s interest in case his principal becomes of unsound mind or dies. 

It is the duty of an agent that on the termination of an agency due to death of the principal or his becoming insane, to take all the reasonable steps on behalf of his late principal or dying principal to protect the internet that the latter entrusts to him. 

Termination of Agent Appointment: 

(A) Termination of Agency by Act of the Parties: An agency can be terminated by the Act of the parties in any one of the following ways.

(i) Mutual Agreement: The agency may be terminated at any time and at any stage by the mutual agreement between the principal and his agent. Therefore, the authority of an agent terminates, when the principal and the agent agree to terminate it. 

Example: A appointed B, as his agent in order to collect the loan lent to C and D.B collected the loan lent to C. Subsequently, A and B agreed to put an end to the agency relationship between them. Here the agency is terminated. 

(ii) Revocation of the Agent’s Authority by the Principal: The principal may revoke the authority of his agent before it has been exercised by the agent so as to bind the principal.

Example: A appointed D, as his agent to purchase certain goods. Any time before, he purchases the goods, A may revoke D’s authority. However, the revocation of agent’s authority is subject to the following conditions:

(a) If the agent has exercised his authority partly, the principal may revoke the agency for future acts only. 

(b) If the agency is created for a fixed term and if there is some sufficient cause, the principal may revoke it before the expiry of the said term.

(c) If the agency is created for a fixed period or continuous, the principal must give a reasonable notice of revocation of agency to the agent.

(d) If the agent has some interest in the subject-matter, the agency can be revoked only when there is an express contract permitting the termination.

(iii) Revocation by the Agent: Agent, after giving a reasonable notice to the principal, may renounce the business of agency. If the contract of agency is entered into for a fixed period, agent should pay compensation to the principal for the earlier renunciation of the business of agency.

(B) Termination of Agency by Operation of Law: An agency can be terminated by operation of law in any of the following cases:

(a) Performance of the Contract: When the agency is for a particular object, the agency terminates when the object is fulfilled.

(b) Expiry of Time: When an agency is created for a particular period of time, it comes to an end on the expiry of that period even if the work is not completed.

(c) Death or Insanity of Either Party: The agency is terminated when the agent or principal dies or becomes insane. On the death of either the agent or the principal, the agency is automatically terminated because a person cannot act on behalf of non-existent person. Thus, where a client dies, his pleader’s authority also terminates. Similarly, the relationship between agent and principal comes to an end when principal or agent becomes insane, for a person of unsound mind cannot contract.

(d) Insolvency of the Principal: When the principal is declared as insolvent, the agency is terminated. This is because the insolvent is disqualified from entering into contract in respect of his property.

(e) Destruction of Subject-Matter: When the subject-matter in respect of which agency was created has been destroyed, the agency is terminated. Thus, if an agent is asked to sell a house, and the house is destroyed by fire, there is a cessation of the agency.

(f) Principal becoming an Alien Enemy: When the war breaks out between the countries of the principal and the agent, the contract of agency is terminated.

(g) Dissolution of a Company: When a company, whether it is of principal’s or agent’s dissolved, the contract of agency between them comes to an end.

(h) Termination of Sub-Agent’s Authority: The sub-agents authority is terminated automatically, as and when the authority of the agent is terminated.

(i) Subsequent event Rendering the Agency Unlawful: It maybe that an act is lawful when the agency was created but if it is declared by law to be unlawful subsequently, agency cannot continue, as that would be unlawful. An agency that is lawful may become unlawful due to declaration of war when the principal or agent is deemed an alien enemy.

13. Discuss the various code of conduct to be followed by insurance agent?

Ans: The following are the code of conduct which must be followed by insurance agent under the licensing of Insurance Agents. 

Every person holding a licence, shall adhere to the code of conduct specified below:

(i) Every insurance agent shall-

(a) identify himself and the insurance company of whom he is an insurance agent.

(b) disclose his licence to the prospect on demand.

(c) disseminate the requisite information in respect of insurance products offered for sale by his insurer and take into account the needs of the prospect while recommending a specific insurance plan. 

(d) disclose the scales of commission in respect of the insurance product offered for sale, if asked by the prospect.

(e) indicate the premium to be charged by the insurer for the insurance product offered for sale.

(f) explain to the prospect the nature of information required in the proposal form by the insurer, and also the importance of disclosure of material information in the purchase of an insurance contract.

(g) bring to the notice of the insurer any adverse habits or income inconsistency of the prospect, in the form of a report (called “Insurance Agent’s Confidential Report”) along with every proposal submitted to the insurer, and any material fact that may adversely affect the underwriting decision of the insurer as regards acceptance of the proposal, by making all reasonable enquiries about the prospect.

(h) inform promptly the prospect about the acceptance or rejection of the proposal by the insurer.

(i) obtain the requisite documents at the time of filing the proposal form with the insurer; and other documents subsequently asked for by the insurer for completion of the proposal.

(j) render necessary assistance to the policyholders or claimants or beneficiaries in complying with the requirements for settlement of claims by the insurer.

(k) advise every individual policyholder to effect nomination or assignment or change of address or exercise of options, as the case may be, and offer necessary assistance in this behalf, wherever necessary.

(ii) No insurance agent shall,–

(a) solicit or procure insurance business without holding a valid licence.

(b) induce the prospect to omit any material information in the proposal form.

(c) induce the prospect to submit wrong information in the proposal form or documents submitted to the insurer for acceptance of the proposal.

(d) behave in a discourteous manner with the prospect.

(e) interfere with any proposal introduced by any other insurance agent.

(f) offer different rates, advantages, terms and conditions other than those offered by his insurer.

(g) demand or receive a share of proceeds from the beneficiary under an insurance contract.

(h) force a policyholder to terminate the existing policy and to effect a new proposal from him within three years from the date of such termination.

(i) have, in case of a corporate agent, a portfolio of insurance business under which the premium is in excess of fifty percent of total premium procured, in any year, from one person (who is not an individual) or one organisation or one group of organisations.

(j) apply for fresh licence to act as an insurance agent, if his licence was earlier cancelled by the designated person, and a period of five years has not elapsed from the date of such cancellation.

(k) become or remain a director of any insurance company.

(iii) Every insurance agent shall, with a view to conserve the insurance business already procured through him, make every attempt to ensure remittance of the premiums by the policyholders within the stipulated time, by giving notice to the policyholder orally and in writing.

14. What are the practices defined as unfair in the business of insurance.

Ans: The following are defined as unfair methods of competition and unfair and deceptive  acts or practices in the business of insurance: 

(i) Misrepresentation and false advertising of insurance policies, misrepresent the benefits, advantages, conditions or terms of any insurance policy.

(ii) False information and advertising generally: Making publishing, dissemating, circulating or placing before the public, or causing directly or indirectly to be made, published, placed before the public, or in the form of a notice, which is untrue, deceptive or misleading.

(iii) Defalmation: Making, publishing, disseminating or circulating, directly or indirectly, or aiding, abetting or encouraging the making, publishing, or written statement which is calculated to injure any person engaged in the business of insurance.

(iv) Boycott, coercion and intimidation: Entering into any agreement or commit, or by any concerted action committing any act of boycott, coercion or intimidation resulting in or tending to result in unreasonable restraint of or monopoly in the business of insurance.

(v) Misrepresentation in insurance applications: Making false or fraudulent statements or representations on or relative to an application for an insurance policy for the purpose of obtaining of fee, commission, money or other benefit from any insurer producer or individual.

(vi) False financial statement: Filling with any supervisory or other public official or making, publishing, dissenminating, circulating or delivering to any person, or placing before the public or causing directly or indirectly, any false statement of financial condition of an insurer with intent to deceive, or making any false entry in any book etc.

(vii) Failure to maintain complaint handling procedures: Failure of any person to maintain complete record of all the complaints which it has received since the date of its last examination. This record shall indicate the total no. of complaints, their classification, the nature of each complaint, the time it took to process each complaint etc.

(viii) Refusing to insure: Refusing to continue to limiting the amount, extent or kind of coverage available to an individual or charging an individual a different rate for the same coverage because of physical disability or mental retardation etc.

(ix) Insurance as inducement to purchase: No person shall directly or indirectly participate in any plan to offer or any kind or kinds of life or health insurance or annuities as an inducement to or in connection with the purchase by the public of any goods, securities, commodities, services or subscriptions to periodicals.

(x) Failure to respond to regulatory inquiries: No person shall, with such frequency as to indicate a general business practice, fail to provide preliminary substantive responses to inquiries from the department of insurance regarding the denial of claims, cancellation, non-renewal or refusal of benefits, or violation of this title within 21 calendar days of such inquiry.

15. Difference between insurance broker and insurance agent.


Insurance brokerInsurance Agent
Brokers search for policies from multiple different carriers.Agents sell policies from one or more of the insurance providers that they represent.
Represents their clients, does not sell insurance.Represents the insurance company and sells insurance.
Can help you shop for and compare plans from multiple providers.Can help you shop for plans from a single or a few providers.
Brokers typically play more of an advisory role in finding coverage than agents, because brokers have a responsibility to represent the best interests of the client.Agents explain the different insurance options and leave the decision up to the client.
It is generally free to consumers, but may charge broker fees.It is generally free to consumers.
Brokers examine several policies and recommend certain coverages from different companies.But then must turn to an agent or an insurance provider to have a selected policy bound to a client.

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