Rebating–An illegal practice - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Rebating–An illegal practice

Jul 11, 2001

For years insurance was sold on with the rebating carrot, where the agent would part with a part of his commission or pay the first premium for the customer. However, clients need to realise that rebating isn’t such a great thing after all. But first the legal standpoint. Rebating is a malpractice, it has been explicitly declared to be an illegal act according to the Insurance Regulatory Development Authority (IRDA). Section 41 of the Insurance Act, 1938 states

  • No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the premium shown on the policy, nor shall any person taking out or renewal or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer.

  • Any person making default in complying with the provision of this section shall be punishable with fine, which may extend to five hundred rupees.

Professionals like chartered accountants, company secretaries and lawyers have all to follow a certain code of ethics, expecting them to keep in mind the interest of the client. On similar lines, IRDA regulated that the profession of an insurance agent should be carried out on similar ethical code, where the agent does not woo his customer by dangling the rebate carrot, but by providing him plans that suits his needs.

Turning down rebate works to the client’s benefit. Firstly the client gets a plan that meets his requirements instead of being ‘sold’ a plan that only gets the agent higher commissions. This ensures that the client gets a policy most apt for his security and retirement, incorporating other benefits, even if the policy does not fetch the agent with the kind of commission he would like to receive.

Another reason rebating isn’t such a great thing is that if the agent has paid the first year’s commission, it leaves the client feeling detached and there is no sense of ownership of the policy. There is a lull in the mind of the investor and when the next year’s premium has to be paid, he could default leading to lapsation of policy. Insurance instills a sense of discipline in the mind of the investor, but that is only if the client actually pays the commission, not his agent.

So the next time your agent offers you a rebate, you need to ask yourself if the rebate is really going to benefit you, or is it going to benefit him.

  • If you are in Mumbai and want to meet with our representative to discuss your insurance needs, please fill in this registration form and we will get in touch with you.

  • Equitymaster requests your view! Post a comment on "Rebating–An illegal practice". Click here!

      

    More Views on News

    THE NEW INDIA ASSURANCE Announces Quarterly Results (1QFY22); Net Profit Down 65.3% (Quarterly Result Update)

    Aug 16, 2021 | Updated on Aug 16, 2021

    For the quarter ended June 2021, THE NEW INDIA ASSURANCE has posted a net profit of Rs 983 m (down 65.3% YoY). Sales on the other hand came in at Rs 68 bn (up 12.4% YoY). Read on for a complete analysis of THE NEW INDIA ASSURANCE's quarterly results.

    Steep Rise in Claims Hurt HDFC Life's June Quarter Profit (Views On News)

    Jul 20, 2021

    HDFC Life is anticipating claims to stay elevated in the coming quarter with the threat of a third wave.

    GIC Share Price Gains After Company Swings Back to Profit (Views On News)

    Jun 30, 2021

    Shares of GIC surged over 3.5% after posting strong financial results.

    LIC IPO: All We Know So Far (Views On News)

    Aug 23, 2021

    The upcoming LIC IPO is so huge that it may be split into two parts.

    HDFC Life Insurance Reports 2% Rise in Net Profit for the Fourth Quarter (Views On News)

    Apr 27, 2021

    Key takeaways from HDFC Life Insurance Q4FY21 results.

    More Views on News

    Most Popular

    Infosys vs TCS: Which is Better? (Views On News)

    Nov 26, 2021

    In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

    6 Popular Stocks that Turned into Penny Stocks (Views On News)

    Nov 27, 2021

    A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

    India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

    Nov 30, 2021

    These 5 companies dominate their sectors with a huge piece of the pie.

    6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

    Dec 6, 2021

    These penny stocks shed their penny status by surging 1,000% or more in the last one year.

    The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

    Nov 26, 2021

    How India's EV transition could be a major headwind for the incumbents.

    More

    Become A Smarter Investor
    In Just 5 Minutes

    Multibagger Stock Guide 2022
    Get our special report Multibagger Stocks Guide (2022 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    MARKET STATS