The statutory rule and why it lands on the broker
Section 64VB of the Insurance Act, 1938 states the principle that governs every commercial placement: an insurer shall not assume risk unless the premium is received in advance, or guaranteed to be paid, before the date of assumption of risk. Cash before cover, in plain terms.
The rule reads as an insurer obligation, but in practice a broker carries it. The broker collects premium from the client, advises on when cover can attach, and remits to the insurer. Every link in that chain is a point where the section can be breached, and a breach is not a paperwork lapse, it goes to whether cover existed at all when a loss occurred.
That is why premium-receipt discipline is an operations problem, not an accounts problem. The team that books premium, issues cover notes and chases remittance is the team deciding, day to day, whether the client is actually on risk. A broker that treats 64VB as a back-office formality is one declined claim away from an errors-and-omissions exposure of its own.
Cover-note timing and ascertainable premium
The timing rule turns on whether the premium can be worked out in advance. Where the premium can be ascertained in advance, the risk may be assumed only from the date the premium is paid in cash or by cheque to the insurer. The date of payment, not the date of the proposal or the cover note, sets the start of cover.
For a broker this has a direct operational consequence: a cover note or a confirmation of cover must not state an inception earlier than the moment premium was actually paid to the insurer. Backdating inception to a proposal date, or to oblige a client who needs cover from the first of the month, creates a gap the section will not forgive.
Payment instruments and the dishonoured-cheque trap
Not every form of payment carries the same risk, and the instrument the client uses changes the operational care required.
- Electronic transfer. A confirmed credit gives a clean, timestamped receipt and is the cleanest basis for attaching cover.
- Cheque. A cheque is payment for 64VB purposes when given, but it is conditional on the cheque clearing.
- Guarantee arrangements. Where premium is guaranteed to be paid by an approved mechanism, cover can attach on the guarantee, subject to the arrangement's terms.
The cheque is where files come undone. If a premium cheque is dishonoured, the insurer is deemed not to have assumed the risk, which makes a bounced cheque a coverage event, not merely a recovery problem.
The operational guard
A broker should track every premium cheque to clearance and treat the period before clearance as provisional rather than settled. If a cheque bounces, the client must be told at once that cover is in question and the position must be regularised before anyone relies on the policy. A dishonoured cheque discovered only at claim stage is the recurring source of these disputes.
The broker as conduit and the remittance duty
When a broker collects premium, it does so as a conduit, and that role carries its own timing discipline. Insurance brokers must remit collected premium to insurers within the timelines prescribed under the IRDAI (Insurance Brokers) Regulations, 2018. Holding client premium beyond the permitted window is a regulatory breach, and it also risks the 64VB position if the insurer has not received what it needs to treat risk as validly assumed.
The practical controls are unglamorous and decisive. Premium collected from clients should sit in the correct client-money arrangement and not be mingled with the broker's own funds. Each receipt should be reconciled to the policy it belongs to, so remittance is traceable instrument by instrument rather than as a lump. Remittance to the insurer should run on a calendar that respects the regulatory window, not on whenever the accounts team gets to it.
The link back to cover is the point that operations teams sometimes miss: late or untraceable remittance is not only a compliance slip, it can leave the insurer unable to confirm that premium was received before risk attached, which reopens the very question 64VB is meant to settle.
Co-insurance and bank-guarantee mechanics
Large commercial risks are often shared, and the premium chain gets longer when several insurers are on the same placement. In co-insurance the lead insurer receives premium on behalf of all co-insurers and is to settle each co-insurer's share within 21 days of receipt, including where a bank guarantee is used in place of upfront cash.
That creates two things a broker must track. First, the lead insurer's receipt of premium is the event that matters for the whole panel, so the broker should confirm the lead has been paid rather than assume each follower has. Second, where a bank guarantee substitutes for cash, the guarantee is the mechanism by which premium is treated as secured, and its terms and validity have to be live and monitored, not filed and forgotten.
A premium-receipt control checklist for the operations team
The discipline reduces to a short set of controls the premium-handling team should run on every commercial placement.
- Set inception to the premium-receipt date. Never confirm cover from a date earlier than premium was paid to the insurer.
- Track cheques to clearance. Treat the pre-clearance period as provisional and act immediately on any dishonour, telling the client cover is in question.
- Reconcile receipts to policies. Keep client premium in the correct client-money arrangement, unmingled and traceable instrument by instrument.
- Remit within the regulatory window. Run remittance on a calendar that respects the IRDAI brokers regulations, not on the accounts team's convenience.
- Watch the co-insurance chain. Confirm the lead insurer's receipt, the 21-day settlement of follower shares, and every bank-guarantee validity date.
Run together, these controls keep the answer to the only question that matters at claim stage clear: was the client validly on risk when the loss occurred.
Getting that answer right also depends on reading how each insurer's wording treats premium warranties, instalment conditions and premium-payment clauses, because those vary across the market. Sarvada gives commercial insurance brokers structured, searchable access to insurer policy wordings and the intelligence around them, so premium-handling teams can tie their 64VB discipline to the exact contractual terms in play. Request Access to build that precision into your premium operations.
