Case Study - 4

Insured had paid premium of LIC Policy for two years
L.I.C. OF INDIA vs Ram Narayan Yadav

Llife assured had a policy of Rs.5,00,000/-. He paid premium for two years. For the third year, the life assured had issued a cheque, which stood dishonoured and returned with the remark “signing partner reported dead”. Anil Kumar Yadav died on 27.08.1992, therefore, the policy was in lapsed condition due to non-payment of third premium. The petitioner allowed the claim of 50% of the sum assured in terms of Clause 4.2 (b) of the Policy Servicing Manual No.11. Respondent had received a sum of Rs.2,18,000/-. Petitioner had agreed before the State Commission that it is prepared to pay the balance amount of Rs.31,440/- which had been wrongly deducted by it to make it to 50% of the assured amount. The payment of 50% of the assured amount was an ex-gratia payment, although under the policy, the petitioner was not obliged to make any payment as the policy had lapsed. According to us, the Foras below had clearly erred in allowing the claim under the policy in its entirety.

“4.2 Relaxation in the matter of Death Claim under Policies where Premiums paid for full two years.

• If the death of the Life Assured were to occur after expiry of Days of Grace but within three months of the due date of the first unpaid premium, consideration of claim to the extent of the full Sum Assured together with the declared bonuses subject to recovery of the unpaid premiums.
• If the death of the Life Assured were to occur between three and six months of the due date of the first unpaid premium, consideration of claim to the extent of half the Sum Assured; and
• If the death of the Life Assured were to occur between six months and one year of the due date of the first unpaid premium, consideration of claim to the extent of a proportionate notional paid-up value on the basis of actual premiums paid.”

Claim Paid: In the judgement, the orders passed by Foras below for payment of full sum insured were set aside and the claim was limited to half of the sum assured, i.e., Rs.2,50,000/-.and the petitioner was directed to remit the balance sum of Rs.31,440/- to the respondent, if not already paid.