| Life Insurance Corporation of India (LIC) is in another legal soup, this time on overcharging of fees for assignment of insurance policies.
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| LIC is already facing two legal suits over not allowing assignments for trading and lending in ealrier insurance policies.
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| The petitioner in the present case is Dravia Finance, an NBFC owned by Ketan B Mehta, the person who won both the ealrier cases in the Bombay High Court against LIC over the same issue.
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| Assignment or transfer is a method by which a policyholder can transfer his rights and benefits in the life insurance policy to another entity.
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| The assignee entity can be a family member, relative, friend, a lending institution like a bank or a non-banking finance company (NBFC).
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| The case has been filed in the Bombay High Court on grounds that Section 38 of the Insurance Act does not permit any insurer to exceed a fee of Re 1 for an assignment.
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| However, LIC has been charging a fee of Rs 250 for an assignment since 2006. Prior to 2006, the assignment fee being Re 1 was waived by LIC.
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| Ketan Mehta has also made the Insurance Regulatory ad Development Authority of India (Irda) a respondent in the petition as it failed to take action against LIC.
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| Policyholders mostly use their policies as a collateral and assign them to banks, NBFCs and other financial institutions to avail of loans from them. The fees are borne by the policyholder.
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| Says Ketan Mehta, director, Dravia Finance Company, “The affected parties are small-time policyholders. Private insurance companies do not charge more than Re 1 for assignment as the Insurance Act does not permit any insurer to do so. Also a point noteworthy is that if the policyholder takes a loan from LIC, his assignment fees are waived off, which is like creating a monopolistic situation.”
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| LIC has responded that since costs have gone up tremendously, they had to increase the fees. Differs Mehta, “Ideally, insurance companies recover all the cost in the first three years of the policy. LIC sells more than 3 crore policies every year. Due to large volumes, the cost per policy has gone down tremendously and therefore LIC in 2004 increased the surrender value by way of giving credit to bonuses accrued to the policyholder from third year onwards, which was earlier done from the fifth year onwards.”
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| LIC and Irda officials refused to comment.
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| According to Mehta around three lakh assignments happen every year.
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| The Insurance Act of 1938 states, “Upon the receipt of the notice regarding assignment, the insurer shall record the fact of such transfer or assignment together with the date thereof and the name of the transferee or the assignee and shall on the request of the person by whom the notice was given, or of the transferee or assignee on payment of a fee not exceeding one rupee grant a written acknowledgement of the receipt of such notice and any such acknowledgement shall be conclusive evidence against the insurer that he has duly received the notice to which such acknowledgement relates.” |
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