Revive policy or accept surrender value

The National Commission noted that if the policyholder wanted reinstatement, he should have made a written request and cleared the premiums

Neeraj Kumar obtained a whole-life unit-linked insurance policy from PNB MetLife India. Under the policy called “Met Smart Plus Policy”, which Kumar purchased, his son was insured for Rs 1.75 crore. The policy had a term of 93 years for which the premium was Rs 5 lakh per annum.

The policy commenced on September 27, 2007, and Kumar paid Rs 15 lakh over three years as premium. From the fourth year onwards (from 2010), he stopped paying the annual premium.

On October 31, 2013, Kumar was informed that the policy had been terminated as the renewal premium had not been paid after September 27, 2010. He was paid Rs 13,91,553.54 as foreclosure proceeds.

Kumar was surprised that the policy had been terminated without issuing any notice or an opportunity to apply for reinstatement. So, he filed a complaint before the National Commission seeking a direction to the insurer to continue the policy without demanding any more premium.

He argued that a policy commencing at the age of 8 years with a term of 93 years with an annual premium of Rs 5 lakh was absurd as the policy would go beyond the life expectancy of the policyholder and the cumulative premium would exceed Rs 4.5 crore.

The insurer argued that the terms of the policy provided for surrender or withdrawal benefits after three years, so the payment made was correct and in accordance with the terms of the policy.

Kumar, on the other hand, claimed that merely because he failed to pay the premium, the policy could not be terminated without notice, as the policy conditions provided for reinstatement. He argued that the termination of the policy without notice was illegal and unjustified.

The National Commission agreed with the insurer’s explanation. It pointed out that the policy terms provided an option to surrender the policy for withdrawal benefits after three years. The National Commission further noted that if the policyholder wanted reinstatement, he should have made a written request and should have also cleared the premium till that date, but no such request had been made.

The Commission observed that Kumar was not a lay consumer, but was well-educated and working as the chief executive of Jindal Saw, so he should have abided by the terms of the policy. However, having failed to do so, the Commission concluded that Kumar could not be allowed to claim a right to reinstatement of the policy.

In its order of May 27, 2024, delivered by Justice A.P. Sahi, the National Commission noted that the annualised premium paid over three years was Rs 15 lakh, while the insurer had computed the gross surrender value at Rs 16,16,273.54 (Rs 2,24,720 deducted as surrender charge). Accordingly, it concluded that there was no merit in the complaint and dismissed it with the observation that the payment made by the insurer was correct and in consonance with the terms of the policy.

The writer is a consumer activist