NDLI: Anandrao Ramchandra Salunke Vs. Life Insurance Corporation of India & Anr.

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Life Insurance Policies Mortality rates increase with age 1938 Insurance Act Method of computation s.113 ”Surrender Value”
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Act(s) Referred	Insurance Act, 1938 (4 of 1938)
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Dismissed
Headnote	Insurance Act, 1938 – s.113 – Life Insurance Policies – ”Surrender Value”– Appellant obtained life insurance policy in November, 1993 – Sum insured was Rs.75,000/- – Term of the policy was twenty five years – Policy envisaged the payment of quarterly premium of Rs 775/-, spread over hundred quarters during the term of the policy – Last premium was payable in August, 2018 and the policy was to mature in November, 2018 – In 2001, the appellant took loan of Rs.15,000/- by pledging the policy – In August, 2001 the appellant stopped paying the premium and applied for the refund of the surrender value – Corporation offered surrender value of Rs.2268/-, after deducting the loan amount and outstanding interest – Complaint filed by the appellant – Allowed by the District Consumer Forum and State Commission – Reversed by National Commission – On appeal, held: There are popular misconceptions about the concept of ‘surrender value’ in the sphere of life insurance – In a policy of fire insurance, a policy holder has no expectation of a surrender value – In contrast, a holder of a policy of life insurance may believe (as the appellant in the present case) that their surrender value will be equal to the total amount paid as premium – This expectation is misconceived – Life insurance operates on the basis of the law of averages – Premium is collected from all policy holders in order to create a common fund – Payouts from the fund are received only by those who suffer the peril which is insured – Premia are fixed by the insurer on the basis of expected mortality rates – Mortality rates increase with age – Hence, when an insurer initially collects premium from individuals of a younger age, the amount it collects is higher than the amount it pays out towards claims – Difference between them is the ‘reserve’ – Thus if a policy holder wishes to discontinue a policy before the end of the term, they will only be entitled to their share of the ‘reserve’ as a surrender value – Since the value of the ‘reserve’ is the amount which the insurer collects as premium from policy holders from which it deducts the amount of the claims it pays out, the surrender value payable to a policy holder can never be equal to the premia paid by them – Surrender value of the subsisting bonus attached to the policy cannot be the bonus which would have been payable had the policy continued to its full term – In deducting the surrender value of the bonus which was payable to the appellant, the respondent applied the surrender value factor of 32.92% to the total paid up value of the policy – Factor of 32.92% has been duly explained on the basis of the actuarial table governing surrender values – What was payable to the insured was computed after deducting the loan which was taken against the policy together with the outstanding interest – Method by which the computation was carried out was in accordance with the accepted and duly approved formula and was consistent with the provisions of s.113 of the 1938 Act as they stood at the material time as well as condition 7 of the policy document – Life Insurance Corporation Act, 1956 – s.49(2) – Life Insurance Corporation Regulations, 1959 – Regulation 18(2) . The appellant obtained life insurance policy in November, 1993. The sum insured was Rs.75,000/-. Term of the policy was twenty five years. Policy envisaged the payment of quarterly premium of Rs 775/-, spread over hundred quarters during the term of the policy. Last premium was payable in August, 2018 and the policy was to mature in Nov. 18. In 2001, the appellant took loan of Rs.15,000/- by pledging the policy. In August, 2001 the appellant stopped paying the premium and applied for the refund of the surrender value. The Corporation offered surrender value of Rs.2268/-, after deducting the loan amount and outstanding interest. Appellant filed complaint before the District Consumer Forum, which was allowed. The State Commission affirmed the said decision, which was reversed by National Commission in revision. Hence, the present appeal.
Judge	Hon'ble Dr. Justice D.Y. Chandrachud
Neutral Citation	2019 INSC 328
Petitioner	Anandrao Ramchandra Salunke
Respondent	Life Insurance Corporation Of India & Anr.
SCR	[2019] 5 S.C.R. 210
Judgement Date	2019-03-07
Case Number	2568

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