Pay insurance premium in time

FOR any insurance policy, timely payment of the premium is a must or else the policy will lapse. But there have been many cases where policyholders or nominees have failed to get the insured amounts only because someone who promised to pay the premium on their behalf, failed to do so. This someone could be a bank which has financed a vehicle (in the case of vehicle insurance), or even an employer in the case of small savings scheme.

Unfortunately, in both types of cases, the Supreme Court has held that the affected person cannot get relief. In the case of vehicle insurance, the Supreme Court pointed out that Section 146 of the Motor Vehicles Act makes it obligatory on the part of the owner of a vehicle to take an insurance policy covering third party risk. Similarly, driving a vehicle without obtaining such an insurance policy is punishable under Section 196 of the Act.

Therefore, the vehicle owner has a responsibility to ensure that the vehicle has a mandatory third party insurance and even if the bank has promised to pay the premium, he has a responsibility to ensure that it is done and the insurance is valid. So he cannot put the blame entirely on the bank and say that the bank has to indemnify the loss (Pradeep Kumar Jain vs City Bank).

Similarly, there have been cases where the employer has failed to pay the insurance premium for policies taken under the salary savings scheme, resulting in the lapsing of the policy and denial of insured amount to the widow on the death of the employee. Under the SS scheme, the employer deducts every month from the salary, the premium amount and remits it to the insurance company.

Here again, in the case of the state of Orissa vs Divisional Manager, LIC, and another, the Supreme Court held that first of all, the service provided by the employer (in paying the premium) to the employee comes under a ‘contract of personal service.’ Second, this service is rendered free by the employer. Since both ‘personal service’ and ‘free service’ attract the exclusion clauses in the Consumer Protection Act, no relief can be given by courts in such cases.

As a result, in many cases where the employer had failed to pay the premium and the policy had lapsed, the widow of the deceased employee found herself cheated of the insured amount and the courts could not direct the employer to indemnify her loss.

Now, in another similar case, the national commission has held the LIC guilty of not keeping the insured informed of the default on the payment of premium. At the same time, the Railways, as the employer, were also guilty of failing to credit the premium even when the computer mistake came to its light. So each has been asked to pay Rs 85,000, along with interest and costs to the widow (The Divisional Personal Officer, South Central Railways, vs Thollabandi Nagalakshmi, RP No 3333 of 2010, decided on January 13). Here, the complainant’s husband had taken two LIC policies in1998. The Railways were to deduct the premium from his salary and pay LIC. However, in 2002, following her husband’s death, her insurance claim was rejected on the ground that seven instalments of premium on each of the two policies had not been paid for three years.

One has to see how the Supreme Court will respond to the second part of the national commission’s order, directing the employer (Railways) to pay.

Whatever the eventual outcome, this order should force insurance companies to take their responsibility towards timely collection of the premium amount more seriously. This applies to employers, too. Having said that, I would still advise all those who take insurance policies under the salary savings scheme (or any other policy for that matter) to always make sure that the premium is paid without fail and without any delay.

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