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Anandrao Ramchandra Salunke v. Life Insurance Corporation of India

Civil Appeal · 2019 INSC 328Decided 7 Mar 2019
Civil Appeal No. 2568 of 2019
Dr. Justice D.Y. Chandrachud · Justice Hemant Gupta

Background

The appellant took a 25-year LIC life insurance policy in 1993 for a sum assured of Rs 75,000, paying quarterly premiums. After paying premiums for about 7 years 9 months and taking a policy loan of Rs 15,000, he stopped paying premiums and sought the surrender value. LIC calculated and paid him only Rs 2,268 after loan deductions, applying a "surrender value factor" of 32.92% to both the paid-up value and the vested bonus. The District Consumer Forum and the State Commission ruled in the appellant's favour, holding he was owed a larger sum (Rs 29,888), but the National Consumer Disputes Redressal Commission reversed this, prompting the appellant's appeal to the Supreme Court.

Decision Breakdown

The core dispute was whether the appellant was entitled to the full value of his vested bonus or only its discounted "surrender value" under Section 113 of the Insurance Act, 1938 and Condition 7 of the policy. The Court explained that a life insurance surrender value is never equal to the full premiums paid, since premiums build a collective reserve/fund shared across policyholders, and surrendering early only entitles a holder to a share of that reserve, not full premium return. The Court found LIC's methodology, applying the actuarially-approved 32.92% surrender value factor to the total paid-up value (premiums paid plus vested bonus), was consistent with the approved formula under the LIC Regulations, 1959 and with Section 113 and Condition 7 of the policy. Finding no error in LIC's computation, the Supreme Court held there was no merit in the appeal and dismissed it, with no order as to costs.

Lesson Learnt

A life insurance policyholder who surrenders a policy before maturity is only entitled to a proportionate "surrender value" (both on premiums and on any vested bonus) as calculated by an insurer-approved actuarial formula, not the full premiums paid or the full bonus that would have accrued had the policy run its full term.

Official source (sci.gov.in)View Judgment (PDF)

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