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LIC is a Social Welfare Institution

LIC penalized for dealing Insurance claim in a standard way

As per the law, Life Insurance Corporation of India is not a Private Company but a nationalized Corporation established as a social welfare institution. Apart from terms and conditions, the management of LIC should be prompt, efficient and in favor of the requirement of people.

Before rejecting any insurance claim, the management of LIC of India should bear in mind that it is easy to find out technical objections in any contract. However, endeavor of such social welfare institution should be to find out ways and means to do justice to the insured or his family members on the ground of social welfare.

In one of the cases, LIC of India vs Anuradha, the Hon’ble Supreme Court of India decided:

The Life Insurance Corporation is a social welfare institution, more so when it has been nationalized and the service  is not available in the private sector,  should think of devising a policy available in insurgency-afflicted regions which would take care of the insured and his family members in such areas. The insurance policies with terms and conditions suited to the requirements of people inhabiting insurgency – or militancy-affected areas need to be devised and propagated.

Similarly in another case LIC of India Vs. Smt. Asha Goel the Court observed and decided:

In course of time the Corporation has grown in size and at present it is one of the largest public sector financial undertaking. The public in general and millions of policyholders particularly look forward to prompt and efficient service from the organization. Therefore, the authorities should keep the credibility and reputation in mind, which depends on its prompt and efficient services. Therefore, the approach of the Corporation in such matters should be handled with extreme care.

An exemplary example of Moga (Punjab) has been quoted here, in which LIC, India rejected an Insurance Claim.

Mr. Ishwar Chand purchased a policy for himself. He paid the premium and got the receipt from LIC. Unfortunately, Mr. Chand passed away on 1st March,1998 in an accident. His wife filed the Insurance Claim.

Her claim was rejected because the Insurance Policy was not made effective and Mr. Chand passed away before the acceptance of proposal date hence his wife who was the Beneficiary – Consumer approached the District Consumer Disputes Redressal Commission, Moga (Punjab), by filing a Consumer Case.

Her complain was honored and the LIC had to pay her due amount along with the interest @10% per annum from the date Mr. Ishwar Chand’s demise. LIC also had to pay her a compensation of Rs.10,000 for harassment and Rs.2,000 for additional costs.

Further to that, LIC made an appeal before the State Consumer Disputes Redressal Commission, Punjab for the following points:

(i) As the proposal submitted by the deceased was not concluded till 1st March, 1998, i.e. on the date of the death of the insured, it cannot be held that the contract between the parties was concluded; and

(ii) The deceased did not disclose that he was a patient of diabetes and that he died due to ailment and not by accident.

Both these contentions were rejected by the Punjab State Commission. The State Commission observed that the proposal was accepted and the insurance policy was issued much before the death of the insured. Therefore, the contract was concluded and LIC had to complete the formalities within a reasonable time. With regards to the second contention, it was observed that there was no evidence on record that Mr. Chand died due to diabetes or natural death and not because of any accident.

The Hon’ble State Commission, Punjab dismissed the Appeal of LIC of India and denied their interference in the order, passed by the District Forum, Moga (Punjab).

The LIC of India again filed a Revision Petition before Hon’ble National Consumer Disputes Redressal Commission, New Delhi.

The Hon’ble National Consumer Disputes Redressal Commission, New Delhi again dismissed the revised petition after going through the decision of the Hon’ble Supreme Court of India.

Also, LIC of India was considered inefficient in their services and NCDRC penalized the organization an additional cost of Rs.10,000 payable to the wife of insured.

Let us all be empowered with our Consumer Rights like Mrs. Chand who was aware of her consumer rights.

Have you been a victim or suffered due to inefficient services of Life Insurance Corporation of India? Let us know. Pose your complaint on our Power to Consumer website today and help us spread the word.

cheated by insurance provider

Cheated by the Insurance Provider? Fight for your right!

There is a fundamental conflict of interest between the company and the customer. No wonder Life Insurance Corporation of India (LIC) is one of the richest organizations in India. “It should realize that it “survives and thrives” on consumer and “propensity to become unjustly rich by rejecting their claims” is highly depriciable,” the Delhi State Consumer Commission said.

This is a big scam to cheat the customers but regulators don’t have the will or political clout to stop them.

The root cause of the problem is — archaic laws which allow thousands of insurance claims to be unfairly rejected by insurance companies year after year. One of the reasons for routine rejection of motor, travel, household and health claims is an anomaly in the law, which puts the “duty of disclosure” on the policyholder. Accordingly a policyholder is expected to disclose not only things he or she has been asked for, such as medical conditions, but also things that they haven’t which could later turn out to be significant. This is the origin of dispute as an insurance company can legitimately reject a claim it was not informed by the insurer.

Both non-disclosure and misrepresentation are like weapons of offense in the law for the insurance companies to use against the consumers. For instance much to Rita Bhat’s dismay her critical illness insurance claim rejected. She had just been diagnosed ovarian cancer and needed the money but the insurance company rejected the claim because of a technical flaw in her initial application form. The insurance company kept insisting that it was a pre-existing disease.

What was particularly shocking was the inhuman manner in which Rita was treated by the insurance company which branded her a liar and on top of that referred to the disease as breast cancer instead of ovarian cancer. This is a fact insurance almost all companies have doctors on their panel whose job is not to facilitate the treatment but to create confusion to avoid paying the claim.

In yet another case – when a relatively junior doctor on the payroll of ICICI Lombard challenged the diagnosis of a senior Consultant at Sir Ganga Ram Hospital, the husband of the lady even offered to forego the claim if the doctor who claimed to know more could come and treat his wife. But the doctor refused.

The basic flaw in the insurance system is that many of the provisions the Insurance Act, 1938 are faulty but due to lack of political consensus amendments in the Insurance act could not be marshaled in the parliament. Some of the basic lacunas in the Insurance Act, 1938 are:

The Insurance Act, 1938 is a redundant legislation of the colonial era that requires deletion.

  1. The IRDA Act, 1999 has inserted some provisions in the Insurance Act, 1938 without deleting the old provisions. This is giving rise to anomalies, for example, definition of the term ‘insurance company’.
  2. References in Insurance Act 1938 have to be replaced by corresponding new legislations e.g., Indian Companies Act, 1913 has to be replaced by Companies Act, 1956.
  3. Reclassification of insurance businesses is necessary. Insurance business may broadly be classified as ‘life’ and ‘non-life’ business. Even definitions of ‘insurance’ and ‘insurer’ have to be amended.
  4. The IRDA Act needs to be merged in the Insurance Act, 1938.
  5. There must be a provision of appeal against the decisions of the IRDA to an independent body constituted under the Act itself.
  6. There should be a full-fledged grievance redressal mechanism.
  7. Specific statutory enumerations are required for protecting the interest of policyholders so that unintended minor mistakes in disclosure do not lead to a loss of coverage.
  8. Provisions regarding investments, loans and management need review and revision. The term “approved securities” is required to be revised in the context of new economic policy and business practices.

According to legal pundits the insurance contract suffers from procedural or substantive unfairness. The term substantive unfairness means it is one-sided, harsh, oppressive and unfair. By virtue of this contact the insurance Companies have excluded liability for negligence, breach of contract and given themselves the power to vary the terms of the contract unilaterally- which is unfair. The insurance contract also violates the provisions of the Indian Contract Act, 1862 which has several provisions against undue influence, coercion, fraud, mistake, misrepresentation etc. These are ‘procedural’ provisions already contained in the Act.

5 Key Factors to Consider Before Buying an Insurance Plan

Key Factors to Consider Before Buying an InsuranceThere are many occasions in life when you wonder if you have taken the right decision. Some of the decisions may concern your financial life. Investing your hard-earned money in any financial product of a company or a bank – recommended by your friends, family or agent – without understanding how it works, is a common issue. Your mind is filled with doubts and uncertainty on whether you have made the right investment, especially if it is in a long-term product like insurance.

An insurance policy is a must in any financial portfolio as it covers the risk associated with the loss of life or property. Since it’s a long-term contract for 10 years or more, it is difficult to make changes or amend these contracts during the policy term. Hence, you must spend a little time to research these products to ensure you don’t have regrets later. It may not be possible for you to understand all the intricacies of a life insurance policy. But, you could consider the following factors while choosing a plan:

( A )   Need-based investment:
The standard thumb rule is that your life cover should be 10 times your annual income so that your family is not impacted financially in case something were to happen to you.

You should also take into account any preexisting medical complication or property loans while selecting the life cover. Your financial portfolio should be well balanced and need-based. For example, in case you need to build a corpus for your child’s education, you can select from a range of products from insurance companies that ensure the funds that you had planned for your child’s education are available whether you are around or not.

You need to remember that insurance is a protection-cum-long-term investment and savings tool. You need to define your need – like your child’s education or retirement – and accordingly buy a policy that will help you meet your requirement in future.

( B )    Background check and due diligence:

Once you have decided on the policy, you could do the necessary background check on the company concerned. All life insurance companies have comprehensive disclosures on their websites that give all required information. Policy structure, customer service capabilities, scope of network, online platform (in case someone wants to buy online term policy), are some of the key things you should look for.

Secondly, there are many sites that help you compare various policies as well as the premiums. However, the one thing you need not worry is the financial health of an insurance company. The insurance sector is highly regulated and all companies need to maintain a solvency ratio to ensure that the customer does not suffer.

( C )     Fund performance:

When buying a Unit linked policy, which also acts as an investment vehicle, you could look at the past performance of the company. All life insurance companies provide details of their funds’ performance online. An important thing to consider here would be stability. A company with a good fund performance will have a consistent track record with the fund performance neither being erratic nor extremely risky.

( D )     Claim settlement ratio:

Many experts advise that the claim settlement ratio of an insurance company should also be considered when buying a product. However, this should not be of concern as long as you have provided correct information in your policy form. As I mentioned earlier, the insurance sector is highly regulated. Hence, the chances of a rightful claim not being settled is rare. In fact, the average claim settlement ratio of the insurance sector is above 80%, and most companies have healthy ratios.

(E )      Understanding the policy:

Once you have zeroed in on the product based on your need and track record of a company, you should understand the features of the policy, specifically those related to the policy term, premium-paying term, maturity date and charges. You must also understand the benefit structure of the policy. Every Unit linked policy comes with a benefit illustration at 10% and 6%, which discloses the charges and what the status of your investment would be on a yearly basis.

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Mis-selling of Insurance Policies

In a recently published article that appeared in a respected financial newspaper the topic of customers facing problems in their insurance policies was covered. The article quoted excerpts from an analysis done by a social media marketing company. The analysis covered complaints posted by consumers on various social media channels regarding three insurance topics:

  • Settlement of policies
  • Renewal of policies
  • Payment of first premiums

Of the three points analysed, maximum complaints were registered in the ‘settlement of policy’ subject. A deeper analysis revealed that mis-selling was the biggest trouble spot, followed by policy termination, online renewals and missing documents.

What is mis-selling?

In a definition quoted in Wikipedia, “mis-selling refers to the deliberate, reckless, or negligent sale of products or services in circumstances where the contract is either misrepresented, or the product or service is unsuitable for the customer’s needs. For example, selling life insurance to someone who has no dependents is regarded as mis-selling.”

What steps are being taken to prevent mis-selling?

Premium Legal SupportAccording to the article, ‘the Insurance Regulatory and Development Authority made it a mandate to make ‘insurance processes’ more transparent and customer centric. Various steps have been taken in this direction in the recent past to improve product design and bring changes in sales practices.’ There are also various regulatory measures that the IRDA has put in place to provide a framework for protection. Measures like:

  • Option of Free Look Cancellation within 15 days of receiving a policy document
  • Prohibiting misleading publications for soliciting or selling of policies
  • Licensing of insurance intermediaries such as agents and brokers
  • Prescribed code of conduct for operations

But the numbers of complaints that the study received paint a different picture. So, what can you as a consumer do to stay away from such unethical practices? The answer is simple: stay alert! stay empowered!

How can you do so?

As said earlier, our objective at Power to Consumer is to not just resolve your complaints, but empower you. And we believe the best way to empower consumers is to make them aware of case studies covering the subject of mis-selling. This way you can be aware of the pitfalls and avoid getting trapped into one.

  • Case Study 1: Yashu Vashishath vs. Birla Sun Life Insurance Company

Yashu Vashishath, a student from Chandigarh, had approached Birla Sun Life Insurance Company to get a policy that catered to the requirements of his admission to a university in Wisconsin, USA for further studies. He paid a premium amount of Rs. 1 Lakh and left for US. On reaching US,  he realised that the policy that he is holding in his hands is worthless, as it was not recognized by the University. [su_highlight background=”#99fbff”]Birla Sun Life Insurance Company in the spirit of selling an insurance policy withheld back the crucial information that their policy is not valid overseas. [/su_highlight]. This was a clear case of mis-selling on the part of the insurance company.

Yashu took the case with Insurance Ombudsman who directed the Company to refund the paid amount, but they paid no heed. He then approached the UT District Consumer Disputes Redressal Forum at Premium Legal SupportChandigarh who withheld the decision, and direction of said Ombudsman; and accordingly awarded only the refund of surrender value to Yashu Vashishath.

  • Case Study 2: Uni Ply Industries Limited vs. New India Assurance Company Limited

In a second case, the designated National Commission granted a verdict in favour of Uni Ply Industries, and rejected the appeal of New India Assurance Company Limited on the grounds that it is the duty of the policy issuing company to highlight important terms and conditions in their policy document.  The Company had issued a one-page policy document to Uni Ply Industries without a mention of the terms and conditions.

The Honourable National Commission in its verdict said that ‘Merely issuing a cover note on the policy doesn’t absolve the Insurance Company of its responsibilities. [su_highlight background=”#99fbff”] They need to ensure that the policy terms and conditions are clearly communicated to the insured, and any special conditions or warranties are clear and free of ambiguous words.[/su_highlight] Ambiguity in the terms of the policy will be against the insurer since it drafts to the policy wording.’ The Commission also set aside the role that a Surveyor plays in processing claims. It quoted that if the surveyor’s assessment is not in line with the terms of contract or all material facts are not considered, it is likely to be set aside.

What can you do now?

If you or any one you know is a victim of insurance policy mis-selling, you can approach us and we can help you resolve your complaint by providing you all possible legal support.