Insurance and the law: India

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Fee for assigning policies

HC quashes LIC fee for assigning policies

Shibu Thomas | TNN

From the archives of The Times of India 2007, 2009

Mumbai: In a relief for thousands of persons who pledge their insurance policies to raise loans, the Bombay High Court quashed a three-year-old rule by the country’s biggest insurance provider, Life Insurance Corporation, to charge a fee for assigning insurance policies to financial companies.

‘‘The service charge/fee is not authorised by law,’’ said a division bench of Justice F I Rebello and Justice J H Bhatia, while ruling that LIC’s demand for a fee violated the fundamental right of financial companies who advance loans on insurance policies to carry on trade and business. The circular levying a fee of Rs 250 if a policy holder assigns his insurance policy in favour of ‘‘financial organisations’’ also infringed on the Constitutional right of petitioner Dravya Finance Pvt Ltd’s by depriving it of its property without the authority of law, the high court held.

With 19 crore policy holders, LIC is the market leader with a 55 % share of the insurance industry. As per rules, a policy holder can transfer his interest in the life insurance policy to another person or institution as a security for a house loan or just emergency cash. These institutions reap ‘‘windfall gains’’ in the form of taxexempted returns, according to LIC.

Trading in life insurance policies, where a company purchases insurance policies from policy holders and then sells it to banks and financial institutions, is a lucrative business worldwide.

Earlier in 2003, LIC tried to rein in the practice by banning trading in insurance policies. The high court in 2007, however, set aside the rule and held that insurance policies are ‘‘movable property’’ that can be traded and assigned freely.