Paid-up life insurance policy: interest on premium payments was not recoverable absent contractual or statutory authorisation.
On a lapsed life insurance policy treated as a paid-up policy, the insurer was not liable to pay interest on the reduced sum from the dates on which premiums had been remitted. The policy terms made the contract continue only as a paid-up policy for a reduced lump sum on death, and did not provide for interest on premiums. No statute required such interest, and the Interest Act, 1978 did not justify it on the facts. The earlier consumer-forum precedent was confined to its special facts and did not create a general rule. The SC therefore held that interest could not be added and confined liability to the paid-up value without interest.
Issues: Whether, on a lapsed life insurance policy treated as a paid-up policy, the insurer is liable to pay interest on the reduced sum from the respective dates on which premiums were paid.
Analysis: The policy terms provided that on default after the stipulated premium period, the policy would continue only as a paid-up policy for a reduced sum and the contract did not provide for interest on premiums paid. The amount payable by the insurer was not a refund of premiums but a contractual reduced lump sum becoming due on the death of the assured. No statute governing the transaction required payment of such interest, and the Interest Act, 1978 did not support interest from the dates of remittance of premiums. The earlier decision relied upon by the consumer fora did not lay down any general rule requiring interest on premium amounts under a subsisting or paid-up policy, but turned on its own special facts.
Conclusion: The insurer was not liable to pay interest on the paid-up amount from the respective dates of payment of premiums, and the award of such interest was unsustainable.
Final Conclusion: The appeal succeeded, and the insurer's liability was confined to the paid-up value payable under the policy without interest on the premium payments.
Ratio Decidendi: Interest on amounts payable under a lapsed life insurance policy treated as paid-up is recoverable only if it is authorised by the contract, by statute, or by the applicable interest law; it cannot be awarded merely because premiums had earlier been remitted.
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AI Drafter ✕
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