In the present day, housing finance companies and banks push their customers to take loan insurance cover as it acts as a surety. Apart from death, insurance companies also offer loan insurance cover against disability due to accidents as well as critical illness. The benefit would be passed on if the borrower is permanently disabled due to accident or diagnosed with the illness specified. There is also an additional proviso offered by a few companies, where, if a person loses his job, the insurance company will pay the EMIs for three months. This provision is also made available against car loans. However, this benefit is payable only if one’s service is terminated and not if the person quits on his own.
In this regard, we are currently dealing with an issue, where, the complainant, who had taken a car loan in 2012, had this cover as well. After repeated follow-up with the insurance company, he got the policy papers a year later and before then, he was issued the pink slip by the company he was working for. Since then, he has been writing emails to the insurance company asking it to settle the claim as was promised and had forwarded the email received from his employer, which clearly indicated that his service was terminated. However, the insurance company now insists that as per the terms of the policy, he was required to produce the termination letter on the letter head of the company only after which they would consider the claim. His efforts to reason with them, stating that he received the policy papers only after five months of losing the job, and therefore did not know the terms, and that he had already forwarded the proof available with him, proved to be futile and now, we have represented the matter to the insurance company and are awaiting a response.
A recent case, decided by the National Commission on February 7, 2014, highlights another related problem. Bhambri and his wife had taken a home loan for which the bank had made them take an insurance policy and the premium amount debited to their account. According to the terms of the policy, if any person died during the tenure of the loan, the rest of the payment with regard to the loan was to be borne by the insurance company. Within 12 days of signing the policy, the wife died suddenly of a heart attack. When the husband made the claim, he was told that some examination regarding the policy was pending and hence the policy was not issued and therefore, the insured amount could not be paid by the insurance company to the bank. Bhambri filed a consumer complaint alleging deficiency in service on the part of the company. The State Commission held that in the absence of a concluded contract between parties, the insurance company could not be held liable to pay the loan amount of the share of the deceased wife, and merely debiting the premium amount by the bank and forwarding it to the insurance company was not sufficient to fix any liability on the insurance company. Thus the complaint was ordered to be dismissed and in appeal, the National Commission, too, upheld the decision on the basis of a Supreme Court Order, in which it was observed that merely filling any proposal for insurance and depositing first premium with the insurance company did not create a binding contract between the parties.
This reveals the fact that there was total lack of transparency and the consumers were not even aware of the process of completion of the contract or the need for medical examinations for the policy that was given to them — a violation of the IRDA Regulation on Protection of Policy Holders Interests, which clearly states that the insurer give all relevant information to the consumer while taking the policy.
These are practices contrary to consumer welfare and it is important for both the banking and insurance regulators to take necessary measures to curb them.
(The writer works with CAG, which offers free advice on consumer complaints to its members. For membership details / queries contact 2491 4358 / 2446 0387 or helpdesk@cag.org.in)
