Insurance grace period may give rise to disputes

All policies expiring during the lockdown should be deemed extended for this period and one week thereafter

In view of the lockdown due to the Covid 19 pandemic, it has become impossible for most citizens to renew their medical and other policies unless they are net savvy and have an online banking facility. If renewal premium is not paid in time, there would be a break in continuity, and existing ailments would stand excluded if renewed at a later date after the lockdown ends. With a view to overcoming this difficulty, the Ministry of Finance has issued notifications from time to time to provide for a grace period for payment of renewal premium.

The wording of the notification is likely to give rise to disputes rather than solve the problem. The notification states that those policyholders who are unable to pay the renewal premium during the lockdown period commencing from March 25 to May 3, 2020, will be given an extension of time till May 15, 2020, to pay the renewal premium. The explanation given is that this will ensure continuity from the date of its expiry so that any claim triggered during the grace period could be paid.

Now, even though the lockdown has been extended till May 17, there is no further notification for extension of the grace period. Even if it is assumed that such notification will be issued in due course, would it be of any help? The answer would be clearly in the negative if the wording of the notification is analyzed properly.

According to the notification, in order to keep a policy alive after the expiry date, it would be mandatory to subsequently renewal it for continuity of insurance coverage during the intervening period. So the question arises: What would be the fate of the policyholders who die during the intervening period? Their earlier policy would have expired and renewal cannot be done as they are no longer alive. So in the absence of renewal, there would be no continuity, and hence no claim would be payable as the previous policy has expired.

Besides this, another problem would be that a notification cannot supersede the law. Section 64VB of the Insurance Act prohibits covering of any risk unless and until the premium is paid or deposited in advance. So retrospective renewal of the policy would be against the provisions of the Act, and insurance companies would be within their rights to repudiate claims. Even if a person initiates legal action, it would be of no use, as the court is duty-bound to interpret the law, and in case a notification is in conflict with the law, it would be the law which would prevail and not the notification. Consequently, subsequent payment of the premium would not serve to renew the policy with retrospective effect, being contrary to the provisions of section 64VB of the Insurance Act.

The solution would be to issue a notification that all policies expiring during the period of the lockdown would be deemed to be extended to cover the period of the lockdown and for another week after that so that. This would obviate the necessity of renewal of the policy with retrospective effect, and would also provide for the contingency of death of the policyholder during the intervening period.

The writer is a consumer activist