LIC's refusal to assign policies to ACESO will be contempt of court: Mehta

State-owned Life Insurance Corporation’s (LIC) refusal to assign policies to ACESO may be tantamount to contempt of court, said Ketan Mehta, Director & Founder of ACESO, citing a 2015 Supreme Court judgement that allowed the transfer and assignment of LIC’s policies in accordance with the provisions of the Insurance Act, 1938.

The Supreme Court of India in 2015 upheld the judgement by the division bench of the Bombay High Court, stating that insurance policies issued by LIC “are transferable and assignable in accordance with the provisions of the Insurance Act, 1938, and in terms of the contract of life insurance.”

Established in 2018, ACESO monetises the assets of LIC policyholders to ensure maximum financial benefits, especially in cases where the policies are surrendered or lapsed. The company achieves this objective through the assignment of endowment insurance policies, according to its website.

According to Mehta, based on the Supreme Court judgement, any refusal to assign a policy lodged by a policyholder by the insurer or even advertisements against the company negates the judgement and will result in contempt of court.

“We are not a threat to LIC; we are only an aggregator. Policies worth around Rs 1.33 lakh crore were surrendered. We believe that we can help in increasing the insurance coverage in the country,” Mehta added.

According to ACESO’s website, LIC policies are assigned to a special purpose entity called the India Endowment Policy Trust, which acts as a custodian of policies to protect the interests of the policyholder. After the assignment of policies, there are no further legal, financial, or procedural obligations on the policyholder. Only in the case of the death of a policyholder is the nominee required to inform the Trust to claim the life cover, as per the terms of the assignment.

Meanwhile, during the post-earnings media call, LIC’s MD and CEO, Siddhartha Mohanty, underscored that the corporation is against trading of policies, adding that the advertisements by these entities are misleading and against the spirit of insurance.

“Trading in policies is prohibited. This sort of assignment is nothing but trading in policies. Whatever advertisements they have given, have they said who will get the death benefit? Will the nominee get it, or will the assignee company get it? All these things are misleading; it is against the spirit of insurance and against the spirit of protecting the person who takes insurance. That is why we disapprove of trading in policies, and whatever recourse is available will be taken,” Mohanty said.

Additionally, LIC has stated in adverts that the products offered by these entities pose significant risks to policyholders. “Certain unregulated entities may be seeking to benefit at the cost of LIC’s strong market position and sovereign guarantee, without any approval or authorisation from LIC of India, and at the cost of LIC’s policyholders’ interests,” LIC said in an advertisement.

Meanwhile, speaking on the trading of policies, Mehta said, “According to the documentation, trading of policies is not done by the Trust, as the Indenture of Trust does not permit trading. The Trust cannot do the second assignment. It will remain with the Trust until maturity as they are the custodian for the benefit of the beneficiary. Death benefits go to the nominee of the policyholder as per the Indenture of the Trust managed by a SEBI-registered trustee.”