Bank Refunded Insurance Premium After Borrower’s Death, Claim Rejected: Consumer Commission Orders Relief

A consumer commission in Jammu and Kashmir (J&K) has granted relief to the family of a borrower after finding fault with the handling of an insurance premium linked to his bank loan.

The dispute arose after Mohammad Ayoub Dar took a cash credit loan from Jammu and Kashmir Bank for a garment business. At the time of processing the loan, Rs 16,000 was deducted from his account towards an insurance premium.

Dar died on June 1, 2022. After his death, the Rs 16,000 deducted earlier was credited back to the account. The family was then told that there was no valid insurance cover against the loan, and the bank started proceedings to recover the outstanding dues.

Dar’s widow, Shahzada Begum, along with their three minor children, challenged the matter before the District Consumer Disputes Redressal Commission.

Premium Was Deducted Before Borrower’s Death

One of the main issues before the commission was that the insurance premium had already been deducted while Dar was alive.

The commission observed that once money had been taken towards insurance, the borrower had reason to believe that the required cover had been put in place. Reversing the premium only after his death could not, by itself, take away the rights of his legal heirs, according to a recent report by The Times of India.

The commission held Jammu and Kashmir Bank and PNB MetLife India Insurance jointly liable for deficiency in service and unfair trade practice.

It directed that Dar be treated as insured under the policy from the date of his death. PNB MetLife was ordered to pay the insured amount after adjusting the Rs 16,000 premium, along with five per cent interest from the date the complaint was filed until payment.

The bank and insurer were also directed to jointly pay Rs 2 lakh as compensation and Rs 30,000 towards litigation costs. The insurance proceeds are to be used to settle the deceased borrower’s outstanding loan.

What Borrowers And Families Should Check

Loan-linked insurance is meant to reduce the repayment burden on a borrower’s family if the borrower dies during the policy period. Borrowers, however, should not rely only on a premium deduction.

They should keep copies of the insurance certificate, policy schedule, premium receipt, loan documents and bank statements showing the premium debit. It is also important to check the insurer’s name, sum assured, policy period, exclusions and nominee details.

Where a bank deducts a premium but the policy document is not received, the borrower should seek written confirmation that the cover has been issued.

For families making a claim after the borrower’s death, bank statements showing premium deductions can become important evidence if there is later a dispute over whether insurance cover existed.

The commission gave the bank and insurer four weeks to comply. If they failed to do so, the awarded amount would carry seven per cent interest from the date of the order until payment.

FAQs

1. What should borrowers do if an insurance premium is deducted from their loan account?

They should obtain and keep the policy document, insurance certificate, premium receipt and written confirmation that the cover has been issued.

2. Can a bank reverse an insurance premium after the borrower’s death and deny coverage?

Such a reversal may be challenged, especially if the premium was deducted while the borrower was alive and the borrower had reason to believe insurance was in force.

3. What documents can help families in a loan-linked insurance dispute?

Bank statements showing the premium deduction, loan documents, policy records, correspondence with the bank or insurer, and claim-related documents can be important evidence.