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When the Assurance of “Zindagi ke Saath Bhi, Zindagi ke Baad Bhi” Falls Short

Life insurance plays a pivotal role in the economic and social structures of India, serving as a representation of financial stability, providing protection across generations, and guaranteeing an individual stability during personal losses. Being the biggest life insurance firm in the country, the Life Insurance Corporation of India (LIC) is not just a financial institution but a pillar of the socio-economic system and its activities have an impact on the trust of the population in the insurance industry in general. It is hoped that a path between the promise made when the policy was issued and the actual payout during a claim will be smooth and transparent without any ethical or regulatory issues. Nevertheless, despite having a strong regulatory framework, chronic issues of delays, repudiations, poor communication, and obscure interpretation of contractual terms are still persistent. This Article will examine the issues within these claim settlement procedures at LIC and the regulatory frameworks, which are intended to regulate them, and the changes that should be implemented to improve transparency and accountability. This article identifies a comprehensive research gap in the current body of scholarship and regulatory review.

Life insurance in India has gone through a great development since the liberalisation of the financial sector in 2000. Even though LIC used to be a monopoly, these days it is under competitive conditions and has over twenty private insurers. Given that there is increased competition, LIC still has the lead in the market concerning policies issued, total premium collected and number of lives covered. This systemic dominance subjects LIC to an increased responsibility of keeping the utmost levels of claim settlement, fairness and protection of policyholders. The life insurance payment is what many families have to rely upon as the sole source of funds following the accidental death of a breadwinner. Thus, even in a specific situation of delay in claims or repudiation, which does not always make sense, the social and economic impact can be significant. Although LIC records high claim settlement ratios at all times, these quantitative data are not the only ones to demonstrate the qualitative aspects of the efficiency of claim settlement. The settlement ratio is rarely a measure of delays, excess documentation requests, procedural murkiness, or the lived experiences of the policyholders going through the system of making claims. Furthermore, the invocation of Section 45 of the Insurance Act, 1938, the meaning of material facts, and the consumer forums all indicate complicated crossroads of law, rights of the policyholders and discretion of the insurers. This makes the question of accountability in the claim practices at LIC an urgent and scholarly issue.

Laws that Decree the Claim Settlement

The settlement of claims made in the life insurance industry in India is controlled within a complex set of laws, regulations, and consumer protection, which is a statutory framework. These layers of regulation are designed to have a reasonable balance between the protection of the interests of policyholders and allow insurers to defend themselves against fraudulent claims. The key sources of law are the Insurance Act, 1938, the IRDAI Act, 1999 and subsidiary regulations. by the Insurance Regulatory and Development Authority of India (IRDAI). The combination of these tools constitutes the legal basis of assessing, handling, declining, or accepting insurance claims.

Section 45 and the Insurance Act, 1938

One of the basic provisions in the settlement of claims is Section 45 of the Insurance Act, 1938, which was greatly transformed due to the amendment of 2015. The idea behind the provision is a careful balance, which is not to allow insurers to repudiate claims at will, but at the same time to permit insurers to repudiate claims based on intentional fraud. According to the amended Section 45, an insurer is no longer allowed to repudiate a policy once it lapses three years after the date of the policy is issued, revived, or a rider is added to it, unless fraud is proved beyond a reasonable doubt. This gives insurance cover to the policyholders because insurers can no longer reject claims based on insignificant differences or small non-disclosures.

Nevertheless, irrespective of the aim, Section 45 still has interpretative problems. Misrepresentation, non-disclosure and material facts are not clearly defined with room for inconsistent meanings by the insurers and courts. The Supreme Court in Reliance Life Insurance Co. ltd. vs Rekhaben Nareshbhai Rathod. emphasised the necessity of proper and honest disclosure and at the same time put in the proportionality of the repudiation decision. It is the unresolved ambiguities in Section 45 that allow it to be an interesting subject of further scholarly examination.

IRDAI (Protection of Policyholders Interests) Regulations, 2017.

To supplement the statutory framework, the IRDAI (Protection of Policyholders Interests) Regulations, 2017 provide procedural protections and timeframes for dealing with claims. Such regulations are that insurers are supposed to receive a claim within a period of three days, handle all the necessary paperwork as soon as possible and decide within a period of 30 days. In case an investigation is required, a limit of 90 days is allowed to the insurer,s who must then pay the claim within 30 days after the investigation.

Such schedules will discourage unreasonable delays and enhance accountability. But even though they are mandatory, there has not been enough academic and empirical literature that reflects on the feasibility in practical terms of these rules, especially the disparity between the public sector insurers, such as the Life Insurance Corporation of India (LIC) and the private ones. A comparative regulatory performance study would present invaluable information on whether there is equal application of these procedural protections in the industry.

Mechanisms of Consumer Protection

In addition to statutory and regulatory protection, there is a multi-tiered system of dispute redressal to policyholders, which is provided by the Consumer Protection Act, 2019. Any postponement of the settlement of a claim, deficiency in service or wrongful repudiation may be appealed to the District, State or National Consumer commissions, as per the value of the claim. The consumer forum system is a convenient legal solution, a quicker and more affordable alternative to civil litigation. This builds trust in the policyholders by giving them an external check and balance on the behaviour of the insurers and makes sure that complaints are resolved in a way that is just and that is transparent.

Continuing problems and procedural strengths in the process of settlement of claims at LIC. Life Insurance Corporation of India (LIC) has a systematic claim-processing model which involves claim intimation, document verification, field investigation (where necessary) and final approval. The claim-settlement ratios are always high in LIC, around 98-99, but such high ratios usually conceal the differences between simple claims and highly controversial claims. Inside the examination and audit reports demonstrate that vulnerable groups like rural policyholders, low-income families, and individuals with low literacy, who are most in need of insurance coverage, are disproportionately impacted by repudiation.

Procedural Delays

Procedural delays are a problem that keeps on being a problem, even with the standardised operating procedures. Such delays are attributable to complex documentation procedures, slow investigation procedures, and a lack of consistency in the communication between the different offices of LIC. Such discrepancies are also caused by regional differences in administrative practices, which have shown inefficiencies in how LIC processes claims.

The issue of ambiguity in interpreting material facts

One of the major areas of contention is related to the ambiguity in the interpretation of material facts, particularly when dealing with early deaths (in the two years since policy was issued). The claims are often repudiated by LIC due to non-disclosure of already present medical conditions, at-risk lifestyle habits, or financial data. Courts have, however, made it clear a number of times that not all non-disclosure counts in suppression of material facts and repudiation needs to satisfy the materiality and intent test. Satwant Kaur Sandhu v. New India Assurance Co. Ltd has stressed the fact that the materiality of the non-disclosed fact should be proven in the case, whereas in Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod, it has stressed that disclosure obligations should be reasonably interpreted. However, the internal analysis by LIC is usually conservative, which means that it delays payments and unnecessary conflicts. Previous decisions like LIC of India v. G.M. Channabasemma and LIC of India v. Asha Goel. were decided by courts. The Asha Goel have also advised the insurers not to adopt a very inflexible attitude to repudiation, demanding that the doctrine of materiality applies fairly and proportionately.

Communication Gaps

 In the case of rural and low-income policyholders, communication barriers can play a vital role in determining the success of claims because they tend to be unaware of their rights, claim protocols, and can access a system of grievance-redress. Some of the areas where LIC has poor communication practices contribute to more confusion and frustration among claimants. The IRDAI Handbook on Rural Insurance Literacy throws light on the challenges that have existed in the dissemination of information relating to claims in rural areas.

Technology and Administrative Limitations.

 The claim settlement process is still manual despite the fact that LIC has updated various services, including premium payments and policy servicing, using the internet. Manual workflow, physical documentation, and files raise the chances of mistakes by humans, records being lost or misplaced, as well as administrative mishandling. Systemic limitations such as these have been identified in audit reports, such as the Performance Audit of LIC by the Comptroller and Auditor General of India, which notes that extensive digital change is needed in claims management.

Research Gap

In spite of the fact that a strong regulatory framework that manages life insurance in India is in place, a lot of gaps still exist in the scholarly research and application in practice. Empirical studies estimating the extent and trends of the delay of claims, administrative hold-ups, and arbitrary repudiations by LIC are few. Annual reports give settlement ratios but do not look at the micro experiences of policyholders and the sociological aspects of claim disputes. The actual scope of inefficiencies in the procedures is thus seldom scrutinised. Similarly, the use of Section 45 of the Insurance Act, 1938, especially following the 2015 amendments, has never been a well-examined topic in either the academic or policy books. Limited studies have been done on whether this provision is used in good faith by insurers, or it sometimes serves as an instrument of avoiding valid claims in the name of misrepresentation. Also, the efficacy of the Protection of Policyholders' Interests Regulations, 2017, IRDAI, has not been systematically examined. Literature on this topic seldom evaluates the adherence to regulatory timelines, fairness in investigations, and sufficient communication and transparency with policyholders in the course of the claim. The other gap imperative is the awareness of policyholders. Little is known about whether policyholders are aware of their rights, options for redressing their grievances, or documentation, which leaves a gap in evaluating the role of informed consumer behaviour in dispute outcomes. Lastly, scholarly research has not synthesised or evaluated legal and consumer forum rulings of LIC, although these matters also offer invaluable information on the recurring patterns of disputes, systemic inefficiencies and regulatory blind spots. Lack of such consolidated research prevents our efforts to determine areas that need to be reformed, and thus, this study is timely and necessary.

Case Study Insights

Life Insurance Corporation of India(LIC) has had its practices of settling claims challenged severally through reported judgments, media investigations, and consumer commission decisions. These sources show the same tendency of procedural inconsistency and ambiguity in interpretation, and especially towards the claims of early-death-benefits that are related to the loss of the policyholder in the first few years of the policy term. Another notable percentage of conflicts stems from the fact that LIC has used a lot of allegations of medical non-disclosure, such as non-disclosed hypertension, diabetes, or heart conditions.

Courts, nevertheless, insist that repudiation based on non-disclosure cannot be adopted unless there is intentional and material non-disclosure to risk assessment. The case of LIC of India v. Asha Goel has been extremely critical of repudiations of a non-arbitrary nature and emphasised that the insurers should exercise fairness and good faith in the administration of claims. On the same note, Satwant Kaur Sandhu case The Court made it clear that only facts that have a direct bearing on risk are material facts that need disclosure as such, in New India Assurance Co. Ltd. Many consumer-commission decisions indicate that LIC has been falling short of this requirement far too frequently, and the reversal of repudiation orders has been granted based on inadequate evidence of intent to conceal.

The other nagging problem is the over-reporting of nominees. Claimants are also regularly requested to provide documentation that is not mandated by the regulations, such as full hospital history, complete medical treatment files, employment history, and other certificates that are not required by IRDAI regulations. These requirements have a huge procedural burden and tend to slow down the claim settlements. Families who are already handling bereavement, especially those who are not conversant with the formalities of an institution, are overwhelmed by these barriers and are often forced to resort to redress by the consumer commissions. These systemic issues point to a gap in the institutions when it comes to regulatory expectations of transparency and efficiency in the advisory procedures and the administrative procedures on the ground at the LIC branch offices. Regional variability usually exacerbates the disparity. Complaints and media reviews show a tendency of the incidence of disputes in rural and semi-urban branches, which is explained by the small number of staff, the poor technological base, and low awareness of policyholders. On the other hand, the branches of the city, due to the superior infrastructure and trained staff, have smoother claim-processing trails. This contrast shows the necessity of standardisation of the system at the national level of operation, greater staff training, and better accountability structures in the whole LIC national network of operations.

Analysis.

The areas of intervention needed to enhance the effectiveness of LIC with respect to claim settlement have to be multi-pronged and include the following elements: structural, regulatory and procedural gaps. The initial pillar of change that is needed is an intensification of regulatory enforcement. The timeline and the standard of procedures that the IRDAI has put in place for insurers are not evenly applicable, even though they are enforced. Stiffer observation of the compliance, as well as definite punishments for the unreasonable delays or process slip-ups, would establish a greater discouragement of the careless approach to the claims. The transparency can be further improved by creating a centralised and real-time claim-tracking portal that can be accessed by all life insurers so that policyholders can monitor the claims progress on their own. Such a system would help to lessen the dependency on hand information by the branch offices, lower misinformation, and it would give the regulators information about oversight to spot patterns of delay or non-compliance.

The second important dimension is standardisation of the interpretation and application of Section 45 of the Insurance Act, 1938. Though repudiation of claims, particularly following the three-year contestability period, should be supported with clear evidence of intentional fraud, insurers, including LIC, are still relying on liberal interpretations of material facts or unproven medical history to reject claims. Making such judicial interpretations regulatory guidelines would bring about uniformity and also reduce discretionary rulings that mostly play against policyholders. Clarification of the regulations would also minimise litigation since nominees and insurers would be in a better position to know well what grounds should be considered valid to repudiate. This would not only safeguard the rights of the consumers but also help strengthen the integrity and predictability of the legal framework of life insurance claims.

It is also crucial to ensure that the administrative and investigative processes are modernised by means of digital transformation. The fact that LIC is large and reaches many parts of the country does not necessarily mean that the claim settlement system is not based on physical documentation, manual validation and paper records. This makes the processing slow and prone to human error or administrative errors. Claim handling can be greatly simplified with the adoption of digital tools like e-verification of medical records, a secure digital document uploading system, and automated workflow systems. When ethical and responsible, AI-based risk assessment tools would decrease subjectivity in decision-making and allow for detecting valid claims much faster. Digital documentation also simplifies the work of the nominees who might find it difficult to gather large paper trails, especially in rural or resource-starved environments. An upgraded system based on technology would therefore improve efficiency, consistency, and accessibility in the operations of LIC.

Last but not least, transparency and fairness can be facilitated by ensuring that policyholders are empowered by having high-quality consumer education and enhancing access to legal precedents. Lots of people argue that a conflict is caused only by the fact that policyholders or nominees do not know their rights, and what kinds of documents are needed and what are the procedural safeguards can be offered to them. The LIC may focus on the outreach initiative, which will include the simplified claim manuals in the local language, proactive communication with all phases of the claim handling, and special claim support personnel who will work with vulnerable families. Similarly, a repository of judicial and consumer forums' decisions in a national repository would be helpful to regulators, scholars, practitioners, and even policyholders. This would create publicity over systemic problems, reveal a pattern of repeated unfair repudiation, and inform policy reforms of evidence-based reforms. Collectively, the increased consumer sensitivity and the availability of the knowledge of the law would contribute to the creation of a more equal system of claims settlement, one that supports the pledge of protection that is the core of any life insurance agreement.

The promise that is made on a life insurance policy is never realized upon collecting the premiums, but when one settles the claim. LCI is a symbol of not merely an insurer, but a protector of financial honour to millions of Indian families at the most vulnerable times, both emotionally and financially. This also does not simply make transparency and accountability in settlement of claims an administrative requirement, but a social requirement. There are still gaps in implementation, scholarly analysis, and awareness of the consumer despite good regulatory frameworks. By overcoming procedural inefficiencies, harmonising interpretations of legal stipulations, digital modernisation, and giving policyholders power, LIC can build up trust and establish an industry vertical of fairness and transparency. Finally, the issue of promise and payout needs to be bridged to make sure that life insurance, particularly within LIC, will remain one of the pillars of social security and justice in the Indian changing financial environment.

References:

  •  Insurance Act, 1938, No. 4 of 1938 (India), available at https://www.indiacode.nic.in
  •  Life Ins. Corp. of India, Public Disclosure 2023-24 (as of Mar. 31, 2024), LIC India, Claim Settlement Procedure, Public Disclosure 2023-24, https://licindia.in (last visited Nov. 24, 2025).
  • Insurance Regulatory & Development Authority Act, 1999, No. 41 of 1999 (India), https://www.indiacode.nic.in (last visited Nov. 24, 2025).
  • Insurance Regulatory & Development Authority of India, Annual Report 2022–23, (Dec. 27, 2023), https://irdai.gov.in
  • Ibid
  • Insurance Regulatory & Development Authority of India, (Protection of Policyholders’ Interests) Regulations, 2017, Gazette of India, Part III, § 4 (June 22, 2017) (F. No. IRDAI/Reg/8/145/2017)
  • See Insurance Regulatory & Development Authority of India, Annual Report (2022–23).
  • Insurance Act, 1938, No. 4 of 1938 (India).
  • Insurance Regulatory & Development Authority Act, 1999, No. 41 of 1999 (India).
  • See Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175.
  • Insurance Regulatory & Development Authority of India (Protection of Policyholders’ Interests) Regulations, 2017, Gazette of India, Part III, Sec. 4.
  • Consumer Protection Act, 2019, No. 35 of 2019 (India).
  • LIC of India v. Smt. G.M. Channabasemma, (1991) 1 SCC 357.
  • National Consumer Disputes Redressal Commission (NCDRC), Annual Digest of Cases (2022).
  • Life Insurance Corporation of India, Claim Procedure Manual (2023).
  • Comptroller & Auditor General of India, Performance Audit of LIC Regional Operations (2020).
  • Satwant Kaur Sandhu v. New India Assurance Co. Ltd., (2009) 8 SCC 316.
  • Ibid
  • LIC of India v. Smt. G.M. Channabasemma, (1991) 1 SCC 357.
  • LIC of India v. Asha Goel, (2001) 2 SCC 160.
  • IRDAI, Handbook on Rural Insurance Literacy (2020).
  • Life Insurance Corporation of India, Annual Digital Infrastructure Report (2023).
  • Comptroller & Auditor General of India, Performance Audit on Insurance Claims Handling (2019).
  • See generally National Consumer Disputes Redressal Commission, Annual Digest of Consumer Cases (NCDRC, 2022), https://ncdrc.nic.in (last visited Nov. 24, 2025).
  • Ibid
  • Ibid
  • Life Insurance Corporation of India, Annual Digital Infrastructure Report (2023).
  • Insurance Regulatory & Development Authority of India, Discussion Paper on Life Insurance Claims Standardisation (2022), https://irdai.gov.in (last visited Nov. 24, 2025).

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