Suicide Clause, a Bank Assignment and a Beneficial Nominee

Amount. The death occurred within 12 months of commencement, so the suicide exclusion applies and the ₹1 crore sum assured is not payable. The policy provides that at least 80% of premiums paid, or the surrender value if higher, is refunded. A term plan of this kind has no surrender value, so the payable amount is 80% of the premiums actually received: 80% × ₹14,000 = ₹11,200, assuming only the first premium was paid and the second was not due or not paid.

Reasoning. The exclusion does not void the contract ab initio and does not entitle the insurer to retain the premiums; it substitutes a defined refund for the death benefit. The insurer must apply the clause as written and check whether the policy wording promises a higher percentage or the surrender value, whichever is greater, and whether the death occurred within 12 months of commencement or of any revival - the clock runs from the later of the two.

What the insurer must not do. It cannot refuse to pay anything, and it cannot pay the sum assured merely because the claim is sympathetic. It should issue a written assessment quoting the exclusion and the premium ledger.

The assignment ranks first. An assignment under Section 38 transfers the rights under the policy to the assignee, and once it is recorded by the insurer the assignee's title prevails over a nomination. A nomination under Section 39 is only a facility for collection and discharge; it does not create title that can defeat an assignee.

The bank's entitlement is measured by its interest. The bank as assignee is entitled to receive the policy money, but it holds it to the extent of the secured debt and must account for the surplus to the person entitled under the policy - here the nominee on record, or the legal heirs where the nomination fails. It cannot simply declare that the balance goes to "the estate" and thereby displace the nominee.

Practical sequence with ₹11,200 payable. Because the amount is far below the ₹62 lakh outstanding, no surplus arises: the ₹11,200 goes to the bank on discharge of the insurer. The bank's remaining loan is a debt of the deceased's estate and is recovered from the estate or the legal heirs, not from the insurer. Kavita and the mother receive nothing from the policy in these figures, and their dispute is really about the estate, not the policy.

Note on the divorce. Even without the assignment, Kavita's position as "spouse" at the date of death would be contested, since the marriage had been dissolved before he died.

Yes, materially. Under Section 39 as amended in 2015, where the nominee is the policyholder's parent, spouse or child, the nominee is beneficially entitled to the policy money - not merely empowered to receive it as a trustee for the heirs. That would have given Kavita a proprietary claim to the proceeds and defeated the mother's claim as an heir.

But three conditions must be met.

1. The nomination must be valid at death. A nomination in favour of a spouse who has since been divorced may be treated as having lost its basis, and the insurer would be entitled to call for proof of status; a prudent insurer asks for the nomination to be updated on any change of status, and a failure to do so is a common source of dispute.
2. The person must fall within the beneficial-nominee categories. If the nominee were, say, a brother, the nomination operates only as a collector for the estate.
3. The policy must not be assigned. The beneficial-nominee right is subordinate to an assignment, which is exactly why the bank prevails in the actual facts.

Lesson for practice. Assignment for a loan and nomination are not alternatives to be left to chance. The customer ought to be told, at the time of assignment, that the lender's interest will take priority over the family's nomination to the extent of the loan.