When does an Insurance Policy come into effect?

The case began when Reliance Life Insurance challenged the decision of the National Consumer Disputes Redressal Commission (NCDRC) over the claim of an assured sum after the death of the insured. The central issue was pertaining to determination of the effective date of the policy. The insurance company argued that the policy should be considered effective from the date the insurance policy itself was issued, not the date when the premium receipt was provided or the proposal was made. The lower courts had initially based their judgment on the date of issuance of the premium receipt as the start date of the policy. However, the Supreme Court disagreed with this approach.

The Court emphasized that the date of policy issuance is the correct date to mark the commencement of the policy. It rejected the argument that the date of proposal or premium receipt should determine the start date of the policy. The Court further highlighted an important detail: the reinstatement of the policy after it had lapsed. Since the policy was reinstated after a payment on February 25, 2014, the date of reinstatement became the relevant date for calculating the period. The Court noted that the lower forums had not considered this reinstatement aspect and had wrongly relied solely on the date of issue of the policy to count the 12-month period.

This ruling has provided much-needed clarity on how the date of an insurance policy's validity is determined. It is now clear that the issuance date of the policy holds legal weight and should be used as the reference point for all purposes related to the policy. Additionally, the Court made an important distinction regarding cheque payments, stating that simply tendering a cheque does not make the policy effective until the cheque is encashed, as it may not clear or may be stopped by the issuer. This decision ensures a more precise and consistent approach to determining the start date of insurance policies, preventing potential misunderstandings between insurers and policyholders in the future.