Supreme Court Judgement in Shakti Yezdani Case Leaves Life insurance Policy Holders Worried

The recent Supreme Court judgement in Shakti Yezdani & Anr vs Jayanand Jayant Salgaonkar & Ors has sent shockwaves through the Life insurance policyholder community. The ruling has left many policyholders worried about the fate of their policy proceeds and the rights of their nominees.

The crux of the issue lies in the interpretation of Section 39(7) of the Insurance Act, 1938. This section states that if the nominee(s) of a Life insurance policy are parents, spouse, or children, they become the owners of the policy proceeds. This provision was introduced in 2015 to clarify the rights of nominees in such cases.

However, the Supreme Court’s judgement in the Shakti Yezdani case has muddied the waters. The Court ruled that nominees, including parents, spouse, or children, are merely trustees of the policy proceeds and not the owners. This interpretation goes against the explicit language of Section 39(7) and has raised concerns among policyholders who had nominated their loved ones with the intention of making them the rightful owners of the proceeds.

The Court’s reasoning in the judgement is based on its previous ruling in the Sarbati Devi vs Usha Devi case of 1993, which held that nomination under the Life insurance Act does not create a line of succession. Instead, any amount paid to a nominee upon the policyholder’s death forms part of the deceased’s estate, to be shared among all legal heirs.

This conflicting interpretation has created an air of confusion among policyholders, who are now unsure about the status of their nominees and the security of their policy proceeds. The fear is that this judgement may set a precedent that could undermine the rights of nominees and defeat the intentions of policyholders who had carefully chosen their nominees.

In light of this uncertainty, it is imperative for Life insurance companies and the Insurance Regulatory and Development Authority of India (IRDAI) to seek clarification from the Supreme Court. The interests of a large body of policyholders are at stake, and it is crucial to ensure that the rights of nominees are protected and that the intentions of policyholders are upheld.

The Shakti Yezdani judgement has raised important questions about the rights of nominees in Life insurance policies and the implications of the Court’s interpretation on existing policyholders. It is a complex legal issue that requires careful consideration and resolution to provide clarity and certainty to all parties involved.