Written by : Knowledge Center Team
2025-12-03
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11 minutes read
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An insurance policy works effectively if there is trust between the two parties involved in it: the insurer and the Insured. The fundamental principle of 'Utmost good faith' governs an insurance contract.
According to this principle,“…both the parties involved in an insurance contract, Insurer and the Insured, must be fully transparent with each other while disclosing their material facts”
The principle applies both before and after the issuance of the life insurance policy. While the insurance company is bound and regulated by IRDAI to disclose all details of the policy the individual investor must proactively share complete and accurate information about their health, lifestyle, and other material facts.
The consequences of the suppression of such information by the policyholder are explained in Section 45 of the Insurance Act 1938.
Key Takeaways
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What is Section 45 of the Insurance Act 1938?
Section 45 of the Insurance Act 1938 states the conditions under which an insurance policy shall not be held suspicious.
A life insurance policy shall not be called in question on any grounds after it completes 3 years from:
- The date of issuance of policy
- The date of commencement of the risk
- The date of revival of the policy, or
- The date of adding a rider to the policy whichever of them is later
These conditions are subject to amendment from time to time.
However, in case of fraud, the insurer may still question the policy within 3 years from any of the above-mentioned events, whichever of them is later.
In this case, the insurer must give written notice to the insured, his legal representative, or his nominees. The notice must specify the grounds on which the questions are raised.
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What if the Death of the Insured has Occurred Within 3 Policy Years?
The Insurance Company has 3 years to call an insurance policy into question on the grounds of misstatement or concealment of material facts, where such misstatement or concealment does not amount to fraud.
Hence, if a policyholder dies within three years, the policy will be questioned under Section 45 of the Insurance Act. This is irrespective of whether the death benefit claim has arisen.
However, once the period of 3 years is over, the policy can’t be brought into question on any ground, except in narrowly defined cases of fraud as permitted by law.
Scenario 1:
In case of a ULIP: If an individual has a ULIP and has non-disclosure issues within three years from the date of commencement:
- The insurer will return the premiums collected in the policy up to the date of cancellation
- The fund value of the policy will not have any relevance
Scenario 2:
In case of a revival: If concealment of material facts is discovered within three years from the date of the last revival:
- The fund value as on the day preceding the date of the last revival, or
- The whole premium collected till date for revival and thereafter will be refunded to the policyholder
Scenario 3:
If Policy acquired paid-up value after 3 years: In this case, the time of 3 years from the date of issuance of the policy has already passed. Hence, there shall be no scope of calling the policy into question under the amended section 45 of the Insurance Act.
Scenario 4:
Refund of premium in case of policy revival: The revival of a policy is treated as a fresh contract between the insurer and the policyholder. So, if the policy revival is called into question within 3 years of that revival, the insurer will refund the following:
- The entire premium collected from the date of policy revival to the date of cancellation
- All the bonuses accrued as of the day preceding the date of such policy revival
Scenario 5:
In case of a Money Back Plan: In a money back plan, if the survival benefits have already been paid to the policyholder and the policy results in a claim within 3 years from the date of the last revival, with no misstatement of facts during issuance.
- In this case, the survival benefit paid shall not be recovered
- This is because the 3-year period from the date of issuance of the policy has expired. Hence, there will be no scope for calling such a policy into question
Reinstatement of the Surrendered Policy
An insurance policy cancelled due to the misstatement or concealment of facts during the issuance of the policy cannot be reinstated.
However, IRDAI Section 45 clearly states that any revival of a surrendered or lapsed policy is treated as a fresh contract, and the insurer may call the revived policy into question within three years from the date of revival if misstatement or concealment is detected at the revival stage.
Common Misconceptions About Section 45 Insurance Act 1938
There’s often a mix-up when people hear about Section 45; some assume it’s about taxes, while others link it only to life insurance. In reality, both exist but serve very different purposes. Section 45 of the Insurance Act, 1938, deals with how and when life insurance claims can be contested by insurers, while Income Tax Act Section 45 focuses on capital gains taxation.
Many policyholders and even advisors misunderstand how Section 45 actually works. They often think their insurance claim becomes untouchable after three years. But is that the case? Let’s clear the air.
Is Your Insurance Claim Always Secure After 3 Years?
One of the most common misconceptions about Section 45 of the Insurance Act is that insurers cannot question a claim after three years of policy issuance. While it’s true that the law limits the scope of claim rejection beyond this period, very serious cases involving clear fraud or criminality may still be examined and contested, depending on the facts and how courts view the contract. So yes, the three-year rule protects honest policyholders, but it does not protect against deliberate fraud.
Can a Company Refuse Payouts on Technical Grounds?
Another myth is that once your policy crosses the three-year mark, no insurer can deny a claim, not even on technical grounds. This isn’t entirely accurate. While Section 45 of the Insurance Act does provide strong safeguards against unfair rejections based on past disclosures, insurers may still reject claims if policy conditions weren’t followed, documents were forged, or fraudulent information was provided at the time of application.
So, while the law works to protect honest policyholders, it also gives insurance companies a fair right to investigate and decline fraudulent claims, , particularly within 3-year window and, in rare, extreme fraud cases, even beyond it.
Section 45 and Policyholders’ Rights: What You Should Know
As a policyholder, understanding your rights is just as important as knowing your benefits. One of the most crucial protections comes from Section 45 of the Insurance Act, which prevents insurers from arbitrarily denying claims after a policy has been in force for 3 years.
According to Section 45 of the Insurance Act, 1938, once a life insurance policy has completed three years from the date of issuance, revival, or rider addition, whichever is later, the insurer cannot reject the claim based on misstatement or suppression of facts unless fraud is proven. This means that after this period, the policyholder or their nominee has a stronger legal footing in the event of disputes.
It’s important not to confuse this with Income Tax Act Section 45, which deals with capital gains on the sale of assets. While they share the same number, their scope is entirely different. When discussing policyholder rights, we're strictly referring to Section 45 of the Insurance Act.
This clause acts as a safeguard, giving policyholders peace of mind that their claim will not be randomly denied after a few years, provided there has been no intentional fraud or withholding of material facts.
How to File a Grievance If Your Claim is Denied?
Even with the protections under Section 45 of the Insurance Act, there may be instances where your claim is denied. In such cases, knowing how to file a formal complaint is essential:
- Contact the Insurance Company: Start by writing to your insurer’s grievance redressal officer. Most insurance companies have a dedicated grievance cell.
- Escalate to the IRDAI: If the insurer doesn't respond within 15 days or the response is unsatisfactory, you can escalate the matter to the Insurance Regulatory and Development Authority of India (IRDAI) through their online portal or by email/post.
- Approach the Insurance Ombudsman: You may also file a complaint with the Insurance Ombudsman, which provides a cost-free, fair resolution mechanism for policyholders.
Being aware of your rights under section 45 of the Insurance Act can significantly strengthen your position in such situations and ensure you get the protection and coverage you rightfully deserve.
Conclusion
Section 45 of the Insurance Act, 1938, offers policyholders important protection against arbitrary claim denials after three years, ensuring greater trust in the insurance process. Understanding how the three-year rule works, and its exceptions, helps both individuals and families safeguard their rights. By staying transparent when buying or reviving a policy, and being aware of the available grievance mechanisms, you can ensure your loved ones receive the benefits you intended. Always stay informed about your rights so your financial protection remains strong and secure in the future.
FAQs
Section 45 of the Insurance Act 1938 lays down a three‑year time limit within which a life insurance company can question a policy for misstatement, non‑disclosure or fraud, after which the policy generally cannot be called into question.
It protects policyholders by stopping insurers from questioning a life insurance policy after three years from issue, risk start, revival, or rider addition, and by requiring clear proof and written reasons if they dispute a policy within that period.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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