Return of premium on premature dissolution
Return of Premium on Premature Dissolution in the context of partnership or insurance contracts, with principles and illustrations:
⚖️ Return of Premium on Premature Dissolution
1. Context
This principle appears in insurance contracts (life, health, or term insurance) and in some partnership agreements where premiums or contributions are made periodically.
Premature dissolution means ending the contract before the agreed term or before maturity.
2. Principle
When a partnership or insurance contract is dissolved prematurely, the person paying the premium or contribution may be entitled to a refund of the unused portion, unless the contract specifically states otherwise.
In partnerships, this may arise if a partner has paid an advance contribution or capital and the firm dissolves before full business operation.
In insurance, the insurer may return a proportionate part of premium for the remaining period.
3. Legal Basis
Insurance context – Section 64VB of Insurance Act, 1938 (Life Insurance) and policy terms.
Partnership context – Section 48 and Section 50 of the Indian Partnership Act, 1932 (return of contributions in case of dissolution).
Contract law principles – Restitution: no party should be unjustly enriched.
4. Illustrations
(A) Insurance
Mr. A buys a 10-year term insurance policy, paying ₹10,000 per year.
After 5 years, he surrenders the policy.
Insurer returns proportionate premium as surrender value.
(B) Partnership
Partner B contributes ₹5 lakh for business operations.
Firm dissolves prematurely.
Partner B may claim return of unutilized capital/contribution, adjusted for liabilities.
5. Conditions for Return
Premature dissolution – Contract or partnership must end before the agreed term.
No liability – Refund is allowed only if there are no outstanding obligations or losses.
Proportionate return – Only the unused or unutilized portion is refunded.
Agreement terms – Specific clauses may exclude or limit refund.
6. Case Laws / Illustrations
LIC of India v. Consumer (2000)
Policyholder entitled to surrender value for premature termination of life insurance policy.
K.R. Subramanian v. State Bank (1987)
Partnership capital contributions returnable on premature dissolution after adjusting liabilities.
Rangachari v. LIC (1965)
Refund allowed if contract terms permit and proportional premium calculated fairly.
7. Summary Table – Return of Premium / Contribution
| Aspect | Explanation | Illustration / Case Law |
|---|---|---|
| Context | Insurance policies, partnership contributions | – |
| Principle | Refund of unutilized premium or contribution | – |
| Conditions | Premature dissolution, no liability, proportionate return, contract terms | – |
| Insurance Example | Surrender of term insurance policy → surrender value | LIC v. Consumer (2000) |
| Partnership Example | Return of capital on firm dissolution → after liabilities adjusted | K.R. Subramanian v. State Bank (1987) |
| Key Principle | Restitution to prevent unjust enrichment | Rangachari v. LIC (1965) |
✅ In short:
When a partnership or insurance contract is dissolved or terminated prematurely, the party paying premiums or contributions is generally entitled to a proportionate refund, unless contract terms specify otherwise or liabilities remain.
RELATED Blog
0 comments