New Delhi, Sept. 1 -- Taking a loan against a life insurance policy can provide access to funds without requiring the policyholder to sell the investment. But what happens to the policy if the loan is not repaid?

A recent order by the National Consumer Disputes Redressal Commission (NCDRC) has clarified an important aspect of such arrangements: when a life insurance policy has been assigned to a bank as security for a loan, the insurer can act on the bank's instructions to surrender the policy without obtaining separate consent from, or issuing a separate notice to, the original policyholder.

The ruling came in a case involving Amar Singh, a resident of Kharkhoda in Sonepat, Haryana, and his LIC policy.

Singh purchased a life insurance...