Case 1(Health Insurance): Mr. Policy Holder met with an accident and admitted to hospital for treatment. After he got discharged from the hospital he claimed the hospital expenses from his insurer. To his surprise he received a letter from the TPA of insurer mentioning policyholder is suffering from hypertension and asked to submit the papers related to the treatment he is taking for hypertension.
Case 2 (Life Insurance): Policyholder died within 2 years of taking the life insurance policy and the nominee claimed the death benefits in the policy taken on the name of diseased. After some time instead of claim amount claimant receive the rejection of claim letter from the insurer mentioning that “policyholder did not disclose the policy taken last year(before the policy in which benefit is claimed) of SA Rs. 500000 from same insurer and same agent in the proposal forms at the time of taking the new policy”
You might have come across such case and might have thought that insurer is not willing to pay the claim amount and deliberately repudiating the claim or unnecessary calling the requirement to settle the claim.
But, do you know that amongst the various principles on which insurance business work, one of them is “Principle of Utmost Good Faith”.
Utmost good faith is a common law principle (sometimes called Uberrimae Fidei). The principle means that every person who enters into a contract of insurance has a legal obligation to act with utmost good faith towards the company offering the insurance. A person must, therefore, always be honest and accurate in the information they give to the insurance company. The insurance company also has a responsibility to act in good faith in all its dealings with the insured.
An insurer has every right to question the life assured or claimant up to a specific period of time (Sec 45 of Insurance Act 45) if it can prove that information not disclosed was material and would have changed the underwriting decision of the insurer.
In the case 1, the policyholder has hypertension and it was disclosed while he was under treatment for the accident, but he did not mention it in the proposal form while taking the policy, if disclosed insurer would have declined the proposal or would have charged an extra premium due to higher morbidity. If he did not know or did not had hypertension before he must produce the proper treatment papers to TPA showing the dates after taking the policy and medication prescribed by the doctor.
In the Case 2, policyholder did not disclose the policy taken from the same insurer and thus clearly affected the underwriting of the insurers. Underwriting is totally depending upon the age and sum assured proposed in the recent proposal and taken within two years of the recent proposal with the same insurer. If policy holder had disclosed the previous policy, the insurer would have called for medical examinations before accepting the proposal and the underwriting decision might have changed.
In both the cases, carelessness or ignorance led to the call for additional information in the first case and delay of the decision and in second case rejection of the claim.
Therefore a person proposing a new insurance policy must keep in mind following things while filling out the proposal form.
- Always disclose your current health conditions in the proposal form. If you have been admitted to hospital for treatment for any reason, you should mention it in the proposal at the proper place.
- Please mention the clear reason of death in your family (if any) in the family history details because some deceases are hereditary and thus underwriting decisions are affected.
- Always mention correct height and weight in the proposal form if the policy is issued without any medical examination. BMI normally higher than 29 attracts extra premium due to higher mortality rates.
- If you are taking two or more policies simultaneously on your name with the same insurer and filling different proposals for the same, please mention the details regarding other proposed plan in all the proposals, as the total sum proposed will be much higher and may require some medical examination according to the underwriting principles of the insurer.
- Always write all the previous policies taken from same insurer and another insurer too, as it will affect the financial underwriting of your proposal and medical underwriting if taken within a specified period of current proposal (Time will be different according to underwriting principle of insurer)
- Clearly, mention if you are a politically exposed Person (PEP as per RBI guideline) or having any hobbies which include any hazardous activities like, Para selling, paragliding, rock climbing, river rafting etc.
- Clearly, mention exact nature of your job/service as some job may attract extra premium like aviation etc.
- There are many questions related to your health and previous ailment, you must carefully read every question then give an answer to those questions.
- In the case of female proposers clearly mention the date of last delivery, last menstrual date, and any cesarean section or miscarriage happened before the proposal date.
- Never do any overwriting in proposal form at any place.
- Always sign the proposal after reading every question and answer written against it if not filled by you with date and place of signing.
- Keep a copy of the proposal with you for future reference.
- Ask for the literature of the policy you are taking from the agent and keep it along with the copy of proposal form.
- Provide clear copies of Age proof and KYC documents along with the proposal and always self-attest each document with the reason of giving the document like “for taking new policy “plan/term” from “name of insurer”.
You must know that any question asked in proposal form is important and are material facts for the insurer (that is why those questions are included in the proposal form). Insurance is a legal contract and both insurer and life assured are bound to disclose correct information to one another, if not the contract will become void. Whether policy issued after a medical examination or not you must answer all the questions with “Utmost Good Faith” so that your nominee or loved ones do not have to face any problem while making claim in case of any unforeseen circumstances.