Basic Legal Tips on Insurance

So far, I have not been able to put up some work which will be understandable as well as useful for those friends of mine who do not belong to legal fraternity. So just thought to have a post which gives very basic idea about a few concepts in insurance contracts which will help you handle your insurance contracts and claims in a better and informed manner.

While I intend to cover a lot of things, this first article will cover few aspects in a nutshell and I will try and cover some other topics in later articles.

For the sake of convenience I have divided this whole article into three parts viz. ‘pre issuance’, ‘post issuance’ and ‘claims’ which will cover major concepts in the life cycle of a life insurance policy.

Pre Issuance:   

Let me first start with the concept of ‘Uberrima Fides’ which literally means ‘Utmost Good Faith’. An insurance contract is based on utmost good faith between the parties and hence it is of utmost importance that both the parties (proposer and the insurance company) are transparent, diligent and honest while entering into the contract.

us analyze what these three words mean for both the parties. Obviously both come to the table with different mindsets. One comes with a view to get best insurance-cover at lowest possible premium rates and the other with a view to earn some money out of the contract.   

So from the point of view of the customer or ‘proposer’ so to say ‘transparency and honesty’ would mean disclosure of all ‘material information’ that the company is seeking in the proposal form.

The term material information is not very difficult to understand. It is basically that information which is necessary for an insurance company to know to ‘underwrite’ the policy. ‘Underwriting’ a policy means analyzing and deciding whether a proposal be accepted or rejected. Decision as to whether the company wants to take the risk on a particular life on its books or not.  

So the next question arises as to, ‘how a lay man would know what is material for the insurance Company’?

It is simple. Legally speaking, any information that is sought by an insurance company in its proposal form and all other connected documents (medical questionnaire, supplementary financial forms, supplementary personal information form etc.) is material information and hence must be answered with full honesty and integrity.  

One must make sure that all medical, financial and personal (family) details are filled by one’s own hands and with utmost sincerity and honesty. It s important that every minute details that the proposal form seeks is filled up and rechecked before it is submitted for the company to consider.       

Be sure, that if the above point is taken care of, there will be no problems for you or your family in that eventuality to get the claim money.

While we talk about ease of getting money at claims stage, one must also ensure that the nomination details are filled up in the proposal form. It will save your family from unnecessary documentation and hassles in that unfortunate event when they have to lodge the claim with the insurance company.

Now that we have spoken about our responsibilities of being transparent and honest, let us understand what is it that insurance company needs to make sure to follow the principle of ‘utmost good faith’.

An insurance company is duty bound to explain all the benefits, charges, features, important terms and conditions like surrender rights, termination, and premium details of a life insurance policy and hence always pay attention to what an agent, broker or company representative is explaining to you.

If you are in doubt ask questions and ask for authorized and printed material like brochures, leaflets etc. make sure that the material shared by the agent is genuine. One can make out as to which material is genuine as it will always have certain crucial details like company logo, full name, registered office address, IRDAI registration number, CIN number etc.

One crucial document that one must see is ‘benefit illustration’. It is required to be signed by the proposer along with the proposal form and it gives a brief idea about how the product is going to give benefits. The document explains the benefits over the entire term of the policy and hence is an important tool to ascertain if the product is suitable to your needs or not.

If required one may also keep a copy of the proposal form that you fill up and submit with agent, broker or company representative. While the company will send one copy of the proposal form along with policy document the copy kept by you will help you ensure that your proposal is not changed and/or fabricated by anybody after you submitted it.  

Post Issuance:    

Most of us do not care to have a look at the life insurance policy once it is issued and sent to us by the company. I would suggest that one must go through the policy document as soon as it is received, for two simple reasons:

·         One, it will make sure that you have got what you had proposed for; and

·        Two, if you haven’t, then you will not lose upon your right to seek cancellation of the policy

The second bullet point brings us to yet another concept, which is unique to life insurance business and it is called ‘Free-Look Period’. As per prevailing regulations every insured has a right to go through the policy document within 15 days of its receipt and seek its cancellation in case of his disagreement with any terms and conditions of the policy.

In case the request is made duly in time the insurance company is liable to refund your premium after deducting stamp duty, medical expenses, if any and proportionate mortality charges.

It is, therefore, important to read the insurance policy in details as soon as it is received as any request made beyond those 15 days, gives right to the insurer to decline your request for cancellation.

Claims:

If the proposer has taken care of the points mentioned in above two heads then there will be no reason for an insurance company to decline the claim.   

One must ensure that whoever has been nominated under the policy is informed about the same. The nominee should also be made aware of the procedure as prescribed in the policy so that no hassles are faced while lodging a claim with the company.

Be aware that insurance company is under regulatory obligation to demand all necessary documents in one go and they can not ask for documents in a piecemeal. Please be also aware that insurance company has to decide the claim within 30 days from the date of receipt of all the relevant documents. Any delay in deciding the claim beyond the period of 30 days would make an insurance company liable to pay interest which is 2% higher than the bank rate prevailing in the year in which claim was reviewed.

However, in case where company feels that documents given by nominee/claimant are not sufficient it has a right to initiate investigation. The said investigation needs to be completed within a period of 180 days from the date of receipt of claim by the company. In such case, therefore, the period of 30 days will have to be computed from the date of completion of investigation or 180 days whichever is before.    

There are few more concepts relating to claims, which I will try and cover in my next article in this series.

Hope you find this article informative.