The proposal form is just one starting point of your journey to protect yourself with insurance. There are many measures built into the legal and regulatory systems for insurance which, if followed diligently, will be the insurance for your insurance policy to work optimally.
The Insurance Regulatory and Development Authority (Protection of Policyholders’ Interest) Regulations, 2002 lays down the framework in this regard. Complementing and supplementing these are many other regulations that touch upon more specialised areas in detail.
For example, there are regulations about certain covers such as health insurance and unit-linked insurance policies (ULIPs), about intermediaries such as brokers, web aggregators and agents and service providers such as third-party administrators and loss surveyors relating to their training, competency and code of conduct.
There are even regulations about advertisements and disclosure by insurance companies and other stakeholders in the insurance industry.
There are regulations relating to insurance companies’ corporate governance, financial reporting, prudential norms or investments, or the regulations mandating that rural and social sectors should receive a certain percentage of each company’s products.
Though seemingly unrelated to you and me, the individual policyholders, these too have the final objective of protecting policyholders’ interests. We will take brief look at them later and see how we stand to benefit.
When you are ready to fill a proposal form, you would have been briefed about your policy options, maybe read the policy brochure or prospectus to get to know the benefits, what is covered, what is not and under what terms and conditions.
The Protection of Policyholders’ Interest Regulations have something to say about this part of the process too.
Incidentally, the regulation encourages forms and documents to be made available in languages recognised under the Constitution of India.
As per the regulations, an insurance policy prospectus should clearly state the scope of benefits and the extent of insurance cover.
It should explain explicitly the warranties, exceptions and conditions of the insurance cover. If it is a life insurance policy, it should state if it is participating / with-profit or non-participating / without-profit, which determines whether or not you will share the benefits of investment income related to this policy.
Riders spelt out
Any riders that can be purchased with the policy should also be spelt out in detail.
The above details are in keeping with utmost good faith on the part of the insurance company and disclosure of material facts.
If the proposer misrepresents or suppresses any material fact (unless it is a fraud), the insurance company can repudiate claims on this basis. But this right is limited to the initial three years of a policy. This is stated in Section 45 of The Insurance Act, 1939, and the regulations state that this information should be explicitly stated in the proposal and that the proposer should be guided by it.
Most insurance policies can be nominated and this is a basic necessity and convenience for the beneficiary to receive the claim money. Failing to make a proper nomination defeats the very purpose of an insurance policy and holds up the receipt of claim money in a tedious legal processes.
The regulations underline the importance of this stating that wherever the benefit of nomination is available, “the insurer shall draw the attention of the proposer to it and encourage… to avail the facility”.
Once the proposal form is submitted, the insurer makes his underwriting decision. All such decisions have to be communicated to you in writing and within 15 days.
(The writer is a business journalist specialising in insurance & corporate history)