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Published in Mint on , Dec 12 2011, Written by Kapil Mehta
The period between January and March is the busiest for the insurance sector. People rush to purchase insurance policies to save income tax. However, the insurance proposal form remains a mere formality. Often a blank form is signed for the agent to fill later. This could be a costly mistake. Insurance laws allow an insurer to cancel an insurance contract, at its discretion, if the customer has not disclosed relevant information or if the information is incorrect.
For the insurer, the proposal form is a key document to assess the life being insured. Mistakes in filling these forms open up the possibility of customer servicing issues, incorrect product purchase and even claim repudiation. The general principles to be followed while filling proposal forms are to be accurate, unambiguous and complete.
Personal details
This section requires information on name, age, address and occupation. Though this requirement is routine, it is astonishing how many people get it wrong. For many insurers, around one in five customers cannot be contacted because of incorrect information in the form. These customers’ policies, product information and renewal notices remain undelivered. Such policies often lapse.
You can prevent these issues by:
• Providing a permanent address
• Providing your email and marking the insurer’s emails as “not spam”
• Providing your personal phone number and give one or two alternative contact numbers. Avoid office phones or temporary connections
There is more to a product than just its name. Product tenor, sum assured, payment terms and riders selected need to be specified. Customers often complain that they purchased a single-premium policy but were shocked when the insurer sent them a renewal notice after a year. This happens because the customer did not fill the form completely or left that to an adviser. Distributors and agents earn more from regular-pay policies than single premium where their commission is restricted to 2% of the premium. The unscrupulous adviser will log the policy as regular premium. A year later there is little recourse that a customer has because she signed off on the proposal form and did not point out the discrepancy within the free-look period.
Customers should leave no blanks in the product section. Advisers need to provide customers with a payment receipt. Make sure you have it particularly if you pay in cash.
Other insurance
Health insurance providers ask for details of other health insurance policies held by the customer because in a health claim each insurer is expected to pay its proportionate share of the claim. This does not impact you because insurers manage this process among themselves.
Life insurers also ask for details of other insurance policies held. The purpose is to verify that a customer is not over-insuring himeself relative to his income. Over-insurance suggests that you have not declared a known medical condition. If insurers detect this then your claim is likely to be heavily investigated.
Most people do not complete this section out of laziness. It is recommended that you provide these details. Full disclosure of existing policies has little downside. Insurers are unlikely to hold back your insurance. However, non-disclosure can result in claim repudiation.
Medical condition
Customers view this section with trepidation. We all face the dilemma of how much medical information to provide. Providing accurate, unambiguous information is particularly difficult in simplified-issue products and proposal forms.
The simplified-issue product and its supporting forms are designed so that medical tests and paperwork is minimal. The 15-plus detailed medical questions of a fully underwritten product are replaced with a short medical questionnaire of about five questions. Intermediaries such as banks, corporate agents and brokers prefer these proposal forms because insurance approval rates are higher and turnaround times faster.
The problem with simplified-issue products is that the questions are very broad. For example, one of the questions will be “Apart from minor ailments, such as colds and flu, have you received any treatment from any doctor or specialist or been hospitalized or undergone hospital treatment, in the last five years?” Over 95% of people reply no to this question though in reality that is close to impossible. This exposes customers to a detailed scrutiny at the claim stage.
I advise you to select products and forms that are fully underwritten which means that they have a detailed medical and financial section. These forms have fewer ambiguous questions and shifts the responsibility to the insurer to correctly assess a customer’s medical condition and, therefore, have a higher certainty of claim payments. Also, fully underwritten products are cheaper. Irrespective of which forms you fill, make full disclosure. When in doubt disclose information and let the insurer decide if it is relevant.