Published in Mint on 16th October, 2017. Written by Kapil Mehta
Buying insurance requires considerable paperwork. Brochures and key-feature documents need to be read, illustrations and declarations signed, and financial and Know Your Customer information submitted. The most important document, however, is the humble proposal form.
This proposal form comes in different shapes and sizes. In many insurances, it is paper-based and needs to be filled by hand. Sometimes, the information can be provided electronically, and in a few cases such as motor insurance, the proposal form may not even be required.
The form is important, obviously because that’s where you provide information that is the basis of your insurance. But equally valuable is the fact that completing a proposal form requires putting pen to paper or fingers to keyboard. The act of writing forces mindfulness. The few minutes when a proposal form is being completed are when buyers understand the product best, specifically the features they get and the claims that will get paid.
In filling up a proposal form you should be accurate. That’s easier said than done. The most basic information asked is your contact detail. Yet, crores of claims and maturity amounts remain unpaid because insurers are unable to reach policyholders at the numbers and addresses they gave. Do ensure that the address you give is permanent, the phone number is one that you intend to keep and the email is personal. People change jobs more often than they expect.
Provide the information asked and not more. Be to the point. There is little benefit in giving additional information. There have been situations, in health insurance for example, where the applicants opened up about feeling anxious and had their applications declined. In motor insurance, there is little advantage to describing small dents if they are not asked for, particularly if the insurance is getting renewed on time. You will find those damages excluded from your renewed insurance.
Complete the form yourself. That allows you to control what is shared. All too often applicants will sign a blank proposal form and have an adviser do the rest. That’s a recipe for disaster. It’s not that the adviser will deliberately mis-state facts but there may be information the advisers just do not know or, in their wisdom, leave out things they consider unimportant.
When insurers send back a copy of the completed proposal form, read it. That’s an important check to see the basis on which the insurance was issued. Sometimes, information may be altered by someone in the distribution chain and it’s good to look for such inconsistencies.
For life insurance, in particular, the nominee section in the proposal form is key. Previously, the benefits of a life insurance policy were paid to the legal heirs with the nominee being a temporary custodian of the money. However, according to the new insurance Act, if the nominees you select in the proposal form are legal heirs then the entire benefit will be paid to them in the proportion you specify. This gives you much better control over directing who should benefit from your insurance.
Insurers should design their proposal forms to be brief, specific and educative. The length of the forms varies hugely amongst insurers. In home insurance they range from 2 to 6 pages. In health, from 3 to 12. Lengthy forms have two problems. First, the formatting is poor making them cumbersome to fill. It’s often not possible to write legibly in the form. Second, you are never sure which information is mandatory and whether the fields you left out are the ones that will matter when you make a claim.
Specificity is also required. Some common reasons why home insurance claims are rejected are that the basement, where the loss often occurs, was not declared or commercial activity such as an office or clinic was not mentioned or the length of time the house was vacant was not listed. In a good form all these questions should be specifically asked to reduce the possibility of a claim being rejected. Health insurance has a similar need for specificity. All health insurance forms have catch-all medical questions that require applicants to mention diseases they suffer from. Some insurers leave these broad. For example, “Have you had any other illness other than mentioned in the questionnaire (other than common cold)?” or “Any additional facts which affect the insurance & should be disclosed to the insurer?” These catch-all questions always leave applicants doubtful about what to declare. However, some catch-all questions are more specific. For example, “Are you currently suffering from any symptom(s) or complaint(s) persisting from more than five consecutive days?” or “Have you undertaken any surgery or a surgery been advised in the last 10 years?” The specific questions leave less scope for disputes and are better from the customer’s perspective.
Finally, a good proposal form educates buyers about the insurance once more. It will tell buyers that in a home insurance there is a choice between reinstatement value, where cost of reconstruction is paid or market value, where depreciated value is paid. In motor insurance, it will clearly specify the add-ons and exclusions such as engine seizure or tyre bursts. In health insurance, it will remind the insured of the waiting periods for diseases.
Buyers should take their time to fill this form. Remember, those who act in haste repent at leisure.