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Buyers should ignore the agent's refrain to 'simply sign' and read the proposal carefully
After the controversy surrounding unit-linked insurance plans has unfolded many policyholders are going back to the policy forms documents and are surprised at the facts mentioned therein. But instead of being surprised after a controversy and questioning what to do now, one should take steps before signing the insurance proposal to avoid such situations in the future. The first step to avoid these situations is reading and filling the application form for any product yourself.
The insurance form - also called proposal form by agents and insurers - asks for details about the policyholder in terms of age, address, income, medical details. The form also asks you to fill details of other life insurance policies that you already have, whether you were rejected for any policy or given one with increased premium, whether your work involves special hazards which may injure you, whether there have been any investigative tests that you have undergone in the past year, etc. In fact, it also asks if you take part in adventurous hobbies such as mountaineering, diving or racing.
But do you recollect any insurance agent having asked you these details before filling in your form?
The instructions mentioned on most insurance forms state, "This form is to be filled by the Proposer (who is buying the policy) himself… Insurance is a contract of utmost good faith, which requires all material facts to be disclosed…" However, people are used to agents saying, "Sir, just sign at the cross mark and I shall do the rest." This has been a trick used by financial product agents to give investors the impression they are being rescued from filling lengthy forms asking for repetitive details.
But there is a more sinister reason for that. Often, an agent is not as much concerned about mentioning the policyholder's details as he is about achieving his monthly targets. One of India's biggest insurance companies earlier had a minimum target of 12 policies on 12 individuals a year for agents. In the last financial year, it altered the targets, and now requires agents to get 12 policies on minimum 12 people for which the first year premium is at least Rs 1 lakh, within the first three years.
An IT professional recollects that his friend, who was an insurance advisor, had convinced him to buy a policy. He handed over the form to the IT professional asking him to fill it and get it the next evening. Days after submitting the form, in an informal chat, his friend asked him, "Why did you mark yes in the columns where they asked you about having medical treatment for more than 15 days and whether your weight had changed by 5 kg in the last year?" The professional replied that he was having antibiotics for his dental treatment, which stretched above 15 days, and that had lost a lot of weight last year as he went through a stressful time.
The agent responded: "Just because you marked them yes, my unit manager missed his Mauritius trip that he would have got for completing his targets. Now your policy approval will need a medical examination and has delayed everything." Now you know why most agents promise to give you an insurance cover saying "No medical test is needed." It's because they fill the form such as to avoid a situation requiring a medical test. Note, however, that if you as a policyholder have signed wherever you have been asked to, you are agreeing and abiding by things mentioned below:
"I have not withheld any information"
"I have not provided false information in reply to any question"
"This statement and declaration shall be the basis of the contract of assurance between me and the insurer"
"I understand and agree to the various charges such as mortality charges, policy administration charges, premium allocation charges, which will be recovered by cancellation of units or deduction of premium" "Any doctor, hospital or employer is not prohibited from divulging any knowledge, information concerning my health, employment on the grounds of secrecy…"
"If there has been any non-disclosure of a material fact then the policy may be treated as void and all the premiums paid under the policy may be forfeited by the insurance company" These are some of the statements mentioned just above the place the agent asks you to sign. But do you recollect any agent having asked you these details before filling in your form?
It also says above the place you sign that if your health or occupation changes after you have filled the proposal but before you receive the premium receipt, you will inform the insurance company of the same. You also have to tell the insurer if during that period any other insurance policy with any company was dropped or withdrawn. "Any omission on my part to do so shall render the contract of assurance invalid," says the form. When the form is filled without confirming any facts, then you are considered to be hiding them. This could result in the insurance claim not being paid to you or your family in case the insurer discovers you didn't mention the correct details in your proposal form.
Remember - there is no way to prove that the agent never asked you for any details, but the insurance company can declare your insurance contract null and void as it has proof in hand by way of your signatures across the form. Verbal conversation of an agent is not considered as proof. The proposal form mentions that "No policy of life insurance… after the expiry of two years from the date on which it was effected be called in question by an insurer on the ground that statement made in the proposal or in any report of a medical officer, or referee, or friend of the insured, or in any other document leading to the issue of the policy, was inaccurate or false."
But the insurance contract can be called in question if, "The insurer shows that such statement… was fraudulently made by the policyholder and that the policyholder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose." Also, apart from the policy form, an applicant is required to sign two other documents - a benefit illustration and a statement that he has understood the policy. The benefit illustration shows in tabular form the premium to be paid and the amount or benefits the policyholder will get over the tenure of the policy. By signing these two forms you are confirming to the company that you have understood the policy, and you cannot later claim that the agent cheated you and didn't tell you about the policy or charges.
So, insurance is no less than a legal contract that you enter for your house or other matters. Read the proposal form like you would read a statement on a stamp paper, and ask your agent in case you have any doubts. Only then should you place your signature on it.
Source : http://epaper.dnaindia.com/
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