Many insurance buyers “forget” to include relevant information in the application form. Sometimes this is accidental, and sometimes this is deliberate (either on their own or on the “advice” of the agent). This violates the insurance contract making the policy and all the premiums paid useless. If you have failed to disclose any relevant information, this is what you need to right away.
About the author: Deepak Mendiratta, managing director of plancover. Deepak has helped many families get medical cover and has also favourably resolved complicated claims. His competence is regularly on display at FB group Asan Ideas for Wealth (AIFW). Regular reader may recall his webinar: How to select a health insurance policy in 2020
Insurance is a contract entered into on Utmost Good Faith. Not including relevant information in the proposal form at the time of taking the cover include – Non-declaration, Mis-declaration or partial declaration – is considered as a breach of the basis of that contract. This has an implication of cancellation of policy and non-payment of claim in future.
Common Reasons for missing on disclosures include
- Intentionally not wanting to declare with consideration of hiding the facts
- Not being aware of what to declare and what not to
- The proposal form is filled by someone else especially an agent
There is a high tendency to buy insurance in case of the presence or suspected presence of an ailment. Insurers often hedge this risk by having a deferred benefit payment – in health, they have a waiting period for the first 30 days and certain treatments for the first year or two. This apart, pre-existing is not covered for a longer duration of time. In life insurance, suicide is not covered for Year 1
In health insurance, pre-existing conditions and diseases have an important role to play in the issuance of the policy. The practice followed commonly has allowed the insurance companies to not only deny claim payment but also cancel the policy for non-disclosure of material facts.
In life insurance, non-declaration has far greater implications as compared to non-life products like health. This due to the trigger being death and the stakes being higher in payouts often. While Section 45 of Insurance Act, 1938 deals with time barring on such information being discovered by the insurer post-policy sale, it is advisable for policyholders to note the implications of such a discovery. While most material facts are asked in the proposal form, one may miss declaring accurately or may be advised to declare contrary to facts.
Once you find that the proposal form may not contain all information accurately, I personally am of the opinion, that you should proactively approach the insurer and update them of the same.
The options are then with the underwriter to evaluate if the declaration has a material bearing on the risk or not. They may be depending on the nature of declaration, allow the policy to continue, especially if it is a minor impact on the overall risk assessment – viz a severe accident many years earlier that you missed mentioning or an equally severe infection resulting in hospitalization.
In case its an important risk-bearing information viz whether you are a tobacco consumer, the insurer may advise cancellation of the policy and request you to go in for issuance of a new cover. In either case, it is advisable that you f0llow those guidelines given to make sure that in the event of a claim in future, this does not become a roadblock to having the settlement in your favour.
Do also read the fine print in the policy on informing the insurer in case of a change of habits. If such a clause exists in your policy, do inform the insurer. They may end up putting a premium loading but will not be cancelling the cover.
In case you suspect yourself of not having disclosed fully, I advise that you come clean now rather than continuing payment premiums which may keep open the risk of non-payment of claims in future.
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