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Disclosures in Proposal Form of Existing Insurance Policies

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Amar, age 50, had taken term insurance of Rs 1 crore and was content that family financial security has been taken care. Unfortunately, Amar died during COVID. Family applied for claim but claim was repudiated because of non-disclosures of existing insurance policies. The family investigated and found that Amar had applied for term insurance with two companies on a monthly mode but continued with only one company. Amar should have declared the policy which was discontinued.

Vimal Gupta was a successful businessman and had multiple insurance policies. He bought a large cover when he took a loan of Rs 10 crore. Within 9 months, he expired due to a cardiac arrest but claim was rejected on non-disclosure of existing insurance policies. Family of Vimal confirmed that all list of policies was handed over to agent but same was not submitted along with the Proposal Form. But it was found that same was not declared in the Proposal Form and Vimal had shared the OTP as acceptance of the form.

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So it is clear that disclosure of existing policies is very critical and we must ensure that it has been mentioned on the Proposal form.

Why disclosures of existing insurance policies are important?

Here are the 3 reasons why accurate disclosures are must for insurance policies as mentioned below:-

  1. Human Life Value: It is calculated on the basis of age, income generation and retiring age. A 30 year old person earning Rs 10 lakh per annum would have a Human Life Value of Rs 3 crore and a 50 year old person would have HLV of Rs 1 crore presuming they retire at age 60. So Insurance company would ensure that total sum assured on 30 years old person do not exceed Rs 3 crore.
  2. Moral Hazard: Insurance is a contract of Proposal and acceptance. Underwriter accept Proposals without meeting a life insured and they assess risk on the basis of disclosures in Proposal Form. If underwriter see a trend in number of insurances then they do not accept such proposals on the basis of moral hazard.
  3. Risk Assessment: Insurance Company wants to know if any of your policies have been declined, accepted with increased premium or number of lapsed policies. This indicates the extra risk to Insurance Company and they need to take decisions on the basis of these facts. They can also verify the case with other insurers or reinsurers.
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List of insurances which need to be disclosed specially in cases where you are applying for term insurances:

  1. All policies which are Premium Paying
  2. All policies which are in lapse mode
  3. All policies which you applied but did not continue. Specially in term insurance, people keep changing insurers due to changes of rates but forget to give details of terminated policies.
  4. All policies which have been declined or accepted with revised premium.

 

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Please understand that Insurance is a legal contract and disclosure is your responsibility. You cannot blame your agent, broker or bank that they did not ask for it. You can also not say that list was given to the intermediary because form need to be filled by you and checked by you through OTP. Even if you have given details it needs to be mentioned on the Proposal Form.

So do read the form when form is shared with you on email or policy document is received by you. You can given additional information during a free-look period or even later, insurance company would be willing to reassess your case and in 99% cases, they would acknowledge and accept your case.

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