If you are serious about buying a life insurance policy, getting the right amount of cover and the right insurance policy is very important, but not really enough. You may not want your policy to spring last-minute unpleasant surprises at your dependants, already undergoing trauma, in case of your untimely death. A single incorrect detail about your nominee may make the claim process a nightmare for your dependants.
Here are three steps that will ensure you submit an error-free form.
Do it yourself
Asking your agent to fill up your details is the first and biggest mistake to commit. Just because he is unfamiliar to your details, he may make obvious mistakes that you would never commit if you fill up on your own.
While we recommend that you read all the forms that you sign, we understand that you delegate this work to the agent in order to avoid reading through pages that are written in English but read like a foreign language. However, that’s not a good enough excuse if you don’t want to make your dependants suffer later. If you actually start reading it, you will find that the language is simple and the form has questions that only you can answer accurately.
Says Rajiv Jamkhedkar, managing director and chief executive officer, Aegon Religare Life Insurance Co. Ltd: “Insurance is a contract of good faith. A customer needs to make a declaration of relevant personal information under section 45 of the Insurance Act and if we find that any of the details is false we are well within our right to refuse paying the sum assured.”
And your dependants will have to bear the brunt. Says Sumeet Vaid, founder and CEO, Ffreedom Financial Planners, a financial planning firm: “The business of insurance is not to pay you claims. Therefore, they will check every detail minutely. On your part, you need to be honest and careful as any oversight means the insurer is well within his rights to refuse claims.”
Typically, there are three sets of information that you need to be careful about while filling up the proposal form.
Product details: A lot of insurers have a common proposal form for various policies they offer. Don’t ever leave the column blank for the agent to fill in. Understand which policy you are buying and fill the details of the policy, including the term and the sum assured.
For instance, only one proposal form may be applicable for three different unit-linked insurance plans (Ulips). So if you forget to specify the name of the product you are seeking, you may end up with something you don’t want. Also, you may end up with a term of 10 years, when you wanted a policy for 20 years due to miscommunication with the agent.
Personal details: Personal information is basically divided into two broad categories: information about yourself and about your health.
Information about yourself includes your age, date of birth, which is key to arriving at the mortality charge. Additionally, you also need to give details of your income, occupation and purpose of insurance. Says Vijay Sinha, senior vice-president (marketing, agency sales trading and products),Tata AIG Life Insurance Co. Ltd: “Occupation is also important while arriving at the premium. For instance, coal miners, pilots and other such professions with occupational hazard will be priced higher.”
Information regarding your health is just as important. In the proposal form, you are asked pointed questions regarding your health status. Typically, the insurer looks for any ailments that may increase the risk of the insurer and, accordingly, effects a change in the premium. Questions here revolve around your personal health and any medical history in the family—whether you have been hospitalized in the recent past or have any pre-existing diseases. You need to be honest about filling in the details. Adds Jamkhedkar: “A lot of people do not give accurate health information about themselves for the fear of not getting a policy. This is a myth. We cover even individuals with adverse health conditions but we increase the premium. That is because the risk is higher and the premiums need to be in sync with the risk.”
Insurers insist on a health check-up, typically, for sums assured of at least Rs 30 lakh or in case of the elderly. The cost of the tests is usually borne by the insurer.
At the time of making a claim, if the insurer finds out that you provided incorrect details about your health or even understated your medical condition, the insurer may refuse to pay the claim.
It is important that you go through the questionnaire yourself and fill up accurately. Cautions Jamkhedkar: “The risk you run by banking on your agent is that he may sum up your health condition with just one question. Have you ever been to the hospital?”
Nominee details: A nominee or the beneficiary is that person to whom the insurance company hands over the sum assured after the death of the policyholder. In case of a regular insurance policy, your nominee is the person who has, in insurance parlance, an insurable interest. This means that the beneficiary needs to have an interest in your life. For instance, your family members may depend on you for their livelihood. Therefore, when you insure your life, you make your dependants your nominee. Incorrect details about your nominee may make it tough for your family to claim the proceeds.
However, in case of children’s policy, there is no requirement of a nominee since the child is the automatic beneficiary of the policy that is bought by the parent.
Use the free-look period
Even if you make mistakes in your proposal form, the insurer will give you a window to get them rectified.
Most mistakes that you may have made while filling up the proposal form will get reflected in the policy document. The policy document gives you the name of the policy, the sum assured, the term and other details. You get about 15 days to return the policy if you spot a mismatch. This is called a free-look period.
This period is that breather in your life insurance policy that lets you exit your policy without much scar if you decide early on that the policy doesn’t fit the bill. All insurers, by law, have to offer policyholders a free-look period of 15 days, starting from the day you get the policy, to do a rethink on the policy-buying decision.
In case you reject the policy during the free-look, the insurer will pay back your premium after deducting any medical expenses, which it may have incurred, and other administrative costs such as service charges and stamp duty. Make use of this window to ensure you have bought the right policy.
Keep in mind one basic fact—an insurer covers risks but the premiums they charge for covering the risk is proportionately much lower than the actual cost of covering that risk. Says Sinha: “You pay insurers a premium of a few thousands for a risk cover of a few lakhs. The insurer will ensure they do a thorough check so that they don’t have to pay the sum assured. So if you do not fill up the proposal form carefully, you give the insurers the power to refuse paying a claim if the facts in the proposal form are not accurate.”
The proposal form runs into five to six pages and it would take you just about 15-20 minutes to go through it. You may want to seek the agent’s help, but ensure you fill it up yourself.