Why a proposal form is sacrosanct

Insured, nominees have to live with its consequences once the form is signed

The proposal form is the basis of your insurance contract. An important function of the form is to extract all material facts from the potential insured — that is you — that are pertinent to the policy you want to purchase.

A properly-filled proposal form is the first and biggest step in fulfilling your responsibility of adhering to the principle of ‘utmost good faith.’

The other half of ‘utmost good faith’ is the responsibility of the insurer to inform you in detail about the offered coverage, its extent, terms and conditions and its exclusions. So, you should be able to make informed decisions while buying the policy.

Proposal forms are designed for full disclosure and ensuring this will help you in receiving claims properly.

For example, in a hospitalisation policy, information regarding your health status and medical history will be required. If pre-existing conditions are withheld, claims can be repudiated on that basis. If it is home fire policy, details of the physical construction of the building, its fire-safety norms and fire-safety systems or equipment will be captured.

Proposal form declarations for life insurance are more critical to your coverage given that the claim is meant for the financial protection of the insured’s loved ones after his lifetime.

Legal dimension

Thus, your declarations acquire a legal dimension and the proposal form is consulted when claims are processed. For this purpose, you should have a copy too, and all papers preserved where you and your family members can retrieve them.

In fact, the Insurance Regulatory and Development Authority of India’s (IRDAI) Policyholders’ Protection Regulations mandates that a copy of the proposal form should be given to the policyholder along with the policy copy at the time of purchase of cover. Please ensure you receive this and preserve it for future reference.

It is common for those who buy insurance to be exasperated when it comes to filling proposal forms, to refuse to do so or refuse to give full information. Unfortunately, buying insurance itself is approached reluctantly and with distaste, and filling forms is considered a bafflingly irritating requirement of doubtful value.

The reverse is true and the only advice that can be given is, filling the proposal form is the one big favour you can do yourself while buying insurance.

Your insurance intermediary, an agent or broker or a bank staffer, can help you fill the proposal form. But remember, you are the owner of the document as you sign it. And, it is you and your nominees who will live with its consequences.

Sometimes, these details are filled erroneously by an intermediary and that could work to your disadvantage. So, verifying all details before signing and submitting it is your responsibility.

In the case of proposers who cannot read the proposal form or if it is in a language not known to them, then the contents have to be read out to them, explained and a full understanding of it ensured. The person doing this has to also sign a declaration that it has been carried out properly.

The bottomline is that the insurance contract is based on trust that both the parties are upfront about all relevant information.

Utmost good faith upholds the contract and when it is not observed, it can dent financial security and destroy lives.

(The writer is a business journalist specialising in insurance & corporate history)

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