An Honest Proposal

Chandralekha Mukerji        Print Edition: August 2012

How did you file your insurance proposal? Did you fill in the details on the proposal form or just signed and asked the agent to take care of the rest? If yes, this can cost you dearly.

The declarations in the proposal form are the basis on which the insurance companies underwrite policies, that is, assess the risk and calculate the premium to cover that risk.

When you sign the insurance document, you are declaring that you have understood all policy features and its terms and conditions. This means if you later realise that the policy has been wrongly sold to you, it will be difficult to prove in a consumer court or to the insurance Ombudsmen.

Also, when you file a claim, the insurer checks the authenticity of these declarations. Furnishing of incorrect information or suppression of facts can be reasons for rejection.

"There are times when nominees say facts were misstated or not shared. But the insurer may not be able to help at this stage. So, it is important that the proposer, who is responsible for providing facts, bears these aspects in mind to ensure a smooth claim experience," says Suresh Agarwal, executive vice president and head, distribution and strategic initiatives, Kotak Mahindra Old Mutual Life Insurance.

Here we look at some crucial columns in the proposal form - how insurance companies assess these and the impact your cover.

QUALIFICATION

How does your educational qualification matter to the insurer? After all, life insurance is based on human life value or the individual's earning ability over his life. A health insurer who is promising to pay your hospital bills if you fall sick should probably be bothered about your health reports and not college certificates.

Accurate declarationThat's not exactly true. This is because people who are more educated are expected to have better career prospects, earn more, be more aware and have access to better health care.

"Education could have some bearing on risk (and therefore premium) since such individuals are likely to be more aware and have healthier lifestyles. Education also impacts earning capacity," says Agarwal.

Correct declaration of your qualification is also important to avoid troubles later. Insurers often evaluate whether your income corresponds to the education, years of service, position.

If not, additional details may be sought for verification. However, your qualification is neither a prerequisite for buying insurance nor is it a rating factor in isolation. A higher level of education will only give a positive impression while assessing the risk.

OCCUPATION

Accurate disclosuresOccupational risk is a key measure to evaluate wellness and risk of accident. For instance, people in sedentary jobs are more prone to cardiovascular diseases. So, the nature of work is important for risk assessment. The premium will depend on the details.

"The basic premium is calculated considering normal mortality. Any increased risk is covered by additional premium. Insurance companies have a detailed segregation of occupations based on the level of exposure to hazard, which is used to arrive at a suitable premium," says Jyoti Punja, chief operating officer, Bharti AXA Life Insurance.

Individuals in hazardous occupations or those who have dangerous hobbies are charged more. The insurer can even refuse them coverage.

INCOME

You know that your income matters to the insurer. But did you know that your source of earning is important too?

"Typically, insurance companies prefer salaried individuals as they have a stable income and so a higher chance of not defaulting on premium payment," says Ashwin B, chief operating officer, ING Life insurance.

Businessmen, freelancers or people who work on a contract basis do not have income stability. Their Human Life Value, or HLV, is calculated on the basis of the annual business turnover or their average yearly earnings shown in their income tax returns.

Accurate disclosuresSimilarly, inherited assets are treated diffrently. Since this is not earned income and its loss is not linked to the person's earning capacity this does not affect the HLV and, therefore, the insurance coverage.

"Earning capacity (on the basis of your current position and growth potential) and asset-liability imbalance can affect insurability," says Suresh Agarwal of Kotak Mahindra Old Mutual Life Insurance.

Other details such as the number of years in service and designation also make a difference, especially if you are in the high-risk job category. This is based on the assumption that with seniority and experience, the amount of manual work is expected to fall along with so the exposure to hazard will also.

Also, as one gains experience as well as expertise, probability of an accident happening at work decreases. Evaluating your earning capacity, the number of years at work and professional prospects helps in ruling out over-insurance, a situation in which insurance benefits exceed the actual loss of an insured.

PERSONAL HEALTH

The first parameter that comes to our mind when we mention health insurance is the smoker/non-smoker criterion. We all know that addictive substances such as tobacco and alcohol impact health adversely. So, if you are a tobacco user, insurers will charge more.

However, it's not so simple. For instance, all tobacco and alcohol consumers do not have to pay more. It depends on the frequency as well as the type of consumption as well as the quantity consumed. The period for which you have been addicted is also important.

Accurate disclosuresAlso, if you have quit, the insurer may not charge loading on the premium after a certain period, usually a couple of years, after which you will be treated as a non-user. However, the company may want to verify your health first.

"After quitting, the effects of smoking take some years to go away. So, you must disclose all the details to the insurer, whose assessment is based on factors like duration for which you were addicted and the effect the habit has had on you," says Ashwin B of ING Life insurance.

There is another complication. If the reason for quitting was a medical condition, it will be taken into account.

Your BMI or Body Mass index is another parameter for evaluating health. A drastic change or a poor BMI are a concern.

"A sudden elevation or drop in BMI can be due to medical conditions such as tuberculosis, cancer, etc, and is evaluated very carefully. In the absence of conclusive results, cases are either deferred or rejected," says Antony Jacob, chief executive officer, Apollo Munich Health Insurance.

MEDICAL HISTORY

This is carefully scrutinised by both life and health insurers. While it determines longevity in case of life insurers, health insurers look at the long-term costs of financing health care.

Accurate disclosuresIf an applicant has a history of illness, the premium may go up slightly. The kind of illness is also important. If it is a minor problem such as viral jaundice (hepatitis A or E) or kidney stone, there will be no impact on the risk profile.

However, tests or treatment for diseases known to cause death (such as heart ailments, cancer, kidney disorders or systemic diseases like advanced hypertension and diabetes that can lead to organ damage) are considered bad risk.

Insurance companies do cover these diseases, but charge more and put restrictions on waiting periods. If you are under regular treatment, the cover may be deferred for a short period for proper assessment of risk.

SICK LEAVES

Insurers, especially providers of health cover, can check your medical leave history as well. Though long leaves are not considered negative as such, the insurer will investigate the reason behind long medical leaves, say, of more than five consecutive days.

Accurate disclosures"Long leaves always put a question mark over the client's health condition. Reasons for those leaves are important from an insurance point of view. It will invoke more information from the client," says Ashwin B.

In case of maternity leaves, the company will take into account any complication during pregnancy. Also, if you have had a caesarian delivery, the underwriting may differ.

"Medical statistics reveal that once a woman has undergone a caesarean procedure, in all likelihood she will choose to complete her next pregnancy in the same manner. The cost of hospitalisation associated with this procedure is higher. So, health insurance providers make a note of such procedures while determining the optimum premium," explains Jacob of Apollo Munich.

However, the policy on this differs from company to company on a and case to case basis.

FAMILY HISTORY

Not only your but your families' medical history would also be taken into account by the underwriter before extending an insurance coverage to you. A critical illness of an immediate family member could make an insurance company wary.

Accurate disclosuresThis is because some illnesses can be hereditary. They consider such cases carefully and include this point during the risk assessment process.

However, all family histories need not have a negative impact. Only certain types, especially genetic, are viewed as bad risk.

So are cases where both parents are suffering from the same disease and disorder, and therefore there is high probability that it can impact the life of the individual as well.

EXISTING POLICIES

Every person has a defined human life value (HLV) and that is the maximum up to which insurers can offer cover. Non-disclosure or improper disclosure regarding existing policies at the proposal stage could lead to over-insurance.

If you have an existing policy, the life insurer will usually offer only the balance of the cover, that is, HLV ' sum assured of the existing cover.

"Health insurance companies may have criterion to limit sum insured based on current policies. If undeclared, it can affect claim settlement, especially in case of fixed benefits," says Neeraj Basur, CFO, Max Bupa Health Insurance.

In fact, if the insurer comes to know about a pre-held policy that wasn't declared, it can reject the claim on grounds of material non-disclosure. This is also important to check frauds.

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