What happens if you give wrong information in the proposal form for insurance?
Mr. Girish has decided to take health insurance policy for him and his family members as the health care costs are rising continuously and any small health issue can seriously lead to financial crisis. So, he approached an agent for selecting the best health insurance policy. The agent had advised him a particular health insurance plan from XYZ insurance company, after calculating the premium and going through the brochure Girish has agreed to take the plan.
Girish is a diabetic for the past 10 years and has been taking insulin shots to keep it under control. While filling the proposal form he thought it would increase his premium or the insurance company would decline his proposal if he reveals that he is a diabetic patient. All the other details are mentioned and a declaration is made by him stating that all the facts have been declared.
One bad day while watching cricket match he suffered a mild heart attack after which he was rushed to a nearby hospital. There he was placed in ICU and treated for the same. After discharge from the hospital he approached the insurance company for the claim with all the relevant documents.
After scrutinising the documents the claims department found that the cause of heart stroke was diabetes and the same was not declared in the proposal form. This led to the rejection of the claim by the insurance company. His greed to save few hundred bucks made him cough up few Lacs to the hospital for treatment.
It is of utmost importance to declare any pre existing diseases before taking the insurance.
Principle of Utmost Good Faith:
The principle of utmost good faith, uberrimae fidei, states that the proposer and insurer must disclose all the material facts before the inception of the policy. This principle applies to each and every insurance policy and there is no exemption for any policy from this rule.
It is the responsibility of the customer to declare all the material facts in the proposal form at the time of taking an insurance policy. The material facts are those which decide the acceptability of the proposal by the insurance company.
For example, in health insurance any illness prior to the policy inception is considered as pre existing illness and is to be declared in the proposal form.
What to declare in proposal form?
The proposal form of insurance is a basic sheet which contains all the questions regarding the risk. These questions should be answered in good faith. The questions which affect the underwriting ability are below:
- Health insurance: Pre existing diseases such as diabetes, BP, Thyroid etc., previous treatment for any particular diseases, surgeries undergone etc.
- Motor insurance: Hiding previous claim history to claim No Claim Bonus, Insuring vehicle in name other than the RC Copy.
- Life Insurance: Pre existing diseases, surgeries undergone, occupation, income proof etc.,
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