From the total sum insured calculated, the sum insured of existing policies is deducted to arrive at the sum insured the insurer can offer. This is done to avoid the risk of over-insurance. “Sub-standard lives may try to insure themselves for a very high sum, resulting in losses for the insurer caused by anti-selection,” says Baradhwaj.
Insurers enquire about a prospect’s current health and history and that of his family. Questions pertaining to health have a direct bearing on mortality risk. Even information on diseases contracted a few years earlier should not be overlooked. The health history of parents and siblings should also be presented accurately as there is a preponderance of some diseases in certain families, while some tend to be genetically transferred. Insurers also enquire about a prospect’s occupation to assess if the person faces above-average risk in his work environment.
Those buying a term plan could be asked about their educational qualifications. “Well-educated people are expected to be more aware and hence look after their health better, hence insurers prefer to cover them. Education also has a bearing on income and hence on human life value,” says Bhawna Sharma, general manager, Policyx.
Insurers ask for full disclosures so that they are able to make an accurate assessment of whether to cover the person and to determine the loading to apply to the premium. The customer gives an undertaking in the proposal form that whatever answers are given are true to the best of his knowledge. If there is any misstatement or concealment, the life insurer has the right to repudiate the claim.
Insurance contracts are based on the principle of utmost good faith. “It means contracting parties act honestly and not mislead or withhold information essential to the contract,” says Subhash Nagpal, CEO and founder, Compare-policy.com. Fill up the proposal form yourself, or read it carefully before signing on the dotted line.