Life insurance policy and Protection to policyholders

The Regulatory authority – Insurance Regulatory and Development (IRDA) provides regulations for the protection of policyholders. The IRDA (Protection of Policyholders’ Interests) Regulations 2002 — prescribe the duties and obligations of insurers and intermediaries, pre- and post-sales.

 Duties of Insurer

1. The prospectus of any insurance product should state the scope of benefits, the extent of insurance cover and in an explicit manner explain the warranties, exceptions and conditions of the insurance cover and, whether the product is participating (with-profits) or non-participating (without-profits).

2. The allowable rider or riders on the product shall be clearly spelt out with regard to their scope of benefits, and in no case, the premium relatable to all the riders put together shall exceed 30% of the premium of the main product.

3. An insurer or its agent or other intermediary shall provide all material information in respect of a proposed cover to the prospect to enable the prospect to decide on the best cover that would be in his or her interest.

4. Where the prospect depends upon the advice of the insurer or his agent or an insurance intermediary, such a person must advise the prospect dispassionately.

5. Where, for any reason, the proposal and other connected papers are not filled by the prospect, a certificate may be incorporated at the end of proposal form from the prospect that the contents of the form and documents have been fully explained to him and that he has fully understood the significance of the proposed contract.

6. Wherever the benefit of nomination is available the insurer shall draw the attention of the proposer to it and encourage the prospect to avail the facility.

7. Proposals shall be processed by the insurer with speed and efficiency and all decisions thereof shall be communicated by it in writing within a reasonable period not exceeding 15 days from receipt of proposals by the insurer.

8. Grievance redressal procedure:Every insurer shall have in place proper procedures and effective mechanism to address complaints and grievances of policyholders efficiently and with speed and the same along-with the information in respect of Insurance Ombudsman shall be communicated to the policyholder along-with the policy document and as maybe found necessary.

9. Policyholders’ Servicing : An insurer shall at all times, respond within 10 days of the receipt of any communication from its policyholders in all matters, such as:

(a)  recording change of address;

(b)  noting a new nomination or change of nomination under a policy;

(c)  noting an assignment on the policy;

(d)  providing information on the current status of a policy indicating matters, such as, accrued bonus, surrender value and entitlement to a loan;

(e)  processing papers and disbursal of a loan on security of policy;

(f)   issuance of duplicate policy;

(g) issuance of an endorsement under the policy; noting a change of interest or sum assured or perils insured, financial interest of a bank and other interests; and

(h) guidance on the procedure for registering a claim and early settlement thereof.

10.  The requirements of disclosure of “material information” regarding a proposal or policy apply, under these regulations, both to the insurer and the insured.

Matters to be stated in life insurance policy

(1)  A life insurance policy shall clearly state:

(a)  the name of the plan governing the policy, its terms and conditions;

(b)  whether it is participating in profits or not;

(c)  the basis of participation in profits such as cash bonus, deferred bonus, simple or compound reversionary bonus;

(d)  the benefits payable and the contingencies upon which these are payable and the other terms and conditions of the insurance contract;

(e)  the details of the riders attaching to the main policy;

(f)   the date of commencement of risk and the date of maturity or date(s) on which the benefits are payable;

(g)  the premiums payable, periodicity of payment, grace period allowed for payment of the premium, the date the last instalment of premium, the implication of discontinuing the payment of an instalment(s) of premium and also the provisions of a guaranteed surrender value.

(h)  the age at entry and whether the same has been admitted;

(i)   the policy requirements for (a) conversion of the policy into paid up policy, (b) surrender (c) non-forfeiture and (d) revival of lapsed policies;

(j)   contingencies excluded from the scope of the cover, both in respect of the main policy and the riders;

(k)  the provisions for nomination, assignment, and loans on security of the policy and a statement that the rate of interest payable on such loan amount shall be as prescribed by the insurer at the time of taking the loan;

(l)      any special clauses or conditions, such as, first pregnancy clause, suicide clause etc.; and

(m)     the address of the insurer to which all communications in respect of the policy shall be sent.

(n)       the documents that are normally required to be submitted by a claimant in support of a claim under the policy.

(2) While forwarding the policy to the insured, the insurer shall  inform by the letter forwarding the policy that he has a period of 15 days from the date of receipt of the policy document to review the terms and conditions of the policy and where the insured disagrees to any of those terms or conditions, he has the option to return the policy stating the reasons for his objection, when he shall be entitled to a refund of the premium paid, subject only to a deduction of a proportionate risk premium for the period on cover and the expenses incurred by the insurer on medical examination of the proposer and stamp duty charges.

Claims procedure in respect of a life insurance policy

1. A life insurance policy shall ­state the primary documents which are normally required to be submitted by a claimant in support of a claim.
2. A life insurance company, upon receiving a claim, shall process the claim without delay. Any queries or requirement of additional documents, to the extent possible, shall be raised all at once and not in a piece-meal manner, within a period of 15 days of the receipt of the claim.
3. A claim under a life policy shall be paid or be disputed giving all the relevant reasons, within 30 days from the date of receipt of all relevant papers and clarifications required. However, where the circumstances of a claim warrant an investigation in the opinion of the insurance company, it shall initiate and complete such investigation at the earliest. Where in the opinion of the insurance company the circumstances of a claim warrant an investigation, it shall initiate and complete such investigation at the earliest, in any case not later than 6 months from the time of lodging the claim.
4. Where a claim is ready for payment but the payment cannot be made due to any reasons of a proper identification of the payee, the life insurer shall hold the amount for the benefit of the payee and such an amount shall earn interest at the rate applicable to a savings bank account with a scheduled bank (effective from 30 days following the submission of all papers and information).
5. Where there is a delay on the part of the insurer in processing a claim for a reason, the life insurance company shall pay interest on the claim amount at a rate which is 2% above the bank rate prevalent at the beginning of the financial year in which the claim is reviewed by it.

Responsibility of the policyholder

1. The policyholder shall furnish all information that is sought from him by the insurer and also any other information which the insurer considers as having a bearing on the risk to enable the latter to assess properly the risk sought to be covered by a policy.

2. The policyholder shall assist the insurer, if the latter so requires, in the prosecution of a proceeding or in the matter of recovery of claims which the insurer has against third parties.

3. The policyholder shall inform the insurer if the policy is lost or destroyed. On obtaining satisfactory evidence a duplicate copy is issued by the insurer.

4. In case of transfer or assignment, a notice in writing along with the endorsed instrument or a copy of it has to be delivered to the insurer.

Frame-work for Best Practices

We provide some suggestions for best practices which insurers can adopt. They can be based on:

–  product format and  pricing;

–  information on products and services ;

–  advertisement ;

–  customer friendly documentation;

Product Format and Pricing

• The product design and pricing should be fair to the policyholders.

• Risks should be so managed as to be fair to both the insurer and the customer.

• Exclusions should best  kept to minimum and clearly mentioned/explained

• The waiting period may not extend beyond one year.

• They should aim for greater transparency and better customer understanding.

• Product literature should explicitly state the benefits in an understandable manner.

• An illustration would aid in better understanding. Ensure that:

–   It shows the guaranteed and discretionary benefits separately; and

–   The value of discretionary benefits in different scenarios.

–   The exclusions should be clearly brought out in the illustration.

• In the unit linked insurance plans all charges, investment pattern and method of calculation of value of unit should be explained.

Advertisement

• An advertisement should not at anytime, either directly or indirectly, try to draw comparison with the competitors’ products.

• In the advertisement for linked products it must be clearly  stated that :

–   the unit values are subject to market risks

–   there is no guarantee that the objectives of the plan would be achieved.

–  past performance does not indicate future prospects.

Customer Friendly Documentation

• The proposal form should facilitate disclosures that would be relevant from the insurer’s perspective.

• The proposal form should contain a caution note that in case of any doubt about the materiality of a fact, the fact should be disclosed.

• The customer should be able to understand his rights and responsibilities from the policy document.

• It should be clear from the wording in the policy:

–  what is, and is not, covered;

–  scope and limitation of the cover;

–  prompt settlement of valid claims.

Authored by : CA Rajkumar S Adukia , Email: rajkumarfca@gmail.com