POLICY CONTRACT AND DOCUMENTATION :
An Insurance Contract is known as a contract of ‘Uberrimate Fides’ or a contract based on ‘utmost good faith’, which means both the parties must disclose all material facts. Insurance contract is regulated by guidelines, rules, regulations, notifications and circulars of IRDA though not defined anywhere. It is a Intangible product. In return for the price (premium), the insurance companies issue the policies which are stamped and legally enforceable document. This insurance document is basically a promise to pay for covered loss according to its terms and conditions.
Policy contract has the same meaning as stated u/s. 10 of Indian Contract Act, 1872, “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents”.
A Policy Contract needs to necessarily have all the ingredients as mentioned under Indian Contract Act, the prominent amongst them are communication, acceptance, consideration etc. However, unlike any other contract, an Insurance Contract commences only on communication of acceptance. Mere silence to the proposal doesn’t complete the contract. There has to be an acceptance to the proposal which should be communicated.
In a contract of insurance the insurer undertakes to protect the insured from a specified loss and the insurer receives a premium for running the risk of such loss. Insurance Contract entered into by mis-representation of facts, coercion or fraud, will not hold good in Law and the party in default will not enjoy the benefits under the same.
IRDA (Protection of Policy holders’ Interest) Regulations, 2002, under clause 6 stipulates the matters to be included in a Life Insurance Policy Contract.
As per Regulation 6, 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) nonforfeiture 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.
The Policy contract is approved by the IRDA. The IRDA has advised that the language of the policy contract should be simple, unambiguous, clear and consistent for better understanding of common man.
Guidelines on Insurance Repositories and Electronic Issuance of Policy contract, 2011 is a major breakthrough in Insurance arena, where procedures have been laid down for appointment of Insurance repositories and electronic issuance of policy contract. Despite the regulation, most of the Insurance Companies are yet to fully avail the fruitfully benefit of such advanced technology, which would not only benefit the Insurance company but also the Insured from operational and servicing view point.
Though the Insurance Contract is of utmost significance in the life of an Insured who avails the same to cover his life, health, old age and investment, it is given least importance and is not even being perused completely to know its features and benefits, thus resulting into various issues of mis-selling, which causing hindrance to the growth of Insurance Industry.