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Hints on Filling the Proposal Form
An insurance contract is a simple contract. The elements of a simple contract include offer, acceptance & consideration. The offer for insurance is initiated by one party to the contract - the proposer, by submission of a completed proposal form. The second party to the contract - the insurance company, conveys its acceptance and the contract is completed.
The insurance contracts being oral contracts, the policy document is not a contract but evidence of a contract. As such, the proposal form is a more essential document than the policy itself.
The proposal is the basis of the contract. The completed proposal and signed declaration by the proposer is referred to in the preamble of the policy document, thus connecting both the documents to form one enforceable contract.
Proposal forms
The proposal form generally elicits information like,
Personal details, information on the risk to be covered and insurance and claims history,
The personal details of the proposer may include financiers, if any (a financier can also be included as additional insured),
Details on the risk and insurance history will disclose previous insurance details- whether the proposer is entitled for any discounts in premium, or loading of the premium and whether any insurer has - refused to grant cover, cancelled the existing policy or demanded extra premium - all reveal physical hazards of the risk.
How to complete a proposal form ?
Insurance contracts are contracts of good faith. The proposer has a legal obligation to furnish information in good faith. After completion of the contract or at the time of any claim, if the proposer is found to have concealed or misrepresented fraudulently or otherwise, such breach would render the contract voidable and no claim is recoverable. However, this duty to disclose would become Utmost good faith, with regard to 'material facts'.
The 'material fact' is the information, which will influence the acceptance of a proposal by the Insurance Company, and the rate of premium at which to do so.
Besides general information, specific information is required to be furnished in respect of different classes of Insurance and some insurance proposals are discussed hereunder:
Fire Insurance
Information regarding construction of the building (walls, roof, etc.) and surrounding property and its contents - whether any goods not belonging to him, but held in trust with him.
Proximity of the house to nearest river or watercourse and the distance from the nearest Fire Brigade facility.
Burglary
Information regarding location, adjoining premises (if a school, temple or vacant land etc., which are not occupied at night, which will enhance the risk, to be disclosed), whether there is watchman or guard and how doors & windows are secured, distance from nearest police station and history of previous thefts, if any, are to be disclosed.
Personal Accident
Age & occupation, existing disablements, previous accident history,earnings from gainful employment and other incomes.
Hospitalisation benefit policies
Age of the proposer, nationality, history of previous illnesses and existing health condition.
Details of any incurable diseases or epilepsy. Assignment of policy monies, though not material, avoids litigation with legal heirs.
Motor
Correct description of the vehicle, ( cc. of the engine, model & make, and year of manufacture,) place where it is generally garaged, purpose for which it is used and whether the same is in a road worthy condition.
General Information
Generally non-life policies are issued for one year. However, long-term policies are also issued in respect of motorcycle policies, JPA policies, Gramin policies and Women's welfare policies. Marine policies are issued on an annual basis or voyage basis.
Short-term policies (less than one year) can also be issued but the premium, charged would be on "short period scales" which are higher than proportionate.
An existing policy can be cancelled at the option of both of the parties to the contract. In case of financial interest, the consent of the financiers is also necessary for cancellation of the policy.
If cancellation of the policy is opted by the insured, premium will be charged on Short Period Scales and if the insurers resort to the cancellation, the refund would be proportionate, provided, no claim is preferred during the policy period. Neither party can cancel a Motor Vehicle Act policy, unless evidence of another policy having been taken is on record. This is a provision under Motor Vehicles Act.
Section 64 V (B) of Insurance Act 1938, prohibits assumption of risk unless full premium is paid in advance.
Similarly, parting of Agency Commission for the benefit of the insured is prohibited under Section 41 of the same Act, as it amounts to rebating of premium rates.
Tariff Advisory Committee: Tariff Advisory Committee is a statutory body governing rules for issue of insurance policies in India and rates of premium to be charged. However, the rates indicated in the Tariff are minimum rates and an insurer is at liberty to charge anything more than the Tariff Rates, basing on his Underwriting considerations.
All gross premiums are subject to 5% service tax, which is collected on behalf of the Central Government.
Stamp Duty: Stamp duty payable on all insurance contracts is governed by stamp Act. Any infringement of Stamp Act will make the contract unenforceable. The remedy is to pay necessary penalty. Except in the case of Marine Insurance policies, the stamp duty is borne by the insurers. In case of Personal Accident policies issued for short periods (less than one year), stamp duty is payable by the insured.
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