Proposal for life insurance

A proposal for life insurance shall be in writing. “Proposal form” means a form to be filled in by the proposer for insurance, for furnishing all material information required by the insurer in respect of a risk, in order to enable the insurer to decide whether to accept or decline, to undertake the risk, and in the event of acceptance of the risk, to determine the rates, terms and conditions of a cover to be granted. Explanation: “Material” for the purpose of these regulations shall mean and include all important, essential and relevant information in the context of underwriting the risk to be covered by the insurer [Regulation 2(d) IRDA (Protection of Policyholder’s Interests) Regulations, 2002].

Rule 12 of the Insurance Rules, 1939 prescribes the following:

12(1) it shall be clearly indicated –

(a)   in every proposal form in the case of life insurance; or

(b)   in the document, if any, forming the basis of the contract in the case of any other form of insurance, that rebate of premiums shall be allowed only in accordance with the details given in the prospectus or table of premium rates or, as the case may be, the relevant document, and that an offer or acceptance of any other rebate shall be an offence under Section41 of the (Insurance) Act.

(2) The provisions of sub rule (2) of rule 11 shall apply mutatis mutandis to proposal forms, except that, where an addendum is attached to a proposal form, it shall also be signed by the person who signs the proposal form.

Therefore a proposal shall provide ‘all material information required by the insurer in respect of a risk….” Each life insurance company has its own proposal forms. Generally they ask information pertaining to (i) personal details-such as name, date of birth, address, place of residence, nationality etc (ii) family history-such as age and health positions of parents, brothers, sisters, spouse and children, in case of death, age and cause of death etc (iii) personal history-such as illnesses suffered, leave of absence taken on medical grounds, treatment taken, present state of health etc (iv) personal employment history-such as designation, nature of occupation, name of employer, sources of income etc and (v) a declaration that whatever is stated as answers to questions in the proposal form is true to the best of his knowledge and should it be found later that untrue statements were made in the proposal the contract shall be void. The declaration authorizes the medical officers and employers to divulge to the insurer any information with them pertaining to the proposer if sought by the insurance company. The proposal shall be signed by the proposer   and if the language used in the proposal and that in the signature differs another person shall certify that the contents of the form were explained to the proposer.

Proposal forms shall state prominently contents of Section 41 (that rebating is punishable) and Section 45 (repudiation of the contract for suppression of material facts).  Forms and documents used in grant of cover may be made available in all recognized languages under the Constitution of India. The insurer shall draw the attention of the proposer towards the facility of nomination. A decision on every proposal shall be taken in 15 days time.

Standard proposal forms used by life insurance companies in India include (i) proposal on own life (ii) proposal on another life- as in employer-employee insurance (iii) proposal on another life – on life of a minor with a long deferment period.

Now the IRDA has prescribed (vide IRDA Regulations for Standard Proposal Form for Life Insurance, 2013) a standardized proposal form to be used by all life insurers in India to be effective from six calendar months from notification of the Regulations. The standard proposal form has four parts, viz. (A) Details of the prospect (B) Specialized or additional information (C) Suitability analysis and (D) Recommendation, apart from the standard declarations to which no additions or deletions shall be made.

The proposal form shall be completed by the prospect giving true answer to each question. It shall be signed and witnessed. Then, Prospect becomes Proposer. Generally proposal is witnessed by the Agent who solicits and procures the business. Along with the proposal the proposer makes an initial deposit (of first premium too.) to the company.