What are the things to check in your insurance policy document? A step-by-step guide

While creating a financial plan either on your own or with the help of an advisor, one of the most important aspects is insurance planning. Insurance planning is a risk mitigation tool that involves buying the insurance policies to cover the health and life risks.

We have already discussed in our earlier articles regarding term life insurance and why it is important to have one right from an early age. We have also discussed various different types of insurance policies and their features. You can navigate here to read all my articles on life insurance policies.

In the current post, we are going to discuss the things you need to check after receiving the copy of your insurance policy document. The policy document is the most important document associated with life insurance. It is evidence of the contract between the assured and the insurance company. It is not the contract itself. If the policy document is lost by the policyholder, it does not affect the insurance contract.

The insurance company will issue a duplicate policy document at the request of the policyholder without making any changes to the contract. The policy document has to be signed by a competent authority and should be stamped according to the Indian Stamp Act.

Let us go step by step and evaluate the importance of each section of the policy document:

First premium receipt

An insurance policy becomes active when the company issues the first premium receipt. It is proof that the company has accepted the contract in exchange of consideration paid by the policyholder in the form of premium. It contains following information:

• Name and address of the life assured
• Policy number
• Premium amount paid
• Method & frequency of premium payment
• Next due date of premium payment
• Date of commencement of the risk
• Date of final maturity of the policy
• Date of payment of the last premium
• Sum assured

It is important to check whether all the details are printed correctly. Keep in mind that each policy has a free look period of 30 days where, if you find any discrepancies, you can raise them to the insurance company and they will correct it.

Policy document

A standard policy document consists of three parts

Policy schedule

Policy schedule contains all the basic details about life insured & the type of insurance policy. Following details are:

• Name & address of life assured.
• Date of birth and age as on last birthday.
• Plan and term of policy contract.
• Sum assured.
• Amount of premium.
• Premium paying term.
• Premium payment frequency.
• Date of commencement.
• Date of maturity and due date of last premium.
• Whether policy is with or without profits (in case of traditional & participating policies).
• Details of the nominee.
• The policy number
• Copy of proposal form

This part will be signed & stamped by the authorised signatory & will also bear the address of local insurance ombudsman.

Standard provisions

Standard provisions guiding the contract of insurance are present in all types of insurance policies. These standard provisions define the rights and privileges and other conditions, which are applicable under the contract.

Specific provisions

This part of the policy document consists of specific policy provisions that are specific to the individual policy contract. These may be printed on the face of the document or inserted separately in the form of an attachment. Specific provisions generally are linked to the particular contract between the insurer and insured.

Eg: Suppose a pregnant lady is trying to apply for an insurance policy. While underwriting the policy, an insurance company might insert a specific exclusion provision relating to the death that occurred in case of pregnancy complications. This particular provision however, won’t affect the other types of claims that may occur in normal course.

Policy document governs the contract of insurance, all the information and facts disclosed in the proposal form while applying for insurance are printed in the policy document. Insured should thoroughly check the entire policy documents to ensure that all the material facts that were disclosed while applying for insurance are printed on the policy document to avoid any issues at the time of claim settlement.

It is noticed many times that insurance agents do not disclose important facts in hurry to close the sale, hence it becomes the duty of life insured to check all the details & notify the changes, if any, to insurance companies within the stipulated free look period of 30 days.

Keep in mind that an insurance company has a clear conflict of interest while settling the claim, hence, they would leave no stone unturned to ensure that fraudulent or misrepresented claims are rejected.

CA Rohit J. Gyanchandani is Managing Director, Nandi Nivesh Private Limited, A Pune based Wealth Management Company.