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Buyers of insurance sometimes feel helpless because they have little ability to change the insurance contract and its terms.
These contracts are one-sided and are not customisable. However, over the last decade, the regulators have built several mandatory provisions into the contracts that protect policyholder rights. Understanding these provisions should give you confidence in the policies, because even if you cannot make changes to the contract, there are safeguards in place.
In life insurance, an important protection is that claims cannot be rejected after three years. This change was introduced in 2015. It shifts the responsibility of proving non-disclosure or misinformation onto the insurer and, that too, within the first three years of the policy.
This provision makes it absolutely important that you renew the insurance in a timely manner each year. The three-year period is restarted if there is a break in your insurance renewal and the policy has to be reinstated.
Understand your insurance
Further, every life insurance policy must have an illustration that is specific to what you bought and signed. The format of this illustration and the information to be shared is specified by the regulator.
It must give a clear sense of the possible returns and list the guaranteed benefits and surrender values. The insurer relies on this illustration to set your expectations on the insurance and make sure you understand what you have signed.
Long-term unit linked insurance plans (ULIPs) have to be designed in a way that all the charges put together do not exceed 2.25 per cent of the insurer’s returns. This cap on expenses safeguards you from excessive charges in a ULIP. Finally, life insurances have a 15-day or more freelook period when you can return the insurance and get a refund. The 15-day period begins when you receive your insurance. This gives you the opportunity to return an insurance that is not in line with what you expected.
Claims in health insurance
Health insurance also has safeguards. The insurance must be renewable for as long as you live. An insurer cannot put an age limit asand this prevents situations when the insurance is withdrawn as you grow old. This is an incentive to buy insurance early even if you are in good health because you will have the financial security of this insurance as you grow older.
Premiums cannot be increased for specific individuals based on their medical history or claims. If there are price changes, they must be applicable for the entire age group. A claim you make cannot be the basis of increasing premiums. Finally, disease definitions are standard across insurers. This removes subjectivity in determining whether you have a critical illness.
The regulations allow definitions that are more liberal. Some standalone cancer plans pay a benefit on early stage cancer, which may be excluded as per the standard definition. The safeguards around health exclusions are likely to become even stronger in the future. A report restricting exclusions has been published by a regulatory sub-committee and under consideration.
From a process standpoint, the law requires all health and life insurance policies to include a copy of the completed proposal form that was the basis of insurance. Claims must be settled within 30 days of receiving all documents. Insurers are expected to ask for all claim information in one go rather than piecemeal.
Insurance is a sector prone to litigation, given the conflict when a claim is rejected. Cases are filed with the ombudsmen, district and state courts and consumer forums. Over the past decade, many judicial precedents have been established and these tend to put the policyholder’s interests central. These judicial decisions are slowly finding their way into insurance contracts. For example, a recent high court judgment disallowed exclusions relating to mental illness.
As a buyer, you may not know the various safeguards, but should take comfort from the fact that the industry has steadily been improving the way it treats policyholders and that trend will continue.
The writer is co-founder, www.securenow.in
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