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What Is Representation In Life Insurance

What Is Representation In Life Insurance

All disclosures relating to an insurance policy must be made at the time of entering into the insurance contract. The insurance company hands over the application proforma to the person buying insurance seeking complete details. The person has to mention his profession, income, age, family, history of family, general health, ailments suffered, medical reports, matters relating to conduct and character, any criminal record, etc.

Similarly in case of general insurance while insuring an asset all facts regarding the condition, frequency of usage, wear and tear that may have occurred have to be disclosed by the buyer. These details given by the proposer known as representations demand correct and full disclosure by the buyer of insurance. Though it may not be possible in the proforma to ask all the required questions since the details vary from person to person, the insurance company determines the materiality of the given facts by exercising due diligence through proper scrutiny.

It is also open to an insurer to seek clarification regarding gaps in information to be furnished. If required, further enquiry is made. This is important, because based on this, the severity of risk is assessed and the amount of premium to be charged can be determined. The application also mentions the stipulations and conditions which when fulfilled obligate the insurance company to fulfill its promises. It has to be noted that it is the duty of the insurer to inform and explain the insured about the working of those stipulations and broadly set the conditions in which the insurer may be relieved of such obligations to give the insured an idea about the performance of the contract.

This helps in dispelling any misunderstanding or ignorance. Of course certain information, which is normally assumed to be of common knowledge to everyone, need not be disclosed. Thus while buying insurance for an electric generator in India it is not necessary to mention that power failure is common in India and that the gadget will be used more often. Also when a person buys a second policy from the same insurer it is presumed that the insurer will check for the relevant facts about him by referring to the first policy and without seeking explanation all over again. Information related to following matters need not be disclosed:

1. Facts related to law

2. Facts of common knowledge to all

3. Facts which can reasonably be discovered by the insurer

4. Facts which could have been revealed by a survey

5. Facts which have been covered by policy conditions

6. Facts which reduce the risk

Insurance
[Post Image Courtesy of Stuart Miles at FreeDigitalPhotos.net]

Implications of concealment, non disclosure or misrepresentation by the insured

It may turn out from the representations furnished by the customer that the details are incomplete or any important information is concealed or is misleading. In such circumstances it is the choice of the insurer whether to:

1. Incorporate the required changes in the contract and charge a different premium.

2. Accept the policy and pay compensation especially if the facts have negligible importance.

3. Avoid any obligation on its part as per the policy.

It has to be proved by the insurer that the non-disclosure or misrepresentation was intentional on the part of the insured to commit fraud and deceive the insurer before it can stop payment of compensation. As per section 45 of the Insurance Act the insurance company can resort to this stance before the passage of two years after which it cannot take such recourse. Non-disclosure may be unintentional on the part of the insured. Even so such a contract is rendered voidable at the insurers option and it can refuse any compensation. Any concealment of material facts is considered intentional. In this case also the policy is considered void.

Suppose a person discovers that he has cancer, which is in its last stages and is hopeless to go for medical treatment. Immediately he buys a life insurance policy where he conceals this fact from the insurers. He dies four months after buying the policy. The insurance company can contest the claim for payment of policy proceeds to his beneficiary on the ground that a vital fact material to the contract was concealed.

Implications of non-disclosure by the insurer

It is true that in a contract of insurance the insured has to furnish more information about him. But there are certain covenants in a contract, which have to be thoroughly elaborated to the insured. These relate to the conditions in which the insurance company may or may not perform its promises.

It has to be noted that it is the duty of both the insurance agent and the company authorities that this particular aspect is looked into. Any laxity at this point may tilt the judgments in favor of the insured in case of a dispute.

Example

In the case of LIC vs. Shakuntalabai, the insured had availed a life insurance policy from LIC. Before taking the policy he had suffered from indigestion for a few days and at the first instance had availed treatment from an ayurvedic doctor. This fact was not disclosed by the insured.

The insured died of jaundice within a few months after buying the policy. Eventually LIC refused to accept the claim on the ground of non-disclosure of information. However the court rejected this stand of LIC since it had not explained this covenant clearly to the insured, which amounts to non-compliance of its responsibilities. Such casual ailments are common and occur many times over and they can be treated by over the counter drugs. It is normally not possible for a person to distinguish a potentially serious ailment inherent in such symptoms. Also it is not possible for a person to remember the details of all such illnesses like cough, cold, headaches, etc., and the medications taken for them after a few months. So these facts are not to be considered as material to the contract and thus their non disclosure does not invalidate the contract.

Insurance Law And Practice - ICSI

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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