Insurance term , know about the insurance term -Offer (Proposal) And Acceptance- Consideration (Premium)- Insurable Interest - Utmost Good Faith - Indemnity - Subrogation - Contribution - Proximate Cause

 

TOPICS COVERED:

1. Offer (Proposal) And Acceptance

2. Consideration (Premium)

3. Insurable Interest - Utmost Good Faith - Indemnity - Subrogation - Contribution - Proximate Cause

4. Proposal Form - Sales Literature - Payment Of Premium - Section 64vb Of Insurance Act – Premium Receipt – Insurance Policy-Endorsements - Warranties - Section 41 Of Insurance Act (Rebating)

5. Intimation Of Claim - Appointment Of Surveyor - Survey Report - Assessment Of Loss - Settlement Of Loss - Discharge Voucher - Payment Of Claim

1. OFFER (PROPOSAL) AND ACCEPTANCE

A contract of insurance is an agreement whereby one party, called the insurer, undertakes, in return for an agreed consideration, called the premium, to pay the other party, namely the insured, a sum of money or its equivalent in kind, upon the occurrence of a specified event resulting in a loss to him. The policy is a document which is an evidence of the contract of insurance.

As per Anson, a contract is an agreement enforceable at law made between two or more persons by which rights are acquired by one more persons to certain acts or forbearance on the part of other or others. The Indian Contract Act, 1872, sets forth the basic requirements of a Contract. As per Section 10 of the Act: “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void…..”. An Insurance policy is also a contract entered into between two parties, viz., the Insurance Company and the Policyholder and fulfills the requirements enshrined in the Indian Contract Act.

ESSENTIALS FOR A VALID CONTRACT

a) Proposal: When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal (“Promisor”). In Insurance parlance, a Proposal form (also called application for insurance) is filled in by the person who wants to avail insurance cover giving the information required by the insurance company to assess the risk and arrive at a price to be charged for covering the risk (called “premium). When a proposal form is submitted, the Customer does not make a proposal, but it is only “invitation to offer”. The insurance company, based on the information furnished in the proposal form, assesses the risk (also called underwriting), and conveys the decision – if accepted, at what premium and on what terms and conditions.

This is also called “counter offer” in insurance terminology by the insurance company to the Customer. A medical examination is also conducted, where necessary, before making the counter offer. Where the insurance company cannot accept the risk, the proposal is declined. Where the insurance company conveys its decision to accept the risk quoting a premium, a proposal is made.

b) Acceptance: When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted (“Promisee”). A proposal, when a accepted, becomes a promise; When the Customer accepts the terms of the offer and signifies his assent by paying the First Premium (the amount payable as the consideration), the proposal is accepted by the Customer. A proposal of the insurance company (terms of offer), when accepted by the Customer, becomes a promise.

2. CONSIDERATION:

When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise; As can be seen from the above, amount equal to First Premium paid by the Customer becomes the consideration for the contract. This first premium would be the first installment premium (either first annual, quarterly, half yearly or monthly premium. In the case of monthly premiums normally 2 monthly premiums are collected along with the Proposal form. In the case of single premium, one lump sum is paid along with the Proposal. Every promise and every set of promises, forming the consideration for each other, is an agreement;

Competency to contract: Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject. In the case of Insurance the person with whom the Contract is entered into is called “Policyholder” or “Policy Owner” who could be different from the subject matter which is insured. In Life insurance contracts, for example, the person whose life is insured could be different. For example, the Policyholder could be the Father and the Life assured could be the son. In the case of Fire insurance, the Policy owner could be the Owner of a building and the subject matter of insurance would be the building itself.

The Policyholder must have attained the age of majority at the time of signing the proposal and should be of sound mind and not disqualified under any law. However, the life assured could suffer from the above infirmities.

Consensus ad idem: Two or more person are said to consent when they agree upon the same thing in the same sense. Both the insurance company and the Policyholder must agree on the same thing in the same sense. The Policy document issued to the Policyholder (“Customer”) clearly defines the obligations of the insurer and the terms and conditions upon which the Insurance contract is issued.

Free consent: Consent is said to be free when it is not caused by – 1. Coercion, or 2. Undue influence or 3. Fraud, or 4. Misrepresentation, or 5. Mistake

The third and fourth grounds which vitiate consent are more relevant in insurance. Insurance contracts are based on the principles of ‘utmost good faith’. The Policyholder is expected to disclose about the status of his health, family history, income, occupation or about the subject matter insured truthfully without concealing any material fact to enable the underwriter to assess the risk properly. In case it is established by the insurance company that the Policyholder did not truthfully disclose any fact in the Proposal form which had a material impact on the decision of the underwriter, the insurance company has a right to cancel the contract. When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

Lawful object: The consideration or object of an agreement must be lawful, The consideration or object of an agreement is unlawful under the following circumstances:

(a) Where a contract is forbidden by law or

(b) Where the contract is of such nature that, if permitted, it would defeat the provisions of any law or is fraudulent;

(c) Where the contract involves or implies, injury to the person or property of another; or

(d) Where the Court regards it as immoral, or opposed to public policy.

Every agreement of which the object or consideration is unlawful is void. The object of an insurance contract, i.e. to cover the risk by taking out an insurance policy, is a lawful object.

Agreement must not be in restraint of trade or legal proceedings:

Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to the extent

Agreement must be certain and not be a wagering contract: Agreements, the meaning of which is not certain, or capable of being made certain, are void. Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which may wager is made. Anson defined wager as “a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event”. For example, if A agrees to pay B `1,000, if it rains tomorrow, it becomes a gambling, since there is no certainty that it will rain tomorrow. A wagering contract is void, it is not illegal. Further a contingent contract is defined under Section 31 of the Act as “a contract to do or not to do something, if some event collateral to such contract, does or does not happen”. For example, A contracts to pay B `10,000 if B’s house is burnt. This is a contingent contract. An insurance contract is a contingent contract and the example given above is nothing but Fire insurance. While all Wagering contracts are Contingent contracts, Section 30 of the Act has declared all Wagering contracts to be void.

3. INSURABLE INTEREST - UTMOST GOOD FAITH - INDEMNITY -SUBROGATION - CONTRIBUTION - PROXIMATE CAUSE P

The business of insurance aims to protect the economic value of assets or life of a person. Through a contract of insurance the insurer agrees to make good any loss on the insured property or loss of life (as the case may be) that may occur in course of time in consideration for a small premium to be paid by the insured.

Apart from the above essentials of a valid contract, insurance contracts are subject to additional principles. These are:

1. Principle of Utmost good faith 2. Principle of Insurable interest 3. Principle of Indemnity 4. Principle of Subrogation 5. Principle of Contribution 6. Principle of Proximate cause 7. Principle of Loss of Minimization

These distinctive features are based on the basic principles of law and are applicable to all types of insurance contracts. These principles provide guidelines based upon which insurance agreements are undertaken. A proper understanding of these principles is therefore necessary for a clear interpretation of insurance contracts and helps in proper termination of contracts, settlement of claims, enforcement of rules and smooth award of verdicts in case of disputes.

Now we will be discussing various principles of Insurance in detail

1. PRINCIPLE OF UBERRIMAE FIDEI (UTMOST GOOD FAITH)

Both the parties i.e. the insured and the insurer should have a good faith towards each other. The insurer must provide the insured complete, correct and clear information of subject matter. The insurer must provide the insured complete, correct and clear information regarding terms and conditions of the contract. This principle is applicable to all contracts of insurance i.e. life, fire and marine insurance.

Principle of Uberrimae fidei (a Latin phrase), or in simple English words, the Principle of Utmost Good Faith, is a very basic and first primary principle of insurance. According to this principle, the insurance contract must be signed by both parties (i.e insurer and insured) in an absolute good faith or belief or trust. The person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance. The insurer's liability gets void (i.e legally revoked or cancelled) if any facts, about the subject matter of insurance are either omitted, hidden, falsified or presented in a wrong manner by the insured. The principle of Uberrimae fidei applies to all types of insurance contracts.

2. PRINCIPLE OF INSURABLE INTEREST

• The insured must have insurable interest n the subject matter of insurance.
• In life insurance it refers to the life insured.
• In marine insurance it is enough if the insurable interest exists only at the time of occurrence of the loss.
• In fire and general insurance it must be present at the time of taking policy and also at the time of the occurrence of loss.
• The owner of the party is said to have insurable interest as long as he is the owner of it.
• It is applicable to all contracts of insurance.

The principle of insurable interest states that the person getting insured must have insurable interest in the object of insurance. A person has an insurable interest when the physical existence of the insured object gives him some gain but its non-existence will give him a loss. In simple words, the insured person must suffer some financial loss by the damage of the insured object.

For example: The owner of a taxicab has insurable interest in the taxicab because he is getting income from it. But, if he sells it, he will not have an insurable interest left in that taxicab. From above example, we can conclude that, ownership plays a very crucial role in evaluating insurable interest. Every person has an insurable interest in his own life. A merchant has insurable interest in his business of trading. Similarly, a creditor has insurable interest in his debtor.

3. PRINCIPLE OF INDEMNITY

1. Indemnity means guarantee or assurance to put the insured in the same position in which he was immediately prior to the happening of the uncertain event. The insurer undertakes to make good the loss.

2. It is applicable to fire, marine and other general insurance.

Under this the insurer agreed to compensate the insured for the actual loss suffered. Indemnity means security, protection and compensation given against damage, loss or injury. According to the principle of indemnity, an insurance contract is signed only for getting protection against unpredicted financial losses arising due to future uncertainties. Insurance contract is not made for making profit else its sole purpose is to give compensation in case of any damage or loss.

In an insurance contract, the amount of compensations paid is in proportion to the incurred losses. The amount of compensations is limited to the amount assured or the actual losses, whichever is less. The compensation must not be less or more than the actual damage. Compensation is not paid if the specified loss does not happen due to a particular reason during a specific time period. Thus, insurance is only for giving protection against losses and not for making profit.

However, in case of life insurance, the principle of indemnity does not apply because the value of human life cannot be measured in terms of money.

4. PRINCIPLE OF SUBROGATION

1. As per this principle after the insured is compensated for the loss due to damage to property insured,

2. then the right of ownership of such property passes to the insurer.

3. This principle is corollary of the principle of indemnity and is applicable to all contracts of indemnity.

Subrogation means substituting one creditor for another. Principle of Subrogation is an extension and another corollary of the principle of indemnity. It also applies to all contracts of indemnity. According to the principle of subrogation, when the insured is compensated for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer. This principle is applicable only when the damaged property has any value after the event causing the damage. The insurer can benefit out of subrogation rights only to the extent of the amount he has paid to the insured as compensation.

For example: Mr. Arvind insures his house for ` 1 million. The house is totally destroyed by the negligence of his neighbour Mr. Mohan. The insurance company shall settle the claim of Mr. Arvind for ` 1 million. At the same time, it can file a law suit against Mr. Mohan for ` 1.2 million, the market value of the house. If insurance company wins the case and collects ` 1.2 million from Mr. Mohan, then the insurance company will retain ` 1 million (which it has already paid to Mr. Arvind) plus other expenses such as court fees. The balance amount, if any will be given to Mr. Arvind, the insured.

5. PRINCIPLE OF CONTRIBUTION

1. The principle is corollary of the principle of indemnity. 2. It is applicable to all contracts of indemnity. 3. Under this principle the insured can claim the compensation only to the extent of actual loss either from any one insurer or all the insurers.

Principle of Contribution is a corollary of the principle of indemnity. It applies to all contracts of indemnity, if the insured has taken out more than one policy on the same subject matter. According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer. If one insurer pays full compensation then that insurer can claim proportionate claim from the other insurers.

For example: Mr. Arvind insures his property worth Rs. 100,000 with two insurers "AIG Ltd." for `90,000 and "MetLife Ltd." for `60,000. Arvind's actual property destroyed is worth ` 60,000, then Mr. Arvind can claim the full loss of `60,000 either from AIG Ltd. or MetLife Ltd., or he can claim `36,000 from AIG Ltd. And `24,000 from Metlife Ltd.

So, if the insured claims full amount of compensation from one insurer then he cannot claim the same compensation from other insurer and make a profit. Secondly, if one insurance company pays the full compensation then it can recover the proportionate contribution from the other insurance company.

6. PRINCIPLE OF CAUSA PROXIMA (NEAREST CAUSE)

1. The loss of insured property can be caused by more than one cause in succession to another.

2. The property may be insured against some causes and not against all causes.

3. In such an instance, the proximate cause or nearest cause of loss is to be found out.

4. If the proximate cause is the one which is insured against, the insurance company is bound to pay the compensation and vice versa.

Principle of Causa Proxima (a Latin phrase), or in simple English words, the Principle of Proximate (i.e Nearest) Cause, means when a loss is caused by more than one causes, the proximate or the nearest or the closest cause should be taken into consideration to decide the liability of the insurer.

The principle states that to find out whether the insurer is liable for the loss or not, the proximate (closest) and not the remote (farest) must be looked into.

For example: A cargo ship's base was punctured due to rats and so sea water entered and cargo was damaged. Here there are two causes for the damage of the cargo ship - (i) The cargo ship getting punctured beacuse of rats, and (ii) The sea water entering ship through puncture. The risk of sea water is insured but the first cause is not. The nearest cause of damage is sea water which is insured and therefore the insurer must pay the compensation.

However, in case of life insurance, the principle of Causa Proxima does not apply. Whatever may be the reason of death (whether a natural death or an unnatural death) the insurer is liable to pay the amount of insurance.

7. PRINCIPLE OF LOSS MINIMIZATION

Under this principle it is the duty of the insured to take all possible steps to minimize the loss to the insured property on the happening of uncertain event. According to the Principle of Loss Minimization, insured must always try his level best to minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast, etc. The insured must take all possible measures and necessary steps to control and reduce the losses in such a scenario. The insured must not neglect and behave irresponsibly during such events just because the property is insured. Hence it is a responsibility of the insured to protect his insured property and avoid further losses.

For example: Assume, Mr. Arvind's house is set on fire due to an electric short-circuit. In this tragic scenario, Mr. Arvind must try his level best to stop fire by all possible means, like first calling nearest fire department office, asking neighbours for emergency fire extinguishers, etc. He must not remain inactive and watch his house burning hoping, "Why should I worry? I've insured my house."

4. PROPOSAL FORM - SALES LITERATURE - PAYMENT OF PREMIUM - SECTION 64VB OF INSURANCE ACT – PREMIUM RECEIPT – INSURANCE POLICY-ENDORSEMENTS - WARRANTIES - SECTION 41 OF INSURANCE ACT (REBATING)

PROPOSAL FORM

The Insurance policy is a legal contract between the Insurer and the Policyholder. As is required for any contract there is a proposal and an acceptance. The application document that is used for making the proposal is commonly known as the ‘Proposal Form’. All the facts stated in the Proposal form becomes binding on both the parties and failure to appreciate its contents can lead to adverse consequences in the event of claim settlement. The Proposal form has been defined under IRDA (Protection of Policyholders’ Interests) Regulations, 2002 as “it 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.” While the IRDA had defined the Proposal form, the design and content was left open to the discretion of the Insurance company. However based on the feedback received from policyholders, intermediaries, Ombudsmen and Insurance companies, the IRDA felt it necessary to standardise the form and content of the Proposal Form. Thus the IRDA has issued the IRDA (Standard Proposal form for Life Insurance) Regulations, 2013. While the IRDA has prescribed the design and content, it has provided the flexibility to the Insurance companies for seeking additional information. The Proposal form carries detailed instructions not only for the Proposer and the Proposed Life Insured but also to the Intermediary who solicits the policy and assists in filling up the form.

It also requires the Proposer and the Proposed Insured to declare the correctness and authenticity of the information provided in the form. In addition, the Intermediary is required to certify that he has explained the features of the policy, including terms and conditions, premium requirements, exclusions and applicable charges to the Proposer.

It is pertinent to mention here that the Proposal form gains utmost importance in any insurance contract, as the insurance company offers a cover on the basis of information provided in the Proposal form. Through the Proposal form, the Insurer seeks to elicit all material information of the Proposer and the Proposed Insured, which includes name, age, address, education, income and employment details of the Proposer, medical history of the Proposed Insured and his family members, income details, any existing life insurance cover on the Proposer as well as Proposed Insured. The Information sought in the Proposal form is important for an insurance company to assess the risk that can be underwritten and also to comply with other regulatory requirements such as the ‘Know Your Customer’ norms.

The IRDA regulations divide the Proposal form into the following broad sections:

Section A – contains details of the Proposer; Section B – contains specialised/additional information which may vary based on the product; Section C – contains suitability analysis which is highly recommended; Section D – contains details of the product proposed.

Some of the Insurers also have online versions of the Proposal form, through which an Insurance policy can be proposed online by the Proposer on the website of the Insurance Company.

The Intermediary plays a very vital role in executing the Proposal form. It is the responsibility of the intermediary to not only explain the features and benefits of the product but also explain the significance of the information sought in the Proposal form and thus help the Proposer appreciate the essence of material information.

This is where the doctrine of “Uberrima fides” becomes very important. The Insurance Company relies on the information provided in the Proposal form for taking a decision on acceptance of the risk and issuing the Insurance policy. In the event it is discovered later that the information provided was incorrect or any material fact was concealed in the Proposal form, the Insurance Company may deny paying benefits under the Policy. Insurance litigations in the country are predominantly on the premise of rejection of claim due to nondisclosure of material facts and there are numerous cases which have reinforced the principle of “Uberrima fides”

Sales Literature:

As per IRDAI, specific disclosures have to be made in sales literature, especially features like there are two insurers involved, that each risk is distinct from the other, who will settle claims, matters relating to renewability of both or only one of the covers at the option of the insured, servicing facilities etc.

Insurers have also to clearly draw the attention of the policyholder in the policy contract and sales literature that:

(a) All health insurance policies are portable;

(b) Policyholder should initiate action to approach another insurer, to take advantage of portability, well before the renewal date to avoid any break in the policy coverage due to delays in acceptance of the proposal by the other insurer.

IRDAI has cautioned members of the public not to get carried away by unapproved sales presentations being circulated in the market. They may take an informed decision while purchasing a policy, on the basis of proper disclosures by the licensed representatives of the insurer.

Renewal Notice:

Most of the non-life insurance policies are issued on annual basis. There is no legal obligation on the part of insurers to advise the insured that his policy is due to expire on a particular date. However, as a matter of courtesy and healthy business practice, insurers issue a renewal notice in advance of the date of expiry, inviting renewal of the policy. It is also the practice to include a note advising the insured that he should intimate any material alterations in the risk.

Premium Payment Options:

Non-life policies are generally issued for one year and full premium is to be paid in advance before commencement of risk. Premium payment to an insurer by a person seeking insurance or by the policyholder may be made in any one or more of the following methods –

1. Cash

2. Any recognised banking negotiable instrument such as cheques, demand drafts, pay order, banker’s cheques drawn on any schedule bank in India;

3. Postal money order;

4. Credit or debit cards;

5. Net Banking / E-transfer

6. Direct credits via standing instruction of proposer or the policyholder or the insured through bank transfers;

As per IRDAI Regulations, in case the proposer / policyholder opts for premium payment through net banking or credit / debit card, the payment must be made only through net banking account or credit / debit card issued in the name of such proposer /policyholder.

Section 64VB the Insurance Act, 1938:

Insurance Companies to accept risk on an insurance policy only after receipt of premiums in advance

Section 64VB prohibits insurance companies accepting a risk on an insurance policy without receiving the consideration (Premium) in advance. A risk can also be assumed based on a guaranteed provided e.g. Bank Guarantee, in accordance with the provisions of Insurance Rules. However, in terms of sub-section (2) of Section 64VB, in respect of risks where the premium can be ascertained in advance, the risk cannot be assumed earlier than the date on which the premium has been paid in cash or cheque to the insurer. Any refund of premium on account of a cancellation of a policy shall be paid by the insurance company directly to the life insured by a crossed account payee cheque or by postal money order and a proper receipt shall be obtained from the insured. In any case, refund to the account of the Agent is strictly prohibited. Further, where an insurance agent collects a premium on behalf of an insurer, the Agent is required to deposit the premium collected without deduction of his commission, within 24 hours of collection excluding bank and postal holidays.

Policy Terms and Conditions:

Conditions:

A condition is a provision in an insurance contract which forms the basis of the agreement. Breach of a condition makes the policy voidable at the option of the insurer.

For example –

One of the standard conditions in most insurance policies states –

If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof or if any fraudulent means or devices are used by the Insured or any one acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the Wilful Act, or with the connivance of the Insured, all benefits under this policy shall be forfeited.

The Claim Intimation condition in a Health policy may state –

Claim must be filed within certain days from date of discharge from the Hospital. However, waiver of this Condition may be considered in extreme cases of hardship where it is proved to the satisfaction of the Company that under the circumstances in which the insured was placed it was not possible for him or any other person to give such notice or file claim within the prescribed time-limit.

Warranties:

‘Warranty’ is a condition expressly stated in the policy which has to be literally complied with for validity of the contract. Warranty is not a separate document. It is part of the policy document. It is a condition precedent to (which operates prior to other terms of) the contract. It must be observed and complied with strictly and literally, whether or not it is material to the risk. With a warranty, the insured undertakes certain obligations that need to be complied within a certain period of time and also during the policy period. Liability of the insurer depends on the insured’s compliance with these obligations. Warranties play an essential role in managing and improving the risk. Warranties are meant to limit the liability of the insurer under certain circumstances. Insurers also include warranties in a policy to reduce the hazard.

Endorsement:

Endorsements are meant to effect amendments / changes in policy document. If certain terms and conditions of the policy need to be changed at the time of issuance, it is done by way of endorsement. It is attached to the policy and forms a part of it. The policy and the endorsement together make up the contract. Endorsements may also be issued during the currency of the policy to record changes / amendments.

Section 41 in The Insurance Act, 1938

41. Prohibition of rebates.— (1) No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to 1[take out or renew or continue] an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing 2[or continuing] a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer: 2[Provided that acceptance by an insurance agent of commission in connection with a policy of life insurance taken out by himself on his own life shall not be deemed to be acceptance of a rebate of premium within the meaning of this sub‑section if at the time of such acceptance the insurance agent satisfies the prescribed conditions establishing that he is a bona fide insurance agent employed by the insurer.] (2) Any person making default in complying with the provisions of this section shall be punishable with fine which may extend to 3[five hundred rupees].

5. INTIMATION OF CLAIM - APPOINTMENT OF SURVEYOR - SURVEY REPORT - ASSESSMENT OF LOSS - SETTLEMENT OF LOSS - DISCHARGE VOUCHER - PAYMENT OF CLAIM

What is an 'Insurance Claim'?

An insurance claim is a formal request to an insurance company asking for a payment based on the terms of the insurance policy. The insurance company reviews the claim for its validity and then pays out to the insured or requesting party (on behalf of the insured) once approved.

Insurance claims cover everything from death benefits on life insurance policies to routine health exams at your local doctor. In many cases, third parties file claims on behalf of the insured person, but usually only the person(s) listed on the policy is entitled to claims payment.

BREAKING DOWN 'Insurance Claim'

A paid insurance claim serves to indemnify a policyholder against financial loss. An individual or group pays premiums as consideration for completion of an insurance contract between the insured party and an insurance carrier. The most common insurance contracts revolve around costs for medical goods and services, physical damage or liability resulting from the operation of automobiles, property damage or liability from home ownership, and the loss of life.

Health Insurance Claims

Costs for a surgical procedures or inpatient hospital stays remain prohibitively expensive. In 2014, the average cost across the United States for a day in a hospital sat at $2,212. Individual or group health policies indemnify patients against financial burdens that may otherwise cause crippling financial damage. Health insurance claims filed with carriers by providers on behalf of policyholders require little effort from patients, as 94% of medical claims were adjudicated electronically in 2011, a 19% increase from 2006. Policyholders must file paper claims where medical providers do not participate in electronic transmittals but charges result from covered services rendered by professionals or facilities. Ultimately, an insurance claim protects an individual from the prospect of large financial burdens resulting from an accident or illness.

Property and Casualty Claims

A home is typically one of the largest assets an individual owns. A claim filed against damage from covered perils is initially routed via phone or the internet to a representative of an insurer, typically an agent or claims adjuster. Unlike health insurance claims, the onus is on the policyholder to report damage to a deeded property he owns. An adjuster, depending on the type of claim, inspects and assesses damage to property for reimbursement to the insured. Upon verification of the damage, the adjuster initiates the process of reimbursing the insured.

Life insurance Claims

Life insurance claims require the submission of a claim form accompanied by a death certificate. The process, especially when claims involve high face amounts, may require in-depth examination by a carrier to ensure that the death of the covered individual did not fall under any exclusion contained in the contract, such as suicide or death resulting from a criminal act. Generally, the process takes about 30 to 60 days without extenuating circumstances, affording beneficiaries the financial wherewithal to replace the income of the deceased or simply cover the burden of final expenses.

Claim Intimation:

When the insured event occurs, a claim for payment of loss arises. While in few policies, there is a specific time limit for intimating the claim, all policies state that intimation be sent to the insurer immediately. There are two stages of claim settlements:

a) Claims Investigation and b) Claim Assessment

Investigation tries to determine the validity of the claim whereas assessment is more concerned with the cause and extent of the loss.

Survey Report:

As laid down in the Insurance Act, 1938, if the amount of loss is Rs 20,000/- or more, a licensed Surveyor is to be appointed to assess the loss. Surveyor has to be appointed within 72 hours by the insurance company. Surveyor would visit the site of happening and submit his report to the insurer including therein –

1. Cause of loss 2. Quantum of the loss 3. Comments about policy conditions to be followed 4. Comments about admissibility of claim and compliance of terms and conditions of the policy by the insured.

In marine branch, the Surveyor’s fee is initially borne by the insured. It is reimbursed if the insurer accepts the claim.

First Information Report (FIR):

First information report is information to police authorities generally regarding –

1. Theft, burglary or housebreaking cases

2. Major vehicular accident injuring third parties or damaging their properties

3. Fire incident involving injuries to any persons or causing major property loss

4. Cases involving financial frauds by employees or other cause of loss to the insured

5. Death of an individual due to accident

From the insurer’s point, FIR is the document which gives information about the intimation of crime, circumstances and likely cause of loss and likely persons involved and approximate value of loss.

Death Certificate and Post Mortem Report:

Death Certificate is required for claim under personal accident and health insurance policies. It is also required in case of cattle or other animal insurances. Death certificate relating to humans is issued by Municipality or Gram Panchayat of the area in which the deceased was residing or died. For cattle and animals, it is issued by a veterinary surgeon treating the animal or who attended it at the time of the death. Post Mortem Report (PMR) is examination of dead body, generally conducted in accidental or doubtful deaths, for testing various organs to find out the cause of death. The post mortem is performed at government or local body’s hospital. In case of insurance of animals post mortem report is required, which is conducted by a veterinary surgeon.

Specific Documents in addition the claim form:

Motor Insurance Claims:

1. Estimate of repairs, repair bills 2. Survey report 3. Vehicle documents 4. FIR in case of theft of vehicle or injury or damage to a third party/ property

Cattle Insurance claims:

1. Death Certificate on insurance company’s form. In case of death of animal insured under Integrated Rural Development Programme (IRDP) or other similar scheme, death certificate may be issued by Panchayats.

2. Post mortem report.

3. Ear tag.

4. Valuation certificate by veterinary doctor.

5. In case of claims for disablement veterinary doctor’s certificate with treatment details.

Poultry Insurance:

1. Veterinary doctor post mortem report of sample birds

2. Daily records of mortality, feeding etc.

3. Purchase invoice for birds

4. Photographs, medical bills etc.

KYC Documents:

In order to avoid money-laundering, KYC norms are carried out at settlement stage where pay-out amount is more than one lakh. In case where payments are made to service providers such as hospitals/garages/repairers etc. the KYC norms are applied on the customers on whose behalf they act. Documents relevant to KYC are

1. Proof of Identity – any one out of the specified list for this purpose

2. Proof of Residence – any one out of the specified list For Micro insurance policies, bank passbook or bank statement giving name and residence may be acceptable.