Chapter 11 – Documentation – Proposal Stage
Prospectus: A prospectus is a formal legal document used by insurance companies that provides details about the product. The prospectus used by a life insurance company should state the following, under each of its plans of insurance:
- The terms and conditions
- Scope of benefits – guaranteed and non-guaranteed
- The entitlements
- The exceptions
- Whether the plan is participative or non-participative
- Proposal Form: The insurance policy is a legal contract between insurer and the policyholder.
- Agent’s report: The agent is the primary underwriter. All material facts and particulars about the policyholder, relevant to risk assessment, need to be revealed by the agent in his / her report. Matters of health, habits, and occupation, income and family details need to be mentioned in the report.
- Medical examiner’s report: In many cases, the life to be insured has to be medically examined by a doctor who is empaneled by the insurance company. Details pertaining to physical features like height, weight, blood pressure, cardiac status etc. are recorded and mentioned by the doctor in his report called the medical examiner’s report.
- Non-Medical Report: Proposals that are underwritten and accepted for insurance without calling for a medical examination.
- The medical examiner’s report is required typically when the proposal cannot be considered under non-medical underwriting because the sum proposed or the age of the proposed life is high or there are certain characteristics which are revealed in the proposal, which call for examination and report by a medical examiner.
- Moral hazard report: Moral hazard is the likelihood that a client’s behaviour might change as a result of purchasing a life insurance policy and such a change would increase the chance of a loss. For this purpose, the company may require that a moral hazard report has to be submitted by an official of the insurance company.
- Age Proof: The risk of mortality in life insurance increases with age. Hence age is a factor that insurance companies use to determine the risk profile of the life to be insured. Premiums are charged according to age proof. Valid age proofs may be standard or non-standard.
Standard age proofs
Some documents considered as standard age proofs are:
- School or college certificate
- Birth certificate extracted from municipal records
- PAN card
- Service register
- Certificate of baptism
- Certified extract from a family bible if it contains the date of birth
- Identity card in case of defence personnel
- Marriage certificate issued by a Roman Catholic church
- Non-standard age proofs
- Ration card
- An affidavit by way of self-declaration
- Certificate from village panchayat
Anti-Money Laundering (AML): Money laundering is the process of bringing illegal money into an economy by hiding its illegal origin so that it appears to be legally acquired.
Know your customer(KYC) is the process used by a business to verify the identity of their clients.
- Age proof
- Proof of address – driving license, passport, telephone bill, electricity bill, bank passbook etc.
- Proof of identity – driving license, passport, voter ID card, PAN card, etc.
- Income proof documents in case of high-value transactions
Free-look period: Suppose a person has purchased a new life policy document and, on examining the conditions are not what he/she wanted. The policyholder has the option to cancel the policy within 15 days from the date of receiving the policy document. Premium is refunded after deducting some expenses and charges.