An Honest Proposal

How did you file your insurance proposal? Did you fill in the
details on the proposal form or just signed and asked the agent to
take care of the rest? If yes, this can cost you dearly.

The declarations in the proposal form are the basis on which the
insurance companies underwrite policies, that is, assess the risk
and calculate the premium to cover that risk.

When you sign the insurance document, you are declaring that
you have understood all policy features and its terms and
conditions. This means if you later realise that the policy has been
wrongly sold to you, it will be difficult to prove in a consumer
court or to the insurance Ombudsmen.

Also, when you file a claim, the insurer checks the authenticity of
these declarations. Furnishing of incorrect information or
suppression of facts can be reasons for rejection.

"There are times when nominees say facts were misstated or not
shared. But the insurer may not be able to help at this stage. So, it
is important that the proposer, who is responsible for providing
facts, bears these aspects in mind to ensure a smooth claim
experience," says Suresh Agarwal, executive vice president and
head, distribution and strategic initiatives, Kotak Mahindra Old
Mutual Life Insurance.

Here we look at some crucial columns in the proposal form - how

insurance companies assess these and the impact your cover.

QUALIFICATION
How does your educational qualification matter to the insurer?
After all, life insurance is based on human life value or the
individual's earning ability over his life. A health insurer who is
promising to pay your hospital bills if you fall sick should
probably be bothered about your health reports and not college
certificates.

That's not exactly true. This is because

people who are more educated are expected
to have better career prospects, earn more,
be more aware and have access to better
health care.

"Education could have some bearing on risk (and therefore

premium) since such individuals are likely to be more aware and
have healthier lifestyles. Education also impacts earning
capacity," says Agarwal.

Correct declaration of your qualification is also important to

avoid troubles later. Insurers often evaluate whether your income
corresponds to the education, years of service, position.

If not, additional details may be sought for verification. However,

your qualification is neither a prerequisite for buying insurance
nor is it a rating factor in isolation. A higher level of education
will only give a positive impression while assessing the risk.

OCCUPATION

Occupational risk is a key measure to

evaluate wellness and risk of accident. For instance, people in
sedentary jobs are more prone to cardiovascular diseases. So, the
nature of work is important for risk assessment. The premium
will depend on the details.

"The basic premium is calculated considering normal mortality.

Any increased risk is covered by additional premium. Insurance
companies have a detailed segregation of occupations based on
the level of exposure to hazard, which is used to arrive at a
suitable premium," says Jyoti Punja, chief operating officer,
Bharti AXA Life Insurance.

Individuals in hazardous occupations or those who have

dangerous hobbies are charged more. The insurer can even refuse
them coverage.

INCOME

You know that your income matters to the insurer. But did you
know that your source of earning is important too?

"Typically, insurance companies prefer salaried individuals as

they have a stable income and so a higher chance of not
defaulting on premium payment," says Ashwin B, chief operating
officer, ING Life insurance.

Businessmen, freelancers or people who work on a contract basis

do not have income stability. Their Human Life Value, or HLV, is
calculated on the basis of the annual business turnover or their
average yearly earnings shown in their income tax returns.
Similarly, inherited assets are treated
diffrently. Since this is not earned income
and its loss is not linked to the person's
earning capacity this does not affect the
HLV and, therefore, the insurance
coverage.

"Earning capacity (on the basis of your current position and

growth potential) and asset-liability imbalance can affect
insurability," says Suresh Agarwal of Kotak Mahindra Old Mutual
Life Insurance.

Other details such as the number of years in service and

designation also make a difference, especially if you are in the
high-risk job category. This is based on the assumption that with
seniority and experience, the amount of manual work is expected
to fall along with so the exposure to hazard will also.

Also, as one gains experience as well as expertise, probability of

an accident happening at work decreases. Evaluating your
earning capacity, the number of years at work and professional
prospects helps in ruling out over-insurance, a situation in which
insurance benefits exceed the actual loss of an insured.

PERSONAL HEALTH

The first parameter that comes to our mind when we mention

health insurance is the smoker/non-smoker criterion. We all
know that addictive substances such as tobacco and alcohol
impact health adversely. So, if you are a tobacco user, insurers
will charge more.
However, it's not so simple. For instance, all tobacco and alcohol
consumers do not have to pay more. It depends on the frequency
as well as the type of consumption as well as the quantity
consumed. The period for which you have been addicted is also
important.

Also, if you have quit, the insurer may not

charge loading on the premium after a
certain period, usually a couple of years,
after which you will be treated as a non-
user. However, the company may want to
verify your health first.

"After quitting, the effects of smoking take some years to go away.

So, you must disclose all the details to the insurer, whose
assessment is based on factors like duration for which you were
addicted and the effect the habit has had on you," says Ashwin B
of ING Life insurance.

There is another complication. If the reason for quitting was a

medical condition, it will be taken into account.

Your BMI or Body Mass index is another parameter for evaluating

health. A drastic change or a poor BMI are a concern.

"A sudden elevation or drop in BMI can be due to medical

conditions such as tuberculosis, cancer, etc, and is evaluated very
carefully. In the absence of conclusive results, cases are either
deferred or rejected," says Antony Jacob, chief executive officer,
Apollo Munich Health Insurance.
MEDICAL HISTORY

This is carefully scrutinised by both life and health insurers.

While it determines longevity in case of life insurers, health
insurers look at the long-term costs of financing health care.

If an applicant has a history of illness, the

premium may go up slightly. The kind of
illness is also important. If it is a minor
problem such as viral jaundice (hepatitis A
or E) or kidney stone, there will be no impact on the risk profile.

However, tests or treatment for diseases known to cause death

(such as heart ailments, cancer, kidney disorders or systemic
diseases like advanced hypertension and diabetes that can lead to
organ damage) are considered bad risk.

Insurance companies do cover these diseases, but charge more

and put restrictions on waiting periods. If you are under regular
treatment, the cover may be deferred for a short period for proper
assessment of risk.

SICK LEAVES

Insurers, especially providers of health cover, can check your

medical leave history as well. Though long leaves are not
considered negative as such, the insurer will investigate the
reason behind long medical leaves, say, of more than five
consecutive days.
"Long leaves always put a question mark
over the client's health condition. Reasons
for those leaves are important from an
insurance point of view. It will invoke more
information from the client," says Ashwin
B.

In case of maternity leaves, the company will take into account

any complication during pregnancy. Also, if you have had a
caesarian delivery, the underwriting may differ.

"Medical statistics reveal that once a woman has undergone a

caesarean procedure, in all likelihood she will choose to complete
her next pregnancy in the same manner. The cost of
hospitalisation associated with this procedure is higher. So,
health insurance providers make a note of such procedures while
determining the optimum premium," explains Jacob of Apollo
Munich.

However, the policy on this differs from company to company on

a and case to case basis.

FAMILY HISTORY

Not only your but your families' medical history would also be
taken into account by the underwriter before extending an
insurance coverage to you. A critical illness
of an immediate family member could
make an insurance company wary.

This is because some illnesses can be

hereditary. They consider such cases carefully and include this
point during the risk assessment process.

However, all family histories need not have a negative impact.

Only certain types, especially genetic, are viewed as bad risk.

So are cases where both parents are suffering from the same
disease and disorder, and therefore there is high probability that
it can impact the life of the individual as well.

EXISTING POLICIES

Every person has a defined human life value (HLV) and that is the
maximum up to which insurers can offer cover. Non-disclosure or
improper disclosure regarding existing policies at the proposal
stage could lead to over-insurance.

If you have an existing policy, the life insurer will usually offer
only the balance of the cover, that is, HLV ' sum assured of the
existing cover.

"Health insurance companies may have criterion to limit sum

insured based on current policies. If undeclared, it can affect
claim settlement, especially in case of fixed benefits," says Neeraj
Basur, CFO, Max Bupa Health Insurance.

In fact, if the insurer comes to know about a pre-held policy that

wasn't declared, it can reject the claim on grounds of material
non-disclosure. This is also important to check frauds.