Buying an insurance policy - Know your rights

Most people generally accede to the unfair practices of the insurers, primarily because they are not aware of their rights as an insurance buyer. If people understand their rights and are willing to fight for them, they would find that regulations imposed by Insurance Regulatory and Development Authority (Irda) along with various court rulings work to protect the interest of policyholders.

Below are some of the important rights of a policyholder. Read on to find out how and when you can exercise them.

  1. Cancellation of policy in Free look period:
    If you are not satisfied with the insurance policy you bought, you can cancel it within 15 days free look period and get your entire money back (after deducting some charges which the insurance company has spent to issue the policy). _"The free look period starts not from the time that the policy is issued but from the time that the policy document reaches the buyer."_

    Case Ruling
    Anupam Maiti bought a policy in February 2007 but decided to cancel it by opting 'freelook' option as per policy condition. However, his application was rejected by the insurance company. So he approached the ombudsman.

    Insurer's argument: The insurance company said that they have dispatched the policy in March 2007 to the address mentioned in the proposal form. The 15 days freelook period is over and hence cancellation is not possible.
    Policyholder's argument: Maiti pointed out that he has not received the policy documents inspite of his various visits to offices and also telephonic enquiries.
    Kochi Ombudsman Ruling: Insurer was not able to produce any proof for having dispatched the policy. As the policy document was not received by the complainant he can exercise free look option even now. So the insurer is directed to refund full premium with 9% interest.
    Read this case in detail (Pg. 52)

    Word of Caution

    • It has been noticed that some insurers send the policy documents to the agent. And some unscrupulous agents makes sure that they deliver you the documents only after the expiry of 15 days. So at the time of buying the policy make sure to communicate to the company to send the policy documents by registered post and not hand delivered by the agent.

    • Let your agent know in the first meeting itself, that you know all about the Free Look Period clause and if he tries to mis-sell you will exercise your rights.

    • Once you have expressed interest of cancelling the policy, agent will try to counter and will try to linger on certain days promising you to “get rectified” or “will provide details” kind of excuses. In such cases, keep track of the days and go directly to the insurer and submit back the policy.

    • Do keep margin for the postal/courier delays etc. Do collect POD or acknowledgement once you surrender the policy so that if required in future you have evidences to fight in case insurer rejects your Free Look Period request.

  2. Policy exclusions must be explained by the insurers:
    Irda guidelines state that when a policy is sold, the insurance company or its agent must provide all relevant information about the risks covered, as well as the exclusions, so that he can decide whether the plan is in his best interests.

    Case Ruling
    The State Bank of Bikaner & Jaipur sold a comprehensive shopkeeper's policy from NIC to Dileep Jain, who has an account in the bank. When rainwater damaged goods in his godown in June 2008, the insurer turned down the claim.
    Insurer's argument: The shopkeeper's policy does not cover goods kept in a godown.
    Policyholder's argument: Dileep Jain pointed out that the exclusion was not explained to him. He was also not given the policy documents.
    IRDA Ruling: The buyer was not guided properly at the time of sale. The insurer did not send the policy document to the buyer. A penalty of Rs 5 Lakh was imposed on the company for these violations of the Irda guidelines.

    Word of Caution

    • A copy of proposal form comes with the policy documents. Read both the documents carefully and thoroughly. Any discrepancy should be brought to the notice of the insurance company to avoid any fraud.

    • If there is something you don't understand or can't find in the document, you have the right to demand that information from your insurer.

  3. Timely processing of claims:
    In times of calamity, if the financial relief takes too much time to reach the beneficiary, the objective of insurance is defeated. This is why Irda has mandated that death claims and medical claims have to be settled within 30 days of receipt of all requirements. If it is an early claim (within two years of buying the policy) the insurance company is given up to six months to investigate the claim.

    Regarding the documents required, the insurer has to list out all the documents at one go and not make the claimant go back and forth. Also, all the requirements have to be conveyed to him in writing within 15 days of receiving the claim.

    Case Ruling
    Kunti Devi approached the Irda in April 2009 with a complaint that HDFC Standard Life had not paid the life insurance claim even after 12 months.
    Insurer's argument: The insurance company said it was investigating the cause of death.
    Policyholder's argument: The insurance company took more than 12 months to investigate the case before it repudiated the claim.
    IRDA Ruling:The investigation in any case should not take more than 6 months from the date of claim. Considering the nature of the violation, a penalty of Rs 5 lakh is imposed on the HDFC Standard Life Insurance Co Ltd. The Life Insurer is also directed to put in place effective claim settlement procedures and take all such measures that deem fit for both pro-active and timely settlement of all types of claims.
    Read this case in detail

    Deadlines for other procedures:

    • Proposal: A proposal has to be processed within 15 days. If there is something amiss and the proposal is cancelled, it must be conveyed to the buyer within this deadline.

    • Service requests: If there is a mistake or change required in the policy, or any other non-claim related service request, it should be carried out within 10 days.

    • Payment of benefits: Surrender value payments, annuity payments and pension processing should be done within 10 days. Maturity sum should be paid within 15 days.

    • Surveyor report: In case of damage, the surveyor should submit his report within 30 days. Any requirement of additional documents should be conveyed to the policyholder within 15 days.

    • Claim settlement: All claims should be settled within 30 days of receiving completed application form and all documents.

    • Grievances: If a policyholder submits a grievance, it must be acknowledged within three days and resolved within 15 days.

  4. You can change the frequency of premium at the beginning of a policy year:
    If you are finding the premium mode unsuitable for whatever reasons, you can change the frequency of the premium payment. All regular premium policies offer the option to change the premium mode from annual to half-yearly or quarterly payments, and vice versa. All you need to do is write to the insurer 15-20 days before the policy anniversary.

    However, a change in monthly mode is difficult as there is a lot of back-office work that goes into setting up the monthly ECS. So not all companies allow switching into or out of the monthly payment option. Talk with your insurance company to know the details of their premium mode change policy.

  5. You can pay the premium even after the due date:
    Policyholders can pay within the 30-day grace period (15 days, in case of monthly premium) without inviting any penalty or the policy lapsing. In addition, the life cover continues during the grace period. In case the policyholder dies during the grace period, the nominee will be given the money after the deduction of the unpaid premium.

    The rule is slightly different in case of medical insurance. While you get a grace period here as well, there is no insurance cover till the premium is paid.

    There is, however, no grace period for auto insurance. If your vehicle insurance expires, you have to buy afresh. You also lose any no-claim bonus that your policy might have accumulated.

  6. Insurers cannot refuse to renew medical insurance within grace period:
    There have been cases where insurers have refused to renew the medical policy because the policyholder was now older or had developed a medical condition. However, in March 2009, the Irda declared that an insurance company cannot refuse to renew a medical insurance policy. The application can be rejected only if there is evidence of fraud, moral hazard or misrepresentation.

    However, this right to renewability of medical insurance is shackled by the rule that allows insurance companies to hike the premium as per their assessment of the risk. Sure, unlike life insurance premiums, mediclaim premiums keep rising as the person grows older. If it doesn't want to offer a medical cover to senior citizens, an insurance company can hike the premium to astronomical levels. However, the premium has to be as per the tables filed with the Irda.

    Case Ruling
    Biman Bose and his wife Alka bought a mediclaim policy from United India Insurance. After a claim was rejected, they moved the court and won. When the policy came up for renewal in 1996, the insurer refused to renew it.

    Insurer's argument: The company offered to sell them a fresh policy.
    Policyholder's argument: Bose argued that he was being victimised because of the case he had slapped on the insurer. He said the new policy would not cover pre-existing diseases.
    Supreme Court Ruling: The court ruled that the refusal to renew was arbitrary and based on the history of the policyholder. The company was asked to reinstate the policy. The court also slapped a fine of Rs 5000 towards cost of litigation.
    Read this case in detail

Reference:The Economic Times Wealth

Category: finance