MODULE 8

INSURANCE DOCUMENTS

In this module we will see the commonly used documents in Life and Non-life [General]
Insurance, their importance and legal effects.

Learning Outcomes:

1. Prospectus
2. Proposal Form
3. Premium Receipt
4. Cover Note
5. Certificate of Insurance
6. Policy Document
7. Endorsement – Extra--‐ Refund
8. Renewal Notice

1. Prospectus

Prospectus is a document that describes the main features of an insurance policy. It is given
to prospective buyers, who are interested in purchasing policy of an insurance company.

1.1 The details of coverage, exclusions, all the terms and conditions of the policy are
provided in the prospectus. These may give benefits available under the policy and
examples of calculations of benefits.

1.2 Sometimes it is in the form of booklet. It may be in the form of brochure [abridged
form]. If insurers distribute some literature or display the information on their websites
about any policy, with an intention to invite prospective buyers to purchase the same, they
are also treated as prospectus.

Both prospectus and brochure may enclose proposal form and premium table with them.

Under IRDA regulations the prospectus should contain certain information. The details of
which are given under module 14.

1.3 It is not mandatory to issue prospectus under any of the laws or regulations relating to
insurance but they are issued as good business practice. It is common in India to issue
these documents in local languages also so that it is easily understood by prospective
buyers.

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2. Proposal Form

Proposal form is an application for insurance. Normally, it is a standardized printed form.

The proposal form generally contains the following:-

a) Personal details of the proposer – name, address, phone number, email address, etc.
b) Details of the subject matter of insurance i.e. Person or property to be insured with
full description.
c) The values for insurance cover (Sum assured).
d) Add on and riders opted.
e) History of previous insurances, generally for 3 years.
f) History of previous losses, if any, generally for 3 years.
g) History of previous illness, in cases of Life and Health Insurance.
h) In case of life insurance premium: payment mode- monthly, quarterly, half yearly,
annually etc.
i) Nomination in case of life, accident and health policies.
j) There is a ‘Declaration of Truth’ stating that the information given in proposal form
is true and correct.
k) Signature by the proposer at the end.

2.2 The proposal form and supporting statements are important as they form basis of
insurance policy. If a person other than the proposer has filled the form, that person has to
declare, that the answers are as dictated by the proposer after reading out the questions to
the proposer, and proposer has understood the answers fully.

2.3 If questions are in a language, which is different from the language of proposers, there
must be a declaration [By an independent person, who knows both the languages] that the
questions were explained to proposer in the language [understood by him] and answers
dictated were recorded truthfully and were read out to the proposer who understood them
fully.

2.4 If the proposer is illiterate, the left thumb impression is to be attested by a third party.
The third party has to give a declaration that the questions were explained to him and
answers dictated were recorded truthfully and were read out to the proposer who
understood them fully.

2.5 Personal Statement: In life insurance personal statement is also to be completed along
with proposal. This contains details of the health of the person, family history, personal
habits, medical consultations and ailments, absence from work due to medical grounds etc.
This forms part of proposal form.

2.6 As per provisions of Insurance Act 1938, a copy of proposal form [including all the
attachments] is to be provided to the insured, along with the policy for his records.
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3. Premium Receipt

3.1 In non- life insurance, on receipt of the premium the insurers issue Premium Receipt.

This commences insurers risk under the policy. If premium is paid by cheque it is subject to
realization of the same.

3.2 In life insurance receipt for the first premium is called ‘First Premium Receipt’. If the
proposal is accepted at ordinary rates, the risk will commence immediately provided full
premium has been paid.

3.3 If acceptance is not at ordinary terms, [subject to acceptance of modified terms by the
proposer] and/or payment of balance premium, the First premium receipt is issued only
when the terms are accepted and full premium is paid. Policy is issued subsequently.

3.4 If claim occurs after First Premium Receipt is issued, the insurer is liable to pay the
claim, even though the policy is not issued.

3.5 On payment of subsequent premiums on due dates, Renewal Premium Receipt is issued.
This receipt proves that the policy is continuing and valid. Individual Renewal Receipts are
not issued for Salary Saving Schemes/Group Schemes.

4. Cover Note

4.1 Cover note is a temporary document which is issued pending issuance of final policy. It
is issued only in non – life insurances. When the proposer wants a proof of insurance
having been arranged and it is not possible to issue the policy immediately, cover note is
generally issued. Sometimes cover note is issued when certain requirements are to be
fulfilled by the proposer like arranging for inspection of house or vehicle.

4.2 If cover note is issued for a motor policy, it is valid for a maximum of 60 days and is
acceptable as proof of Third Party insurance which is mandatory under the Motor Vehicle
Act.

4.3 Cover note becomes ineffective when the policy is issued. Cover Note is an unstamped
document so it is not valid in court of law. However for all practical purposes insurers
honor them as if it is a policy.

5. Certificate of Insurance

Under rule 141 of Central Motor Vehicles rules 1989, a Certificate of Insurance is required
to be issued in addition to a policy.

5.1 Certificate gives details of the insured, vehicle details like, type, make, model etc. place
of registration of vehicle, period of insurance , geographical area of the vehicle where it can
operate, limitations as to use etc.
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5.2 Every certificate should give a declaration that it complies with the provisions of Motor
Vehicle Act about mandatory insurance of third party liability and should be signed by the
insurer.When cover note is issued it should incorporate all the details of certificate of
insurance.

5.3 In marine (transit) insurance also certificate of insurance is issued in place of policy.
But issuing of marine certificate of insurance is not compulsory.

6. Policy Document

6.1 Policy is the evidence of the insurance contract. It is stamped as per provisions of
Indian Stamps Act, it is accepted as a valid document in a court of law, in case of dispute
between the insured and the insurers.

6.2 Policy is a standard pre printed form, containing all the terms of policy- like coverage,
benefits, exclusions, conditions, claim procedure, etc.

Life and non-life policies are issued in Schedule Form. In this type of policy the standard
terms and conditions are printed, whereas details of insured, subject matter of insurance,
add-ons and riders, period of insurance, sum insured, premium, etc are printed in separate
sheet/space called ‘ Schedule’

6.3 IRDA regulations mandate that every policy must contain following additional
information:-

1. Name contact details of person or office of the insurance company to be contacted

7. Endorsements

7.1 Endorsements are issued as correction to the main policy. They can be issued either at
the beginning of the policy or during the currency of the policy to record the changes in the
original policy.

We saw earlier that the insurance policies are issued in standard printed form. They may
require certain amendments at the time of their issuance to meet the requirements of the
proposer. Like covering an add-on which is either not covered or is excluded from the
policy.

Examples:

Covering earthquake risk, which is excluded; under fire policy for the house.
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The corrections are in the form of memorandums which are called endorsements. They are
attached to the original policy and a cross reference is given in the schedule of the policy
about their applicability.

In Non-life insurance when any change takes place in the status of subject matter of
insurance, the insured informs the insurers and they pass an endorsement to incorporate
the change.. On passing the endorsement, it becomes part of the original policy as if it was
issued when the policy was taken.

7.2 Extra Endorsement: When due to change involving the increase in the risk during
currency of the policy, if insurers demand an extra premium, then after payment of the
premium the change is incorporated in the policy and an extra endorsement is passed to
record the receipt of the premium and accepting the change in the risk.

Example: Increase in sum insured under House Holder’s Policy.

If a CNG / LPG kit is fitted in the vehicle, The insurance company need to be informed so that
the kit is covered by payment of extra premium and passing extra endorsement.

7.3 Refund Endorsement: When the risk decreases during the currency of the policy, the
insurers may allow refund in the original premium charged and record the change by
passing a refund endorsement.

Example; In fire policy godown is converted in to house.- the difference of premium between
that applicable to godown and house is returned for the balance of the policy period.

In case of cancellation of policies, to record the cancellation endorsements are passed.

7.4 NIL endorsements: sometimes the endorsements are required to record the change
which may not involve any increase or decrease in the risk but are for important aspects of
insurance. In those cases NIL endorsements without any extra or refund premiums are
passed.

Example: Change of Nomination under life policy.

8. Renewal Notice

8.1 Insurers both in life and non life branches send renewal notices to the insured to
remind them about due dates of the premiums. This is done in form of a formal letter and
generally sent to the insured well in advance.

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It is not mandatory for insurer to send any renewal notice. The insurer sends renewal
notice as a matter of good customer service.

8.2 Non sending or delayed sending of renewal notice, resulting in insured not making
payment of premium in time is not a valid reason, for claiming coverage. If the premium is
not paid in time the policy will lapse.