Insurance - Preparation of Policy

7/29/2019 Insurance - Preparation of Policy

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Preparation of policy


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After formation of the KOI the policy is prepared.

The steps to be followed are:--the issue of prospectus

filling up of proposal formconstruction of policyand alteration in policy.


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prospectus The prospectus of a company discloses mainly its

financial position.

But the prospectus of an insurance co. explainsdifferent types of polices , privileges , and conditionsof polices , proceedings of IK , settlement of claims ,rates of premium , rules and regulations.

Thus the prospectus is an invitation to the public tooffer for insurance.


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But the prospectus becomes a binding documentbetween the insurer and the insured only when it isreferred to in the policy

In Thistleton Vs Commercial Union assurance Co.Ltd.1926 the assured was denied loan at a ratespecified in the prospectus held the prospectus was

not strictly collateral to the policy. Unless theprospectus has been referred to in the policy , it wouldhave no legal binding.


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In Sun Life Assurance Co. Ltd. Vs Mukherjee ,it waswritten in the policy that the co. would issue a paid uppolicy for an amount to be determined by the co.---Where as the prospectus stated that the total amountof premiums paid will be refunded as paid up value. Held the prospectus not being referred to in the policycould not be referred to construe the K Appealallowed.


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Proposal FormThe proposal form includes information

pertaining to the amount , kind and term of

policy.There are different types of proposal forms for

each type of policy with and without medicalexamination.

The proposer has to disclose all material factstruly and fully in good faith.


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The material information of the proposal form issupplemented by a personal statement , medicalreport , agents report etc.

The proposal form will become an offer ,ifaccompanied by premium ,if not ,it would be aninvitation to offer.

The letter of acceptance issued by the insurerbecomes acceptance.

If the insurer wants to alter the terms andconditions of offer it would be a counter offer.


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The proposal is incorporated into policy only byreference.

Sec. 51 Ins. Act 1938 requires the insurer to supply tothe insured certified copies of information furnishedin his proposal and medical repot on application andon payment of fee not exceeding Re. one.


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Construction of policyA policy is the formal document which evidences

the KOI which has already been made .

It has been the practice of the insurer to issue apolicy in which the K is completely expressed.

Sec. 3(2)(f)of Ins. Act 1938 clearly lays down thenecessity of a standard form thus .a certified

copy of the published prospectus ,if any , and ofthe standard policy forms of the insurer andstatements of the assured ,rates ,advantages ,terms


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and conditions to be offered in connection withlife insurance business by an actuary , that suchrates ,advantages ,terms and conditions are

workable and sound. Points to be noted : in construction of the policy.

1.Any ambiguity in the policy will be construed againstthe insurer ie. Any benefit of doubt should go to the

assured.2.If the policy issued is not in conformity with the terms

of the K already made , the insured may require theinsurer to rectify it.


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3 .The written portion of the policy will override theprinted part in case of conflict.

4.If the K is contained in more than one documentspread over different dates the later in date should begiven greater weight in case of conflict.

5.The policy should refer the proposal made by the

proposer, payment of the premiums , conditions whensum assured is payable.

6.If the policy makes no reference to the prospectus or


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rules of the co. , they cant be taken into account ininterpreting the policy.

7.The particulars relating to names and address of theassured , sum assured , premiums are grouped in theform of a schedule.

8. Though , the policy is not a K ,only the evidence of it ,

yet the K will normally interpreted as per the contentsof the policy.


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Alteration of policy

The terms and conditions of the policies can bealtered during the currency of the policy by the mutualconsent of the parties.

Revival of a policy , lapsed for non payment ofpremium is also an instance of alteration by mutualagreement.

Conditions of policies : Loan on policyDays of grace--- Premium notice---Payment of premium

Return of premium---Lapse of policy ---Revival oflapsed policySurrender value and its adjustments


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ReinsuranceDouble Insurance and

Over Insurance Reinsurance :

An insurer in order to safeguard his own interest may

insure the same risk either wholly or partly withanother insurer this is called reinsurance.

The reason for reinsurance , like the reason for originalinsurance is the necessity of spreading the risk.

Reinsurance can be resorted in all kinds of insurance.The reinsurer is liable to pay the amount of the loss to

the original insurer only if the original insurer has paidthe amount to the assured.


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However ,the reinsurer is not liable to the assured asthere is no privity of contract between them.

But reinsurance is subject to all the conditions in theoriginal policy and the reinsurer is entitled to all thebenefits which the original insurer is entitled underthe policy.

The policy of reinsurance is co extensive with theoriginal policy.


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Double and over insurance:

Where the assured insures the same risk with two or

more independent insurers , and the total suminsured exceeds the value of the subject matter , theassured is said to be over insured by double insurance.

In the absence of any express condition in a KOI both

double and over insurance are perfectly lawful.Ex.


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Rules in case of double and over insurance:

1. Recovery of actual loss only ,because of the rule of

indemnityhelps in case one of the insurers becomeinsolvent.

2. Excess amount recovered if any to be held in trust.

3. The rule of contribution applies among the insurers.

4. No limit on life insurance.An assured may take anynumber of policies on his life and for any amounts.


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Classification of KOI Different writers classified into various categories.

New verities of insurance are coming up with theprogress and development.

Classification according to the nature of the interestaffected :

Personal ---Property and Liability insurances.

Classification according to the nature of the event :

LifeFire ---Marine and miscellaneous insurance.

The IRDA publishes insurance data according to theclassification basing upon the nature of the event.

Insurance - Preparation of Policy

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