Clauses are the rights your policy grants you and the duties you are supposed to fulfill towards the policy and the insurance company. While these clauses differ from policy to policy, here are a few basic clauses that you must know:
1. Indisputability Clause
Scenario:You bought a life insurance policy ten years ago and have been paying premiums regularly. However when applied for claim, your insurance company denied it on grounds of misinformation.
The Section 45 of the states that a life insurance policy shall not be called in question on the ground of mis-statement after three years. This means that an insurance company is required to ascertain the validity of the facts presented to it within three years of issuance of the policy.
2. Renewability Clause
Scenario:Your policy has lapsed and you want to renew the same. However, your insurance company refuses to renew the same.
IRDAI has made it mandatory for insurers to renew a policy except on grounds of fraud, moral hazard or mis representation. If your life insurance policy has lapsed and you wish to renew/reinstate the same, you might have to undergo medical tests and pay all the pending premiums. The decision is based on the underwriting guidelines of the company.
Also, while the insurer may not allow you to alter the features of the base policy, you can generally add/delete riders during policy renewal.
3. Reasonability Clause
Scenario: When you bought your health insurance policy, your advisor told you that all medical bills would be compensated by the insurance company. However, when you got to the claim settlement stage, the company did not pay you the entire amount you spent on your treatment.
The reasonability clause protects insurance companies against frivolous claims. The clause states that only expenses that are reasonable and necessary can be claimed. This means that the net amounts on your bills need to follow the industry standards. The insurance company compares the values on the bill to the standard rates for the same service and pays you a reasonable amount.
4. Free Look Clause
Scenario: You bought a policy that you thought was right for you. However, a few days and a thorough reading later, you realized that it might not be the best one for you. You want to return the policy and undo the transaction.
Insurance policies are big decisions because they cause a fixed outflow from your income for a very long time and form an intrinsic part of your financial plan. What happens if you buy an insurance policy and realize that it is not right for you? The free look clause acts like a ‘return policy’ on all insurance products. In case you are not satisfied with the terms and conditions of the policy, you can opt to cancel your policy within a specified number of days which is mentioned in the policy document. The insurance company might deduct some charges from the premium paid by you, as mentioned in the ‘Free-look Option’ clause.
5. Contribution Clause
Scenario: You bought two health insurance policies from different companies. You assumed that you could claim from both policies at the time of claim settlement. However, the insurance companies denied your claims and decided to give you a settlement after borrowing funds from both policies.
The contribution clause is applicable if you have multiple insurance policies, covering the same asset. When you submit your bills to the two companies, they will contribute equally to the final claim amount. In case the policies are at different ratios to each other, the companies will combine the settlement in the same ratio and borrow money from each policy to get you a reasonable settlement.
Always check the clauses included in your policy document. Note that the meanings of words in the document may not be meanings you know from conventional usage.