Times of India
27 October 2010
By Preeti Kulkarni

Read and understand the fine print in your insurance policy documents to avoid nasty surprises later
MOST people think that buying an insurance policy or investing in a mutual fund unit is as easy as signing on the dotted line. Most blindly trust intermediaries. Instead of carefully reading the fine print, they happily sign away at the spots marked with crosses (X) without realising that such a nonchalant attitude could haunt them later. In fact, if quizzed, most policyholders would shrug off their ignorance, by saying that hardly anyone understands legalese. Probably, they have a point.

Perhaps this is why J Hari Narayan, chairman of the Insurance Regulatory and Development Authority (Irda), recently emphasised the need to simplify policy documents.

The nudge from the regulator may eventually force insurance companies to abandon the languages of Middle Earth and switch to simple English. But till that happens, you will be better off reading the sections before signing off the document. Remember, these are important clauses that could affect the money you can claim on your insurance policy.

Health Insurance
Exclusions: They vary from insurer to insurer. Before you buy a health cover, make sure that you go through the list of exclusions (illnesses and associated expenses) that are not covered under the plan.

For example, most policies do not cover treatments pertaining to piles, cataract and so on in the first year. Also, a large number of policies do not entertain claims for pregnancy–related expenses and dental treatments.

However, some insurers have started selling policies that cover such expenses as well. This apart, the cost of diagnostic tests, preventive care, vitamins and tonics, external aids like pacemakers and wheel–chairs are usually not covered.

However, if the insured has to undergo medical tests in connection with an upcoming surgery, such costs and also those pertaining to related medicines taken during the period, will be reimbursed as part of pre–hospitalisation expenses. A majority of health policies cover expenses up to 30 days prior to hospitalisation and 60 days after discharge.

Past Baggage: Most policies cover expenses incurred for the treatment of pre–existing diseases only after a waiting period. Pre–existing diseases are defined as those which were diagnosed or treated during the 48 months prior to taking the policy.

However, if your illness is not chronic in nature, or it has not persisted after you received the treatment, there is no cause for concern. For instance, if you had undergone an appendicitis surgery, it will not be treated as a pre–existing illness. Also, usually, health covers kick in only after 30 days of buying them, except in cases of accidents.

Waiting Period: This is applicable to pre–existing diseases which are not admissible. It can vary from one to four years, depending on the policy and the insurance company. This assumes significance, particularly, if you decide to switch insurers, as the new insurance company may insist on you serving the waiting period all over again.

Restrictions: It is important to know the illnesses that are not covered by your policy. But it is equally important to know how much you can spend on them. Most policies cap room rent and operation theatre charges, even if the total claim does not exceed the limit. "Contrary to what many policyholders believe, the ceiling is not restricted to the room rent alone.

While disbursing the claim, all other charges too are proportionately reduced, as the tariffs for treatments usually vary as per the type of rooms," points out Pawan Bhalla, CEO, Raksha TPA.

Similarly, if you have signed up for a policy with a co–payment clause, you will be required to share the part of the claim in the pre–agreed ratio, which could range from 10–25% of the eligible claim. On the positive side, policies with co–payment options also bring down the premiums. Higher the ratio, lower will be the premium.

Reasonable & Necessary: You should also be aware of the implications of the reasonability clause which declares that only the ‘reasonably and necessarily’ incurred expenses will be admissible as part of the claim. So, if you have been charged, say Rs 50,000, for a treatment procedure that generally costs Rs 40,000, the insurer will approve the claim to the extent of the lower amount.

Claiming The Money: This is applicable mainly to reimbursement claims. In the case of cashless facility, the approval is instantaneous. To ensure that your claim is entertained, ensure that you intimate the TPA/insurer within seven days of hospitalisation and submit the relevant documents within 15 days from the date of discharge. A failure on your part to adhere to the deadline could result in the rejection of your claim.

Renewal Guarantee: Irda has stipulated that health insurance companies cannot reject policy renewal requests on the ground that a claim was made in the earlier years. It can be turned down only in cases of fraud, moral hazard or misrepresentation. The policy’s prospectus has to contain detailed information on terms of renewal, specific circumstances where the premium could be loaded as well as the extent to which it would be done.

"One should go through the documents carefully and opt for a policy where the terms and conditions provide a definite picture of any loading on future premiums," says Sanjiv Bajaj, MD, Bajaj Capital.

Life Insurance
Protect your interests: The unit–linked platform in the life insurance space has been widely regarded as a fertile ground for mis–selling, prompting the insurance regulator to take steps to limit charges and rein in insurance agents. Though Irda has addressed a whole range of issues in the recent past, the extent of its impact remains to be seen.

Says Gorakhnath Agarwal, chief actuary, Future Generali: "Policyholders need to be aware of many things, the key clauses include Sections 41 and 45 of the Insurance Act , nomination and assignment of a policy and Irda (protection of policyholders’ interests) Regulations, 2002."

"Some agents try to convince prospective policyholders that all policies come with in–built disability riders or are eligible as collateral for loans, which may not always be the case," cautions certified financial planner Pankaj Mathpal.

Indisputability Clause:Section 45 of the Insurance Act bars insurers from raising doubts about the policyholder’s declaration after two years from the date of issuing the policy. The section states that a policy cannot be called in question after this period on the ground that a statement made in the application or any report of the medical officer was inaccurate or false.

Free–Look Period: This is yet another measure to protect policyholders from mis–selling. This clause gives a new policyholder time until 15 days from the date of receipt of the policy document to go through the fine print. During this period, known as the free–look period, a policyholder can surrender the policy if s/he is not satisfied with the terms and conditions.

The insurer will have to refund the premium after deducting expenses towards medical tests, stamp duty and proportionate risk premium for the period of cover. "Underwriting is done on the basis of the information provided.

You should go through the policy document carefully during the free–look period and supply the insurer with any information that you may have missed, to ensure a hassle–free claim settlement. This is especially important in case of pure–protection term policies, as the claim disbursal will be critical for your dependents in your absence," says Bajaj.

Rider Exclusions: If you have availed of accident and disability benefit riders and then file a claim arising out of activities like hunting, mountaineering, motor racing or other dangerous hobbies, your claim will not be sanctioned.

So, while going through the pile of documents may be a tedious task, arming yourself with basics will save you a world of trouble.

Clause And Effects Here are some important clauses that you need to be aware of to ensure a hassle–free claim settlement

Pre–Existing Illnesses
If you have undergone treatment for an ailment within 48 months before the policy was issued, the illness will not be covered

Waiting Period
Pre–existing illnesses will be covered only after a waiting period of 1–4 years

No–Claim Period
Claims other than those related to accidents cannot be made during the first 30 days of the health policy

Sub–Limits
Caps are placed by insurers on hospital room rent, surgeon’s charges,admissible claims on specific diseases, even if the total claim does not exhaust the limit

Co–Payment
It’s the share of eligible claim (10–25%) that a policyholder agrees to pay. The higher your contribution, the lower will be the premium

Renewal
Policy renewal requests cannot be turned down because of an earlier claim. Look for detailed terms of renewal and circumstances where the premium could go up. Check the extent of the likely hike

Reasonability
If your hospital has charged, say, 1 lakh for a treatment, which costs 50,000 elsewhere, your claim payout will be restricted to the lower amount

Exclusions
Certain events or conditions won’t be covered in the first year. For instance, suicide by the insured in the first year of a life insurance policy or piles/cataract in the first year of the health cover

Indisputability
Policyholder’s statements cannot be called into question after two years of issuing the policy
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