INDIA BUSINESS WORLD - APRIL - MAY 2007
The Month that was ...

INSURERS MUST DETECT FALSE STATEMENTS WITHIN 5 YEARS, CAN'T REFUSE CLAIMS LATER

IT MAY soon become illegal for a life insurance company to refuse to honour a claim on the ground that the policy holder had misstated facts while buying the policy. Insurance firms will be given five years to verify all the facts in a proposal form and repudiate a policy in case false information is detected.

The Department of Economic Affairs (DEA) has proposed to amend the existing provisions of the Insurance Act, 1938 to bring "a finality to the contract and remove uncertainty," a source in the government said. It has been noticed that the insurer often tries to verify the accuracy of statements made by the policy holder only after a claim is lodged. By this time, several instalments of premium for the policy may already have been paid. If the proposed amendments go through, then the life insurance company will have five years in which to detect any false statements. After this the validity of a policy can't be questioned even on the ground that wrong statements were made "knowingly" or "fraudulently". This change would be a major relief for the beneficiary (dependent) in the event of death of the policy holder.