Chapter 12 Notes: Documentation – Proposal Stage
1. Informational: Key Proposal Stage Documents
Prospectus
A prospectus is a formal legal document issued by an insurer that provides complete details about a product. It enables prospective policyholders to make an informed decision by stating plan terms, scope of guaranteed/non-guaranteed benefits, entitlements, exceptions, and whether the plan is participating or non-participating.
Proposal Form
The proposal form is the formal application filled in by the proposer to furnish all material information required for risk assessment. Defined under IRDAI Regulations, 2002, it serves as the legal foundation of the insurance contract. As per IRDAI Standard Proposal Form Regulations (2013), individual life proposals contain 4 distinct sections:
- Section-A: Personal details of proposer and life assured (Mandatory).
- Section-B: Specialized physical/medical questionnaire (Product-specific).
- Section-C: Suitability Analysis (Highly Recommended).
- Section-D: Details of Product Proposed and Recommendation (Mandatory).
2. Commercial Investigation: Underwriting Reports & Verification
Primary Underwriting Reports
| Document Name | Key Contents & Purpose | Primary Examiner / Source |
|---|---|---|
| Agent’s Report | Primary underwriting assessment detailing the applicant’s health, habits, occupation, income, and family background. | Insurance Agent |
| Medical Examiner’s Report | Detailed recording of physical measurements (height, weight, blood pressure, cardiac status) for medical underwriting cases. | Empaneled Doctor |
| Moral Hazard Report | Evaluates the likelihood of intentional behavioral changes or financial inconsistencies that increase the risk of loss. | Official Company Representative |
Standard vs. Non-Standard Age Proofs
Mortality risk directly increases with age, making age verification mandatory.
| 🔢 | 📂 Category | 📄 Examples of Age Proof | 🧠 Key Point |
|---|---|---|---|
| 1️⃣ | ✅ Standard Age Proofs | 🏛️ Municipal Birth Certificate | Official record of date of birth |
| 🎓 School / College Certificate | Educational record showing DOB | ||
| 🛂 Passport | Government-issued identity/travel document | ||
| 🪪 PAN Card | Official tax identification document | ||
| 📋 Service Register | Employment/service record containing DOB | ||
| ⛪ Baptism Certificate | Religious record that may establish DOB | ||
| 2️⃣ | ⚠️ Non-Standard Age Proofs | 🔮 Horoscope | May be accepted subject to insurer requirements |
| 🍚 Ration Card | Supporting document where permitted | ||
| ✍️ Self-Declaration / Affidavit | Declaration of age/DOB | ||
| 🏘️ Village Panchayat Certificate | Local authority certification |
Know Your Customer (KYC) & Anti-Money Laundering (AML)
- Prevention of Money Laundering Act (PMLA), 2002: Enacted to prevent illegal funds from entering the economy; violations carry rigorous imprisonment from 3 to 7 years plus fines up to Rs. 5 lakhs.
- KYC Documentation: Requires verification of photograph, age proof, identity proof, address proof, and income proof for high-value transactions.
- Important Distinction: Documents like Passport, Driving License, and Voter ID serve as valid address proofs, but a PAN Card is NOT a valid address proof.
3. Transactional: Free-Look Period & Cancellation Rules
Free-Look (Cooling) Period Provision
IRDAI mandates a consumer-friendly Free-Look Period of 15 days from the date the policyholder receives the physical policy document. If dissatisfied with any policy terms and conditions, the policyholder can return the policy in writing for a refund.
Refund Calculation Formula
- Single-Line Formula: Free-Look Refund = Premium Paid - (Proportionate Risk Premium + Medical Examination Expenses + Stamp Duty Charges)
4. Exam Key Takeaways & Quick Reference
- Primary Source for Underwriting: Proposal Form.
- Free-Look Duration: 15 days from the date of receipt of the policy bond.
- PAN Card Status: Valid standard age proof and identity proof, but NOT a valid address proof.
- Moral Hazard: Risk that an applicant's behavior changes intentionally post-insurance to cause or inflate a loss.
- Non-Medical Proposals: Cases accepted based on proposal answers without calling for a doctor's examination.