Individual Agent

Pre-recruitment syllabus
IC-38 Life
 Syllabus IC-38

No. of Chapters : 21

Section 2
No. Life Insurance
Section 1 6 What Life Insurance Involves Section 3
No. Common Chapters 7 Financial Planning No. Health Insurance
8 Life Insurance Products – I
1 Introduction to Insurance
9 Life Insurance Products – II 17 Introduction to Health Insurance
2 Customer Service
3 Grievance Redressal Mechanism 10 Applications of Life Insurance 18 Insurance Documentation
19 Health Insurance Products
11 Pricing and Valuation in Life
4 Regulatory aspects of Insurance Insurance
Agent 20 Health Insurance Underwriting
5 Legal Principle of an Insurance 12 Documentation – Proposal Stage 21 Health Insurance Claims
Contract
Documentation – Policy
13 Condition - I

14 Documentation - Policy
Condition - II
15 Underwriting
Payments Under a Life Insurance
16 Policy
IC -38: Chapter wise details

3
Section 1- Common Chapters

Chapter No. Chapter Name

1 Introduction to Insurance
2 Customer Service
3 Grievance Redressal Mechanism
4 Regulatory aspects of Insurance Agents
5 Legal Principle of an Insurance Contract
Chapter 1: Introduction to Insurance

Intro: This chapter presents the basics of insurance and how it works as a tool for risk
transfer .
Life Insurance – History and evolution

Modern insurance in It began with agencies

History of Insurance of foreign companies
India began in early
in India starting marine
1800 or thereabouts
insurance business

The first life The first non-life The first Indian The oldest
insurance company insurance company insurance insurance
in India company company in India
was founded
was an established was formed in in 1906 & still
English in India 1870 in Mumbai in business
company
Bombay National
The Oriental Life Triton Mutual
Insurance Co. Insurance Insurance
Assurance Company Ltd.
Ltd Co. Ltd. Society Ltd.

5
Chapter 1: Introduction to Insurance

Life Insurance Companies Act, 1912 was passed to regulate insurance business

Insurance Act, 1938 was the first legislation enacted to regulate conduct of insurance
companies
Nationalisation of life insurance
• Life insurance business was nationalised on 1st September, 1956
• The Life Insurance Corporation of India (LIC) was formed.
Nationalisation of non-life insurance

• The non-life insurance business was nationalised with the enactment of General
Insurance Business Nationalisation Act (GIBNA) in 1972,
• The General Insurance Corporation of India (GIC) and its four subsidiaries were
set up

Insurance Regulatory and Development Authority (IRDA)

• The passing of the Insurance Regulatory & Development Act, 1999(IRDA) led to the
formation of Insurance Regulatory and Development Authority (IRDA) in April 2000
as a statutory regulatory body both for life and non-life insurance industry.

6
Chapter 1: Introduction to Insurance

How insurance works

Process where losses of a few are shared by

Insurance others exposed to similar uncertain events
/ situations

Risk burdens
that
one carries
Insurance
process Primary
burden of risk

Secondary
burden of risk

7
Chapter 1: Introduction to Insurance

Risk management techniques

Risk management techniques

Risk reduction and
Risk avoidance Risk retention control Risk financing

Insurance is one of the major forms of risk transfer, and it permits uncertainty to be
replaced by certainty through insurance indemnity

Insurance vs Assurance

Insurance Assurance
• Refers to protection against an event that • Refers to protection against an event that
might happen will happen Covers an event that is definite
• Provides cover against a risk • Assurance policies are associated with life
cover

8
Chapter 1: Introduction to Insurance

How insurance indemnifies the insured

9
Chapter 1: Introduction to Insurance

Insurance as a tool for managing risk

Don’t risk a lot for a little

Don’t risk more than what you can

Considerations before opting afford to lose
for insurance

Consider the likely outcomes of the

risk carefully

10
 Chapter 1: Role of Insurance in Society
a. Insurance benefits society economically & socially
b. It also provides employment
c. The money raised from premium is invested is invested in development of infrastructure
d. Removes the fear, worry and anxiety associated with one’s future

• Employees State Insurance Corporation

Govt. Sponsored Insurance Scheme • Crop Insurance Schemes (*RKBY)
• Rural Insurance Schemes

• Janta Personal Accident

Run by Insurer & not supported by [Link] • Jan Arogya

*RKBY – Rashtriya Krishi Bima Yojana 11

Chapter 2: Customer Service

Intro: This chapter explains the importance of customer service, the role of agents in
providing service to customers and how to communicate and relate with the customer.
Importance of customer service

‘SERVQUAL’ highlights
five major indicators of
service quality

Reliability Assurance Responsiveness Empathy Tangibles

It may be defined as the sum of economic benefits

Customer lifetime value that can be derived from building a sound
relationship with a customer over a long period of
time

12
Chapter 2: Customer Service

Customer lifetime value

Historical Value Present Value Potential Value

Premiums and other Present value of future The value of premiums

revenues that have been premiums that may be that could be derived by
received in the past expected to be received if persuading the customer
from customer existing business is to buy additional
retained products

13
Chapter 2: Customer Service
Communication Skills

Trust

Attraction Communication Being Present

Communication may take place in several Oral Written

forms:
Using
Non- Body
Verbal Languag
e

14
Chapter 2: Customer Service

Be on time always

Present yourself appropriately

Making a great
first A warm, confident and
winning
impression
smile

Non-verbal Being open, confident and

communication
positive

Interest in the other person

Body Language
Confidence

Trust

15
Chapter 2: Customer Service

is where we consciously try to hear not only

the words but also, more importantly, try to
Active Listening understand the complete message being
sent by another

Elements of active
listening

Demonstrating
Paying Provide Non being Responding Empathetic
that you are
attention feedback Judgmental appropriately Listening
listening

IC-38 Life insurance

Chapter 2: Customer Service

Ethical Behavior

Characteristics of Ethical Behaviour When Ethics are compromised

a) Placing best interests of the client a)Having to choose between two plans,
above one’s own direct or indirect one giving much less premium or
benefits commission than the other

b) Holding in strictest confidence and b) Temptation to recommend

considering as privileged, all business discontinuance of an existing policy and
and personal information pertaining to taking out a new one
client’s affairs
c) Becoming aware of circumstances
c) Making full and adequate disclosure that, if known to the insurer, could
of all facts to enable clients make adversely affect the interests of the
informed decisions client or the beneficiaries of the claim

IC-38 Life insurance

Chapter 3: Grievance Redressal
Mechanism

Intro: This chapter explains Grievance Redressal Mechanism and IRDA guidelines for it.

Grievance redressal mechanism

Integrated Grievance Management System The Consumer Protection Act, 1986

(IGMS)

• IRDA has launched IGMS which acts as a • The Act was passed “to provide for better
central repository of insurance grievance data protection of the interest of consumers and to
and as a tool for monitoring grievance redress make provision for the establishment of
in the industry consumer councils and other authorities for the
settlement of consumer’s disputes”.
• The Act has been amended by the Consumer
Protection (Amendment) Act, 2002
• “Consumer disputes redressal agencies” are
established in each district and state and at
national level

18
Chapter 3: Grievance Redressal
Mechanism
Judicial Channels

National Commission State Commission District Forum

Established by central Established by state Established by state

government by government government in each
notification by notification district

Entertains: complaints, Entertains: complaints Entertains: complaints,

where value of the where the value of where value of the
goods or services and goods/services and goods or services and
compensation, is any, compensation, if any, the compensation
claimed exceeds Rs. 1 claimed exceeds Rs. 20 claimed is up to Rs.20
Crores and appeals lakhs but does not exceed lakhs
against the order of any Rs. 100 lakhs and appeals
State Commission against the order of any
district forum within the
state

19
Chapter 3: Grievance Redressal
Mechanism
The Insurance Ombudsman

The Ombudsman, by mutual agreement of the insured and the

insurer
can act as a mediator and counsellor within the terms of reference

The decision of the Ombudsman, whether to accept or reject the

complaint, is final

20
Chapter 3: Grievance Redressal
Mechanism
The complainant had made a previous written
representation to the insurance company and the
insurance company had:
• Rejected the complaint or
• The complainant had not received any reply within one
month after receipt of the complaint by the insurer

The complainant is not satisfied with the

reply given by the insurer
Complaints
can be made
to the The complaint is made within one year
Ombudsman from the date of rejection by the
if: insurance company

The complaint is not pending in any court

or consumer forum or in arbitration
Chapter 4 : Regulatory Aspects of
Insurance Agents
Intro : This chapter explains the various regulations for Insurance Agents
Regulatory Aspects of Insurance Agents

Appointment of Insurance Agent

Application needs to be submitted with Form I-A and PAN details to the Designated Official of
the Insurer

The Designated Official shall check and verifying the agency application & does blacklist check
from the authority’s database

Possible outcomes & timelines for decision on agency application

The Designated Official may In case of refusal to give A review application to the
1 2 agency , the Designated 3 Appellate Officer designated by
process the agency
application and issue an Official shall communicate the insurer , who shall consider
appointment letter within 15 the reasons for refusal to the the application and
days of receipt of all applicant in writing, within communicate the final decision
documents from the 21 days of receipt of the in writing within 15 days of
applicant. application. receipt of the review application
Chapter 4 : Regulatory Aspects of
Insurance Agents
• An applicant shall pass in the Insurance Agency Examination
conducted by the Examination Body as per the syllabus
Insurance
Agency prescribed by the Authority to be eligible for appointment as an
Examination insurance agent.
• Pass certificate is awarded to successful candidates. Pass
certificare is valid for 12 months

Code of Conduct for Insurance

Agents

Do’s Don’ts

Show the agency identity card to the Solicit or procure insurance business
prospect, and also disclose the agency without being appointed to act as such by
appointment letter to the prospect on the insurer
demand;
Disclose the scales of commission in Resort to multilevel marketing for soliciting
respect of the insurance product offered and procuring insurance policies and/or
for sale, if asked by the prospect induct any prospect/policyholder into a
multilevel level marketing scheme
Bring to the notice of the insurer every fact
about the prospect relevant to insurance Force a policyholder to terminate the existing
underwriting, in “Insurance Agent’s policy and to effect a new policy from him within
Confidential Report” along with every three years from the date of such termination of
proposal the earlier policy;

IC-38 Life Insurance

Chapter 4 : Regulatory Aspects of
Insurance Agents
• Any person who acts as an insurance agent violating the provisions of the Insurance Act, 1938 and
Regulations shall be liable to a penalty which may extend to Rs. 10,000
• The insurer shall be responsible for all acts and omissions of its agents including violation of code of
conduct specified under these Regulations, and shall be liable to a penalty which may extend to Rs.
1crore

Suspension of Agency General conditions for appointment of agent by

Insurer

The insurer shall : 1. No insurer shall, appoint any Principal Agent, Chief
1. Recover the appointment letter and Identity Agent, and Special Agent and transact any insurance
business in India through them.
card from the agent
2. No person shall allow any person to take out or renew
within 7 days of issuance of final order. or continue an insurance policy through multilevel
2. Black list the agent and enter the details of the marketing scheme.
agent into the black listed agents‘ 3. Every insurer and every Designated Official shall
3. In case a suspension is revoked the details of maintain a register showing the name and address of
agent shall be removed from list of black listed every insurance agent appointed by him and the date on
Agents. which his appointment began and the date, if any, on
4. Inform other insurers, he/she is acting as an which his appointment ceased. The records shall be
agent, of the action taken against the Insurance maintained by the insurer for duration of service of
Agent for their records and necessary action. insurance agent and for 5 years from the cessation of
the appointment.

IC-38 Life Insurance

Chapter 5 : Legal Principles of Life
Insurance

Intro: This chapter explains the elements that govern the working of a life insurance contract and also
deals with the special features of a life insurance contract.

Insurance contracts – Legal aspects and special features

Insurance involves a contractual agreement in which the insurer

agrees to provide financial protection against certain specified
risks for a price or consideration known as the premium
Insurance
contract

The contractual agreement takes the form of an insurance

policy

Elements of a valid contract

Offer and Agreemen Free Capacity

acceptance Consideration t between consent of the Legality
parties parties
Chapter 5 : Legal Principles of Life
Insurance

Consent is said to be free

when it is not caused by

Coercion Undue Influence Fraud Misrepresentation Mistake

Coercion Undue Influence Fraud Mistake

• It involves pressure • When a Person who is • When a person induces • Error is one’s
applied through able to dominate will of another to act on knowledge or belief or
criminal means another , uses his/her behalf that is caused by interpretation of a thing
position to obtain an a representation he or or event. This can lead
undue advantage over she does not believe to to an error in
the other be true . It can arise understanding and
either from deliberate agreement about the
concealment facts or subject matter of
through mis contract
representing them

IC-38 Life insurance

Chapter 5 : Legal Principles of Life
Insurance
It means that every party to the contract must disclose all
material
facts relating to the subject matter of insurance
Uberrima Fides
or It is defined as involving “a positive duty to voluntarily
Utmost Good disclose, accurately and fully, all facts material to the risk
Faith being proposed, whether requested or not"

If utmost good faith is not observed by either party, the contract

may
be avoided by the other

It has been defined as a fact that would affect the judgment of an

Material insurance underwriter in deciding whether to accept the risk and if
facts so, the rate of premium and the terms and conditions

A policy of insurance may be called in question at any time within three

years from the date of issuance of the policy or the date of
Fraud commencement of risk or the date of revival, of the policy or the date
of the rider to the policy, whichever is later, on the ground of fraud:

IC-38 Life insurance

Chapter 5 : Legal Principles of Life
Insurance
Insurable interest can be in

Self (Own Spouse’s Children’s Asset/s

life) life life owned

It is defined as the active and efficient cause that sets in

motion a chain of events which brings about a result, without
Proximate cause the intervention of any force started and working actively from
a new and independent source
Chapter 5 : Legal Principles of Life
Insurance
The principle of indemnity is applicable to Non-life insurance policies. It
means that the policyholder, who suffers a loss, is compensated so as to
put him or her in the same financial position as he or she was before the
occurrence of the loss event.
Principle of
Indemnity might take one or more of the following modes of settlement:
Indemnity •Cash payment
•Repair of a damaged item
•Replacement of the lost or damaged item
• Restoration, (Reinstatement) for example, rebuilding a house
destroyed by fire

It is the process an insurance company uses to recover claim amounts

paid to a policy holder from a negligent third party.

Subrogation
Subrogation can also be defined as surrender of rights by the insured to
an insurance company that has paid a claim against the third party.
Section 2- Life Insurance

Chapter No. Chapter Name

6 What Life Insurance Involves
7 Financial Planning
8 Life Insurance Products – I
9 Life Insurance Products – II
10 Applications of Life Insurance
11 Pricing and Valuation in Life Insurance
12 Documentation – Proposal Stage
13 Documentation – Policy Condition - I
14 Documentation - Policy Condition - II
15 Underwriting
16 Payments Under a Life Insurance Policy
Chapter 6 : What Life Insurance
Involves
Intro: This chapter explains the various components of life insurance

Life insurance business – Components, human life value, mutuality

Asset: Human Life Value (HLV)

HLV concept considers human life as a kind of property or asset that earns an
income

It measures the value of human life based on an individual’s expected net future
earnings

Typical concerns faced by ordinary people

Dying too Living too Living with

early long disability
Chapter 6 : What Life Insurance
Involves

The level premium is a premium

fixed such that it does not increase
with age but remains constant
throughout the contract period.

Level premium has two components

Term or protection component Cash value element

It consists of that portion of premium It is made up of accumulated excess payments of

actually needed to pay the cost of the risk the policyholder. It constitutes the savings
component

IC-38 Life Insurance

Chapter 6 : What Life Insurance
Involves
Mutuality & Mutuality is one of the important ways to reduce risk in
Diversification financial
markets, the other being diversification

Diversification Mutuality

Under diversification the funds are Under mutuality or pooling, the

spread out among various assets funds of various individuals are
(placing the eggs in different combined (placing all eggs in one
baskets). basket).

Under diversification we have Under mutuality we have funds

funds flowing from one source to flow from many sources to one
many destinations

IC-38 Life Insurance

 Chapter 7 : Financial
Planning
Intro: Life insurance must be understood in the wider context of “Personal Financial Planning”.
The purpose of this chapter is to introduce the subject of financial planning

Financial planning and the individual life cycle

It is a process of identifying one’s life’s goals,

translating these Financial Planning identified goals
Financial Planning into financial goals and managing one’s finances in
ways that will help one to achieve those goals

The Economic Life Cycle

34
 Chapter 7 : Financial
Planning
Savings may be considered as a composite of two decisions

Postponement of consumption: an allocation of resources between present and future

consumption.
Parting with liquidity in exchange for less liquid assets. E.g. purchase of a life insurance policy
impliesexchanging money for a contract which is less liquid. Financial planning includes both kinds
of decisions.

Life Stages
Childhood stage When one is a student or learner
Young unmarried stage When one has begun to earn a livelihood but is single
Young married stage When one has become a partner or spouse
Married with young children stage When one has become a parent
Married with older children stage When one has become a provider who has to take care of
education and other needs of children who are growing older
Post family/Pre-retirement stage When the children may have become independent and left the
house, just as birds leaving an empty nest behind
Retirement stage When one passes through the twilight years of one’s life. One
could live with dignity if one has saved and made sufficient
provisions
35
 Chapter 7 : Financial
Planning
Role of financial planning

Elements of Financial Planning

Risk Retirement Tax and Estate Financing one’s

Investing Management Planning Planning needs

Disintegration of the joint family

Multiple investment choices

The challenges facing
our society and our Changing lifestyles
customers
Inflation

Other contingencies and needs

36
 Chapter 7 : Financial
Planning Financial planning - Types

Financial Planning Advisory Services

Cash Investment Insurance Retiremen Tax Estate

Planning Planning Planning t Planning Planning
Planning

Parameters on which investment decisions are based

Tax Time Horizon

Diversification Considerations Risk Tolerance Liquidity Marketability

Phases of retirement

Accumulation Conservation Distribution

IC-38 Life Insurance 37

Chapter 8 : Life Insurance Products - I
Intro: This chapter discusses products in general, need for life insurance products and the role they play
in achieving various life goals. It also discusses some traditional life insurance products.

Overview of life insurance products

What is a product?

From a marketing standpoint, a product is a bundle of attributes

The difference between a product (as used in a marketing sense) and a commodity is that a
product can be differentiated. A commodity cannot.

Products may be
Customer value would depend on how life insurance
is perceived as a solution to a set of customer needs.

Tangible Intangibl
e A rider is a provision typically added through an endorsement,
which then becomes a part of the contract.
Life insurance is a product
that is intangible

38
Chapter 8 : Life Insurance Products - I
Traditional life insurance products

Traditional Life Insurance Products Term insurance policy

Term Insurance Whole Life Endowment

Plans Insurance Plans Insurance Plans A term insurance policy comes
handy as an income
Decreasing term replacement plan
assurance

Increasing term Considerations: Price is the primary

Variants of Term assurance
Assurance basis of competitive advantage in
Term assurance with term assurance plans
return of premiums

There is no fixed term of cover but the insurer offers to pay the agreed upon
death benefit when the insured dies, no matter whenever the death
might occur
Insurance Whole Life
A whole life policy is a good plan for one who is the main income earner of
the family and wishes to protect the loved ones from any financial insecurity
in case of premature death

39
Chapter 8 : Life Insurance Products - I
Endowment Assurance: Combination of 2 plans:

A term assurance A pure endowment plan

plan
Pays the full sum assured in case of Pays this amount if the insured
death of the insured during the term survives at the end of the term

It is typically an endowment plan with the

Money back plan provision for return of a part of the sum assured
in periodic installments during the term and
balance of sum assured at the end of the term

The unique selling proposition (USP) of term assurance is its low price,
enabling one to buy relatively large amounts of life insurance
on a limited budget

40
Chapter 9 : Life Insurance Products - II
Intro: This chapter discusses non-traditional life insurance products.

Overview of non-traditional life insurance products

Limitations of Traditional Life Insurance

Products Cash value component

• The savings or cash value component in traditional life insurance policies is not well defined

Rate of return

• It is not easy to ascertain what would be rate of return on traditional life insurance policies

Surrender value
• The cash and surrender values (at any point of time), under these contracts depend on certain values
(amount of actuarial reserve and the pro-rata asset share of the policy)

Yield
• Finally there is the issue of the yield on these policies

41
Chapter 9 : Life Insurance Products - II

1. Direct Linkage with the investment gains

Appeal: Major source of appeal
2. Inflation beating returns
of the new genre of products that
3. Flexibility
emerged world wide are
4. Surrender Value

Non-traditional life insurance products

Universal Life Insurance Non Traditional Life

Insurance
Universal life insurance is a form
of permanent life insurance
characterised by its flexible
premiums, flexible face amount Variable Insurance Unit Linked Insurance
and death benefit amounts, and Plan Plan
the unbundling of its pricing
factors

42
Chapter 9 : Life Insurance Products - II

Break-up of ULIP Premium

Expenses Mortality Investment

Investment fund options offered by ULIPs

Equity Fund Debt Fund Balanced Fund Money Market Fund

This fund invests major This fund invests major This fund invests in a mix This fund invests money
portion of the money in portion of the money in of equity and debt mainly in instruments
equity and equity Government Bonds, instruments. such as Treasury Bills,
related instruments. Corporate Bonds, Fixed Certificates of Deposit,
Deposits etc. Commercial Paper etc.

43
Chapter 10 : Applications of Life Insurance
Intro: This chapter discusses various applications of life insurance.

Applications of life insurance

Married Section 6 of the Married Women’s Property Act, 1874

Women’ provides for security of benefits under a life insurance policy
s to the wife and children. Section 6 of the Married Women’s
Property Property Act, 1874 also provides for creation of a Trust
Act

Beneficiaries under
Section 6 of MWP
Act

Wife and one or One or more

Wife more children
alone jointly children

44
Chapter 10 : Applications of Life Insurance

It can be described as an insurance policy taken out by a business to

Key man compensate that business for financial losses that would arise from
Insurance the death or extended incapacity of an important member of the
business

Mortgage It is an insurance policy that provides financial protection for

Redemption home loan borrowers. It is basically a decreasing term life
Insurance insurance policy taken by a mortgagor to repay the balance on a
(MRI) mortgage loan if he / she dies before its full repayment

45
Chapter 11 : Pricing and Valuation in Life
Insurance
Intro: This chapter illustrates the basic elements that are involved in the pricing and benefits
of life insurance contracts

Insurance pricing – basic elements

Insurance
Rebates
contract

Life insurance companies may offer

certain types of rebates on the premium
that is payable. Two such rebates are:

For For mode of

sum premium
assured

46
Chapter 11 : Pricing and Valuation in Life
Insurance
Components of Premium

Expenses of
Mortality Interest management Reserves Bonus loading

Adequacy
Guiding Principles
for determining
Equity
Amount of Loading

Competitivenes
s

Gross premium = Net premium + Loading for expenses + Loading for contingencies + Bonus
loading

47
Chapter 11 : Pricing and Valuation in Life
Insurance
Surplus & Bonus
To assess the financial
state of the life insurer, in
other words to determine if
Every life insurance company is expected
Determination it is solvent or insolvent
to undertake a periodic valuation of its
of surplus
assets and liabilities. Such a valuation To determine the surplus
and bonus
has two purposes available for distribution
among policyholders /
share holders
Surplus
Assets are valued in one of the following three ways

At Book Value At Market Discounted

Value Present Value

Surplus is the excess of

value of assets over value • This is the value • The worth of the • Estimating
at which the life life insurer’s future income
of liabilities. If it is negative, insurer has assets in the stream from
it is known as a strain purchased or market place various assets
acquired its & discounting
Surplus = Assets - Liabilities assets them to present

48
Chapter 11 : Pricing and Valuation in Life
Insurance
Bonus is paid as an addition to the basic benefit payable
Bonus under a contract. Typically it may appear as an addition to
basic sum assured or basic pension per annum

Types of Reversionary Bonuses

Simple Reversionary
Bonus Compound Bonus Terminal Bonus

49
Chapter 11 : Pricing and Valuation in Life
Insurance
Unit Linked Policies

They involve a different approach to the design

of products and follow a different set of
principles

Transparent
Unitising: Pricing:
structure:
Benefits are Insured decides
Charges for
determined by the amount of Investment
insurance
value of units premium risk: It is borne
protection and
credited to the and insurance by the insured
expenses
account at the cover is a
component
time of claim multiple of
are clearly
premiums paid
specified

50
Chapter 12 : Documentation – Proposal Stage
Intro: This chapter discusses the various documents that are involved at the proposal stage and their
significance.

Life insurance – Proposal stage documentation

Prospectus It is a formal legal document used by insurance companies that

provides details about the product

Prospectus used by a life insurance company should state the following, under each of its plans of
insurance:
Terms and conditions

Scope of benefits – guaranteed and non-guaranteed

Entitlements

Exceptions

Whether the plan is participative or non-participative

51
Chapter 12 : Documentation – Proposal Stage
Proposal
Form

The insurance policy is a legal contract between insurer and the policyholder. As is
required for any contract, it has a proposal and its acceptance. The application
document used for making the proposal is commonly known as the ‘proposal form’

Moral
hazard

It is the likelihood that a client's behaviour might change as a result of purchasing a

life insurance policy and such a change would increase the chance of a
loss

52
Chapter 12 : Documentation – Proposal Stage
Valid age proof

Anti-Money Standard age proofs

Laundering
• School or college certificate
(AML)
• Birth certificate extracted from municipal records
• Passport
• PAN card
• Service register
It is the process of
• Certificate of baptism
bringing illegal
• Certified extract from a family bible if it contains the date of
money into an
economy by birth
• Identity card in case of defence personnel
hiding its illegal
• Marriage certificate issued by a Roman Catholic Church
origin so that it
appears to be
legally acquired. Non-standard age proofs
The Government of • Horoscope
India launched the • Ration card
PMLA , 2002 to rein • An affidavit by way of self-
in money-laundering declaration
activities • Certificate from Village Panchayat

IC-38 Life insurance 53

Chapter 12 : Documentation – Proposal Stage

Each insurer is required to have an AML policy and accordingly file a copy
with IRDA. The AML program should include:

Internal Appointment Recruitment Internal

policies, of a principal and training of audit/control
procedures compliance agents on
and controls officer AML measures

Know
Your
Customer
(KYC)

It is the process used by a business to verify the identity of

their clients

54
Chapter 12 : Documentation – Proposal Stage

Agents should ensure that proposers submit the proposal form along
with the following as part of the KYC procedure

Proof of address – Proof of identity – Income

driving license, driving license, proof
Photographs Age passport, documents
passport, voter ID
proof electricity bill, card, PAN card, etc. in case of
bank passbook high- value
etc. transactions

55
Chapter 13 : Documentation – Policy Condition: I
Intro: This chapter discusses the various documents involved when a proposal becomes a life insurance
policy.

Policy stage documentation

First Premium Receipt (FPR)

An insurance contract commences when the life insurance company issues a FPR

The FPR is the evidence that the policy contract has begun

56
Chapter 13 : Documentation – Policy Condition: I

First premium receipt contains

Method and
Name and Next due
Premium amount frequency of
address of the life Policy number date of
paid premium
assured premium
payment
payment

Date of commencement Date of final maturity Date of payment of

Sum assured
of the risk of the policy the last premium

IC-38 Life Insurance 57

Chapter 13 : Documentation – Policy Condition: I

It is evidence of the contract between the assured

Policy Document and the insurance company

Policy document components

Policy Standard Specific Policy

Schedule Provisions Provisions

IC-38 Life Insurance 58

Chapter 14 : Documentation – Policy Condition: II
Intro: This chapter discusses the provisions incorporated in a policy document.

Policy conditions and privileges

The “Grace Period” clause grants the policyholder an additional period of time to pay the premium after
it has become due
Grace period
The standard length of the grace period is one month or 31days

It is the process by which a life insurance company puts back

into force a policy that has either been terminated because of
Reinstatement
non- payment of premiums or has been continued under one
of the non-forfeiture provisions

Policy revival measures

Ordinary revival Loan cum revival

Special revival Instalment revival

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Chapter 14 : Documentation – Policy Condition: II
Nomination is where the life assured proposes the name of the person(s) to whom the sum
assured should be paid by the insurance company after their death
Nomination
A nominee does not have any right to the whole (or part) of the claim

Nomination can be made when the policy is bought or thereafter

Nomination is not applicable to Section 6 of MWP Act

Policy moneys payment is made to surviving nominee/s

Provisions of Section 39
(Nomination)
Assignment cancels nomination

Addition, change or cancellation of nomination is allowed

Nomination shall be by endorsement

60
Chapter 14 : Documentation – Policy Condition: II
The term assignment ordinarily refers to transfer of property
Assignment
by
writing as distinguished from transfer by delivery
Types of Assignment

Conditional Assignment Absolute Assignment

Conditional Absolute assignment

assignment provides provides that all rights,
that the policy shall title and interest which
revert back to the life the assignor has in the
assured on his or her policy are transferred to
surviving the date of assignee without reversion
maturity or on death of to the former or his/her
the assignee. estate in any event. The
policy thus vests
absolutely with the
assignee. The latter can
deal with the policy in
whatever manner he or
she likes without the
consent of the assignor.

61
Chapter 14 : Documentation – Policy Condition: II

Provisions of Section 38 (Assignment)

Assignment
Insurer should be
Assignment Assignment Assignment Assignee
should supported by
has to be by notice cancels can do
record and valuable
endorsement should be in nomination another
register
writing consideration assignment
assignment

Main types of alterations

Change in certain classes of

Reduction in the sum assured
insurance or term
Change in the mode of payment of Change in the date of commencement
premium of the policy
Splitting up of the policy into two or Removal of an extra premium or
more policies restrictive clause
Change from without profits to with
profits plan Correction in name

Settlement option for payment of claim and grant of double accident benefit

62
 Chapter 15 : Underwriting
Intro: This chapter discusses the process of underwriting and the elements involved in the
process.

Underwriting – Basic concepts

Underwriting purpose
Risk classification

To prevent anti-selection or
selection against the insurer
Standar Preferre Substandard Declined
d d lives lives
To classify risks and ensure lives risks
equity among risks

Judgment
Underwriting or the Method
selection process Methods of
Underwriting
Numerical
Method
Field or Primary Underwriting
level department
level

63
Chapter 15 : Underwriting

Acceptance
at ordinary
rates (OR)

Decline or Acceptance
postpone with an extra
Underwriting
decisions

Acceptance Acceptance
with a with a lien on
restrictive the sum
clause assured

64
 Chapter 15 : Underwriting
Non-medical underwriting

Non-medical underwriting

• A large number of life insurance proposals may typically get selected for insurance
without conducting a medical examination to check the insurability of a life to be
insured. Such cases are termed as non-medical proposals

Rating factors in underwriting

• Factors like income, occupation, lifestyle and habits, which contribute to moral
hazard, are assessed as part of financial underwriting, while medical aspects of
health are appraised as part of medical underwriting

Occupational hazards can emanate from any of three sources

Accidental
hazards Health hazards Moral hazard

IC-38 Life Insurance

65
Chapter 15 : Underwriting
Medical underwriting

Medical Factors
that influence
an
Underwriter’s
Decision
• Personal history
• Personal
characteristics
• Family history

66
Chapter 16 : Payments Under A Life
Insurance Policy
Intro: This chapter explains the concept of claim and how claims are
ascertained.

Types of claims and claim procedure

Claimis a demand that the insurer should make good the promise specified in the
A claim
contract

While a death claim arises only upon the death of the life assured, survival claims can
be caused by one or more events
A maturity or death claim or a surrender leads to termination of the insurance
cover under the contract and no further insurance cover is available

Claims can be

Survival Death
Claims Claims

67
Chapter 16 : Payments Under A Life Insurance Policy
Types of claims

Survival Benefit Surrender of

Payments Policy Rider Benefit Maturity Claim Death Claim

Early (less than Non-early (more

three years than three
policy duration) years)

Forms to be submitted for Death

Claim

Claim form by Certificate of burial or

nominee cremation

Treating physician’s Hospital’s

certificate certificate

Employer’s Certified court copies of police

certificate reports in case of death by
accident

68
Repudiation of death claim – if it is detected by insurer that the proposer had made any
incorrect statements or had suppressed material facts relevant to policy, the contract
becomes void. All benefits under the policy are forfeited.

Indisputability clause (Section 45 ) – a policy which has been in force for 3yrs cannot be
disputed on the ground of incorrect or false information. The insurer will have to prove in order to
repudiate a policy after 3yr period.

Presumption of death – the Indian evidence act 1872 deals with presumption of death;
under this act if an individual has not been heard off or seen for 7yrs then they are
presumed to be dead. It is necessary that premiums should be paid till the court decrees
presumption of death.

69
Section 3- Health Insurance
SECTION 3: HEALTH INSURANCE
17 Introduction to Health Insurance
18 Insurance Documentation
19 Health Insurance Products
20 Health Insurance Underwriting
21 Health Insurance Claims

70
 Chapter 17
Introduction to Health Insurance

Healthcare I Commercial insurance I Nationalization I Primary,

Secondary and Tertiary Healthcare I Mediclaim I Broker I Agent I
Third Party Administrator I IRDAI I Ombudsman

71
 Chapter 17
. Introduction to Health Insurance

Definition : World Health Organisation (WHO): Health is a state of complete physical, mental and
social wellbeing and not merely the absence of disease.

Determinants of health
The world over, governments take measures to
Lifestyle Factor provide for health and wellbeing of their people
and ensuring access and affordability of
Environmental Factor healthcare for all citizens. Thus spend on
healthcare usually forms a significant part of
Genetic factors every country’s GDP.

IC-38 Life Insurance

72
Levels of healthcare

Effective Health Care must have: 4. Easily available

1. Appropriate to the needs of the people 5. Affordable
2. Comprehensive
3. Adequate

The government decides upon setting up of centres for primary, secondary and tertiary health care
to make appropriate healthcare affordable and accessible to the population, based on the below
indicators :
1. Size of Population 8. The possible health care provider system
2. Death rate e.g. heart doctors may not be readily
3. Sickness rate available in a village but may be in a district
4. Disability rate town
5. Social and mental health of the people 9. How much of the health care system is
6. General nutritional status of the people likely to be used
7. Environmental factors such as if it is a 10. Socio-economic factors such as affordability
mining area or an industrial area

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73
 Types of Healthcare

1. Primary Healthcare 2. Secondary Healthcare 3. Tertiary Healthcare

• services offered by the • healthcare services • Tertiary Health care is

doctors, nurses and other provided by medical specialized consultative
small clinics which are specialists and other healthcare, usually for
contacted first by the health professionals who inpatients and on referral
patient for any sickness; generally do not have first from primary/secondary
primary healthcare contact with patient. It care providers. The
provider is the first point includes acute care tertiary care providers are
of contact for all patients requiring treatment for a present mostly in the
within a health system. short period for a serious state capitals and a few at
illness, often (but not the district headquarters.
necessarily) as an in-
patient, including
Intensive Care services,
ambulance facilities,
pathology, diagnostic and
other relevant medical
services.

74
 Factors Affecting Health Systems in India

Demographic or Population
Social Trends Life Expectancy
Trends

• India is 2nd largest populated country • Increase in urbanization or people • Life expectancy refers to the
in the world. moving from rural to urban areas has expected number of years that a
• This exposes us to the problems posed challenges in providing child born today will survive.
associated with population growth. healthcare. • Life expectancy has increased from
• The level of poverty has also had its • Health issues in rural areas also 30 years at the time of independence
effect on the people’s ability to pay remain, mainly due to lack of to over 60 years today but does not
for medical care. availability and accessibility to address the issues related to quality
medical facilities as well as of that longer lifespan.
affordability. • This leads to a new concept of
• The move to a more sedentary ‘healthy life expectancy’.
lifestyle with reduced need to • This also requires the creation of
exercise oneself has led to newer infrastructure for ‘Geriatric’ (old age
types of diseases like diabetes and related) diseases
high blood pressure.

75
Evolution of Health Insurance in India

•While the government had been busy with its policy

decisions on healthcare, it also put in place health
insurance schemes.
•Insurance companies came with their health insurance
policies only later.
•Here is how health insurance developed in India:

1. Employees’ State Insurance Scheme (ESI)

2. Central Government Health scheme (CGHS)

3. Commercial Health Insurance

76
IC-38 Life Insurance
•Introduced vide the ESI Act, 1948,

•it covers blue-collar workers employed in the formal private sector and provides comprehensive health
services through a network of its own dispensaries and hospitals,and also contracts public/private
providers wherever its own facilities are inadequate.

•All workers earning wages up to Rs. 15,000 per month are covered under the contributory scheme
wherein employee contributes 1.75% and employer contributes 4.75% of pay roll respectively; state
governments contribute 12.5% of the medical expenses.

•The benefits covered include:

 Free comprehensive healthcare at ESIS facilities
Maternity benefit
Disability benefit
Cash compensation for loss of wages due to sickness and survivorship and
Funeral expenses in case of death of worker

•It is also supplemented by services purchased from authorized medical attendants and private
hospitals. The ESIS covers over 65.5 million beneficiaries as of March 2012.

77
•Central Government Health Scheme (CGHS), which was introduced in 1954 for the central
government employees including pensioners and their family members working in civilian jobs.

•It aims to provide comprehensive medical care to employees and their families and is partly
funded by the employees and largely by the employer (central government). The contribution from
employees is quite nominal though progressively linked to salary scale – Rs.15 per month to Rs.150
per month.

•The services are provided through CGHS‟s own dispensaries, polyclinics and empanelled private
hospitals.

•It covers all systems of medicine, emergency services in allopathic system, free drugs, pathology
and radiology, domiciliary visits to seriously ill patients, specialist consultations etc.

•In 2010, CGHS had a membership base of over 800,000 families representing over 3 million
beneficiaries.

78
 Commercial Health Insurance

•Commercial health insurance was offered by some of the non-life insurers before as well as after
nationalisation of insurance industry.

•In 1986, the first standardised health insurance product for individuals and their families was
launched in the Indian market by all the four nationalized non-life insurance companies (these were
then the subsidiaries of the General Insurance Corporation of India).

• This product, Mediclaim was introduced to provide coverage for the hospitalisation expenses up
to a certain annual limit of indemnity with certain exclusions such as maternity, pre-existing
diseases etc. It underwent several rounds of revisions as the market evolved, the last being in 2012.

•With private players coming into the insurance sector in 2001, health insurance has grown
tremendously but there is still a large untapped market. New products have been introduced

•Today, more than 300 health insurance products are available in the Indian market.

79
 Health Insurance Market

A. Infrastructure C. Intermediaries
Key Terms
B. Insurance Providers D. Other Important Organizations

A. Infrastructure

Public Health Sector Private Sector Providers Pharmaceutical Industry

The Anganwadi workers

77% of allopathic MBBS &
Village Level A 10 Crore industry in
The Trained Birth Attendants (TBA) above practice in pvt.
1/1000 1950 has grown to a
and the Village Health guides sector
population 55,000 Crore industry
ASHA (Accredited Social Health today.
1/5000 Activist)
7 lakhs qualified
population Sub-centres practitioners in
6 Sub-centres Ayurveda/ Siddha/
30000population Primary Health Centres Unani / Homeopathy
The central level price
4 PHC 1 Lakh
Community Health Centres regulator for the industry
population is the National
Large private sector
~ 2000 in country Rural Hospitals Pharmaceuticals Pricing
providing primary,
Authority (NPPA), under
~300 in country secondary & tertiary Ministry or chemicals
Speciality and teaching hospitals
healthcare
Other agencies

80
Health Insurance Market

Insurance Companies especially in the general insurance sector provide

B. Insurance Providers the bulk of the health insurance services

C. Insurance Intermediaries

1. Insurance Brokers who may be individuals or corporates and work independently of insurance companies. They
represent the people who want insurance and connect them to insurance companies obtaining best possible
insurance covers at best possible premium rates. They are remunerated by insurance companies by way of
insurance commission.
2. Insurance Agents are usually individuals but some can be corporate agents too. Unlike brokers, agents cannot
place insurance with any insurance company but only with the company for which they have been granted an
agency.
3. Third Party Administrators are a new type of service providers who came into business since 2001. They are not
authorized to sell insurance but provide administrative services to insurance companies.
4. Insurance Web Aggregators are one of the newest types of service providers to be governed by IRDAI
regulations. Through their web site and/or telemarketing, they can solicit insurance business through distance
marketing without coming face to face with the prospect and generate leads of interested prospects to insurers
with whom they have an agreement. They are remunerated by insurance companies based on the leads
converted to business, display of insurance products as well as the outsourcing services performed by them.
5. Insurance Marketing Firms are the latest types of intermediaries to be governed by IRDAI and can sell products
of 2- Life ,2- Health and 2- general insurance companies and also other financial products by appointing ISP &
FSE’s
81
 Health Insurance Market

D. Other Important Organizations

1. Insurance Regulatory and Development Authority of India (IRDAI)

2. General Insurance and Life Insurance Councils
3. Insurance Information Bureau of India
4. Educational institutions such as Insurance Institute of India and National Insurance Academy
5. Medical Practitioners also assist insurance companies and TPAs in assessing health insurance
risks of prospective clients during acceptance of risks and also advise insurance companies in
case of difficult claims
6. Legal entities such as the Insurance Ombudsman, Consumer courts as well as civil courts also
play a role in the health insurance market when it comes to redressal of consumer grievances

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 Chapter 18
Insurance Documentation

Policy form I Advance payment of premium I Certificate of

Insurance I Renewal notice I Warranty I Condition I Endorsement I
Money Laundering I Know Your Customer

83
IC-38 Life Insurance
 Chapter 18
Insurance Documentation
A. Proposal Form
Insurance is a contract which is reduced in writing to a policy.
The insurance company comes to know the customer and his/her insurance needs only from the
documents that are submitted by the customer

1. Proposal forms
The first stage of documentation is basically the proposal form through which the insured informs:
1. who he/she is
2. what kind of insurance he/she needs
3. details of what he/she wants to insure and
4. for what period of time
Details would mean the monetary value of the subject matter of insurance and all material facts
connected with the proposed insurance.

84
A. Proposal Form

a) Risk assessment by insurer

Proposal form is to be filled in by the proposer for furnishing all material information
required by the insurer in respect of a risk, in order to enable the insurer to decide:
whether to accept or refuse to grant the insurance and
in the event of acceptance of the risk, to determine the rates, terms and
conditions of the cover to be granted
Proposal form contains information which are useful for the insurance company to accept the
risk offered for insurance. The principle of utmost good faith and the duty of disclosure of material
information begin with the proposal form for insurance.

Declaration in the proposal form: Insurance companies usually add a declaration at the end of
the proposal form to be signed by the proposer. The declaration converts the common law principle
of utmost good faith to a contractual duty of utmost good faith.

b) Nature of questions in a proposal form

The number and nature of questions in a proposal form vary according to the class of insurance
concerned.  In personal lines like health, personal accident and travel insurance, proposal forms
are designed to get information about the proposer’s health, way of life and habits, pre-existing
health conditions, medical history, hereditary traits, past insurance experience etc.
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IC-38 Life Insurance
A. Proposal Form

 Elements of Proposal

i. Proposer‘s name in full

ii. Proposer‘s address and contact details
iii. Proposer‘s profession, occupation or business
In some cases like health and personal accident insurance, the proposer’s profession, occupation or business
are of importance as they could have a material bearing on the risk.
iv. Details and identity of the subject matter of insurance
iv. Example : The proposer is required to state if it is:
iv. An overseas travel (by whom, when, to which country, for what purpose) or
v. A person‟s health (with person‟s name, address and identification) etc. depending on the case
v. Sum insured indicates limit of liability of the insurer under the policy and has to be indicated in all proposal
forms.
vi. Previous and present insurance
vii. Loss experience
viii. Declaration by insured
ix. Where a proposal form is not used, the insurer shall record the information obtained orally or
in writing, and confirm it within a period of 15 days thereof with, the proposer and incorporate the
information in its policy. Where the insurer later claims that the proposer did not disclose any material
information or provided misleading or false information on any matter material to the grant of a cover,
the burden of proving it falls on the insurer.

86
IC-38 Life Insurance
A. Proposal Form

Medical Questionnaire

1.  In case of adverse medical history in the proposal form, the insured person has to complete a
detailed questionnaire relating to diseases such as Diabetes, Hypertension, Chest pain or
Coronary Insufficiency or Myocardial Infarction.

2. These have to be supported by a form completed by a consulting physician. This form is

scrutinised by company’s panel doctor, based on whose opinion, acceptance, exclusion, etc. are
decided.

2. Role of intermediary

3. The intermediary has a responsibility towards both parties i.e. insured and insurer
4.  An agent or a broker, who acts as the intermediary between the insurance company and the
insured has the responsibility to ensure all material information about the risk is provided by
the insured to insurer.
5.  IRDAI regulation provides that intermediary has responsibility towards the client.

87
IC-38 Life Insurance
 B. Acceptance of the proposal (underwriting)

As per IRDAI guidelines, the insurer has to process the proposal within 15 days time.

C. Prospectus

A Prospectus is a document issued by the insurer or on its behalf to the prospective buyers of
insurance. It is usually in the form of a brochure or leaflet and serves the purpose of introducing a
product to such prospective buyers.

Other important information which a Prospectus should also disclose includes:

1. Any differences in covers and premium for different age groups or for different entry
ages
2. Renewal terms of the policy
3. Terms of cancellation of policy under certain circumstances
4. The details of any discounts or loading applicable under different circumstances
5. The possibility of any revision or modification of the terms of the policy including the
premium
6. Any incentives to reward policyholders for early entry, continued renewals, favourable
claims experience etc. with the same insurer
7. A declaration that all its Health insurance policies are portable which means that these
policies can be renewed with any other insurer who offers similar cover with the same
benefits he would have enjoyed had he continued with the existing insurer.

88
D. Premium Receipt

As per IRDAI Regulations, in case the proposer / policyholder opts for premium payment
through net banking or credit / debit card, the payment must be made only through net
banking account or credit / debit card issued in the name of such proposer / policyholder.

Payment of Premium in Advance

• (Section 64 VB of Insurance Act, 1938)

• As per Insurance Act, premium is to be paid in advance, before the start of the insurance cover

Method of payment of premium

• Cash
• Any recognised banking negotiable instrument such as cheques, demand drafts, pay order, banker’s cheques
drawn on any schedule bank in India;
• Postal money order;
• Credit or debit cards;
• Bank guarantee or cash deposit; 
• Internet;
• E-transfer
• Direct credits via standing instruction of proposer or the policyholder or the life insured through bank
transfers;
• Any other method or payment as may be approved by the Authority from time to time;

89
E. Policy Document

 A health insurance policy should contain: 

1. The name(s) and address(es) of the insured and any other person having insurable interest in
the subject matter
2.  Full description of the persons or interest insured
3.  The sum insured under the policy person and/or peril wise
4. Period of insurance
5.  Perils covered and exclusions
6. Any excess / deductible applicable
7.  Premium payable and where the premium is provisional subject to adjustment, the basis of
adjustment of premium
8.  Policy terms, conditions and warranties
9.  Action to be taken by the insured upon occurrence of a contingency likely to give rise to a claim
under the policy
10.  The obligations of the insured in relation to the subject-matter of insurance upon occurrence
of an event giving rise to a claim and the rights of the insurer in the circumstances
11.  Any special conditions
12.  Provision for cancellation of the policy on grounds of misrepresentation, fraud, non-disclosure
of material facts or non-cooperation of the insured
13.  The address of the insurer to which all communications in respect of the policy should be sent
14.  The details of the riders, if any
15.  Details of grievance redressal mechanism and address of ombudsman
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F. Conditions & Warranties

Conditions

• A condition is a provision in an insurance contract which forms the basis of the

agreement.

Warranties

• Warranties are used in an insurance contract to limit the liability of the insurer
under certain circumstances. Insurers also include warranties in a policy to reduce
the hazard. With a warranty, the insured, undertakes certain obligations that need
to be complied within a certain period of time and also during the policy period
and the liability of the insurer depends on the insured’s compliance with these
obligations. Warranties play an essential role in managing and improving the risk.

91
G. Endorsements

If certain terms and conditions of the policy need to be changed at the time of issuance, it is done
by setting out the amendments / changes through a document called endorsement.

Endorsements normally required under a policy relate to:

1. Variations /changes in sum insured
[Link] of insurable interest by way of taking of a loan and mortgaging the policy to a
bank. 
[Link] of insurance to cover additional perils / extension of policy period
4. Change in risk, e.g. change of destinations in the case of an overseas travel policy
5. Transfer of property to another location
6. Cancellation of insurance
7. Change in name or address etc.

Specimen Endorsement

Cancellation of policy
At the request of the insured the insurance by this Policy is hereby declared to be cancelled as from <date>. The
insurance having been in force for a period over nine months, no refund is due to the Insured.
Extension of cover to additional member in the Policy
At the request of the insured, it is hereby agreed to include Miss. Ratna Mistry, daughter of the insured and aged 5
years with a sum insured of Rs. 3 lakhs in the policy with effect from <date>.
In consideration, thereof an additional premium of Rs………………………….. is hereby charged to the insured.
92
 H. Interpretation of policies

Policy wordings are understood and interpreted as per the following rules:
a) An express or written condition overrides an implied condition except where there is inconsistency in doing
so.
b)  In the event of a contradiction in terms between the standard printed policy form and the typed or
handwritten parts, the typed or handwritten part is deemed to express the intention of the parties in the
particular contract, and their meaning will overrule those of the original printed words.
c)  If an endorsement contradicts other parts of the contract the meaning of the endorsement will prevail as it
is the later document.
d)  Clauses in italics over-ride the ordinary printed wording where they are inconsistent.
e)  Clauses printed or typed in the margin of the policy are to be given more importance than the wording
within the body of the policy.
f)  Clauses attached or pasted to the policy override both marginal clauses and the clauses in the body of the
policy.
g)  Printed wording is over-ridden by typewritten wording or wording impressed by an inked rubber stamp.
h)  Handwriting takes precedence over typed or stamped wording.
i)  Finally, the ordinary rules of grammar and punctuation are applied if there is any ambiguity or lack of clarity. 

I. Renewal Notice

Most of the non-life insurance policies are issued on annual basis. 

1. There is no legal obligation on the part of insurers to advise the insured that his policy is due to expire on a
particular date. However, as a matter of courtesy and healthy business practice, insurers issue a renewal
notice in advance of the date of expiry, inviting renewal of the policy.

93
J. Anti-Money Laundering and Know Your Customer Guidelines

Money Laundering means converting money obtained through criminal means to legal money
and laws to fight this have been introduced worldwide and in India.

Every customer needs to be properly identified by collection of the following documents:

1. Address verification
[Link] photograph
3. Financial status
[Link] of insurance contract

• In case of Individuals - Collect full name, address, contact numbers of insured with ID and address proof, PAN
number and full bank details for NEFT purposes
• In case of corporates - collect Certificate of Incorporation, Memorandum and Articles of Association, Power of
Attorney to transact the business, copy of PAN card
• In case of Partnership firms - Collect Registration certificate (if registered), Partnership deed, Power of Attorney
granted to a partner or an employee of the firm to transact business on its behalf, Proof of identity of such person. 
•In case of Trusts and foundations - similar to that of partnership

94
 CHAPTER 19
HEALTH INSURANCE PRODUCTS
1. Classification of health insurance products [Link] insurance and health insurance for poorer
2. IRDA guidelines on Standardization in health sections
insurance [Link] Swasthya Bima Yojana
3. Hospitalization indemnity product [Link] Mantri Suraksha Bima Yojana
4. Top-up covers or high deductible insurance plans [Link] Mantri Jan Dhan Yojana
5. Senior citizen policy [Link] accident and disability cover
6. Fixed benefit covers – Hospital cash, critical illness [Link] travel insurance
7. Long term care product [Link] health cover
8. Combi-products [Link] products
9. Package policies [Link] terms in health policies

95
A. Classification of health insurance products

Broad classification of health insurance products

Whatever be the product design, health insurance products can be broadly classified into 3
categories

Indemnity covers Fixed benefit covers Critical illness covers

• These products constitute the bulk • Also called as “hospital cash”, • This is a fixed benefit plan for
of the health insurance market these products pay for a fixed sum payout on occurrence of a pre-
and pay for actual medical per day for the period of defined critical illness like heart
expenses incurred due to hospitalization. attack, stroke, cancer etc.
hospitalization. • Some products also have a fixed
graded surgery benefit
incorporated in the product

Classification based on customer segment : Products are also designed keeping in mind the target customer segment. The
benefit structure, pricing, underwriting and marketing for each segment is quite distinct

Individual cover Group cover Mass policies

• offered to retail customers and • offered to corporate clients, • for government schemes like RSBY
their family members covering employees and groups, covering very poor sections of the
covering their members population

96
B. IRDA Guidelines on Standardization in health insurance

To remove the confusion among insurers, service providers, TPAs and hospitals and the
grievances of the insuring public, various organizations got together to provide some kind of
standardization in health insurance.

The guidelines now provide for standardization of:

1.  definitions of commonly used insurance terms

2. definitions of critical illnesses

3.  list of excluded items of expenses in hospitalization indemnity policies
4. claim forms and pre-authorization forms
5. billing formats
6.  discharge summary of hospitals
7. standard contracts between TPAs, insurers and hospitals
8.  standard File and Use format for getting IRDAI for new policies

97
C. Hospitalization indemnity product

Inpatient hospitalization expenses

1. Room, boarding and nursing expenses as provided by the hospital / nursing home.
2. Intensive Care Unit (ICU) expenses
3.  Surgeon, anesthetist, medical practitioner, consultants, specialists fees
4.  Anesthetic, blood, oxygen, operation theatre charges, surgical appliances,
5.  Medicines and drugs,
6.  Dialysis, chemotherapy, radiotherapy
7.  Cost of prosthetic devices implanted during surgical procedure like pacemaker, orthopedic
implants etc
8.  Relevant laboratory / diagnostic tests and other medical expenses related to the treatment
9.  Hospitalization expenses (excluding cost of organ) incurred on donor in respect of organ
transplant to the insured

Pre and post hospitalization expenses

1. Pre hospitalization expenses

Hospitalization could be either emergency hospitalization or planned. If a patient goes in for a planned
surgery, there would be expenses incurred by him prior to the hospitalization.

2. Post hospitalization expenses

 After stay in the hospital, in most cases there would be expenses related to recovery and follow-up.  

98
C. Hospitalization indemnity product

a) DOMICILIARY HOSPITALIZATION
 
Although this benefit is not commonly used by policyholders, an individual health policy also has
a provision to take care of expenses incurred for medical treatment taken at home without being
admitted to a hospital

This cover usually carries an excess clause of three to five days meaning that treatment costs for
the first three to five days have to be borne by the insured.

The cover also excludes domiciliary treatments for certain chronic or common oilments such as
Asthma, Bronchitis, Chronic Nephritis and Nephritic Syndrome, Diarrhoea and all type of
Dysenteries including Gastroenteritis, Diabetes Mellitus Epilepsy, Hypertension, Influenza, Cough
and Cold, fevers.

99
C. Hospitalization indemnity product

b) COMMON EXCLUSIONS
 
1. Pre-existing diseases 15. Expenses for investigation/ treatment irrelevant to the
2. Weight control programs/ supplies/ services disease for which admitted or diagnosed
3.  Cost of spectacles/ contact lenses/ hearing aids etc. 16. Any expenses when the patient is diagnosed with retro
4.  Dental treatment expenses that do not require virus and/or suffering from HIV/ AIDS etc. is detected
hospitalisation directly or indirectly
5.  Hormone replacement 17. Stem cell implantation/ surgery and storage
6.  Home visit charges 18. War and nuclear related causes
7.  Infertility/ subfertility/ assisted conception procedure 19. All non-medical items such as registration charges,
8.  Obesity (including morbid obesity) treatment admission fees, telephone, television charges, toiletries,
9.  Psychiatric & psychosomatic disorders etc.
[Link] surgery for refractive error 20. A waiting period of 30 days from inception of policy is
11. Treatment of sexually transmitted diseases normally applicable in most policies for making any
[Link] screening charges claim. This however will not be applied for
13. Admission/registration charges hospitalization due to an accident.
[Link] for evaluation/ diagnostic purpose
The IRDA guidelines on standardisation define Pre-existing as “Any condition, ailment or injury or related
condition(s) for which you had signs or symptoms, and/or were diagnosed, and/or received medical
advice/treatment within 48 months prior to the first policy issued by the insurer.” 100
C. Hospitalization indemnity product

c) COVERAGE OPTIONS AVAILABLE

Individual coverage Family floater

• An individual insured can cover himself along • In the variant known as a family floater policy,
with family members such as spouse, the family consisting of spouse, dependent
dependent children, dependent parents, children and dependent parents are offered a
dependent parents in law, dependent siblings single sum insured which floats over the entire
etc. family.
C. Hospitalization indemnity product

d) SPECIAL FEATURES

Sub limits and Disease Co-payment (popularly

Deductible
specific capping called Co-pay)

  Zone wise premium Coverage of pre-

New exclusions existing diseases

Renewability Coverage for Day care Cost of pre policy

procedure check up

Duration of pre and post Add on covers Value added covers

hospital cover

102
C. Hospitalization indemnity product

d) SPECIAL FEATURES

i. Sub limits and Disease ii. Co-payment (popularly iii. Deductible

specific capping called Co-pay)
• the policyholder/insured will bear • The insurer will not be liable for a
•Some of the products have
a specified percentage of the specified rupee amount in case of
disease specific capping e.g. admissible claim amount. A co-
cataract. indemnity policies and for a
payment does not reduce the Sum specified number of days/hours in
•A few also have sub limits on
Insured. case of hospital cash policies which
room rent linked to sum insured • This ensures that the insured
•capping helps in restricting will apply before any benefits are
exercises caution in selecting his payable by the insurer.
expenses under other heads also options and thus reduces his • Insurers are to define whether the
and hence the overall overall hospitalization expenses deductible is applicable per year,
hospitalization expenses. voluntarily per life or per event and the specific
deductible to be applied.
 
iv. New exclusions v. Zone wise premium vi. Coverage of pre-existing
•Genetic disorders and stem cell diseases
• Normally, the premium would • In view of regulatory
implantation / surgery.
•External and or durable Medical / depend on the age of the insured requirement, pre-existing
person and the sum insured diseases which were excluded
Non-medical equipment of any kind
selected. earlier are specifically
used for diagnosis and or treatment
• Premium differential has been mentioned with a waiting
including
•Any kind of Service charges, introduced in certain zones with period of four years.
higher claims cost e.g. Delhi and • Few high end products by
Surcharges, Admission fees /
Mumbai form part of highest some insurance companies
Registration charges etc. levied by the
premium zone for certain products have reduced the period to 2
hospital
•Doctor’s home visit charges, by some insurers and 3 years
Attendant / Nursing charges during 103
pre and post hospitalization period
C. Hospitalization indemnity product

d) SPECIAL FEATURES

vii. Renewability viii. Coverage for Day care ix. Cost of pre policy
procedure check up
• Earlier only 7 procedures were • Insurer reimburses the cost,
• Lifelong renewability was provided the proposal is
specifically mentioned under
introduced by few insurers. accepted for underwriting,
• Now, this has been made daycare - Cataract, D and C,
Dialysis, Chemotherapy, the reimbursement varying
compulsory by IRDAI for all from 50% to 100%.
Radiotherapy, Lithotripsy and
policies. • As mandated by IRDAI that
Tonsillectomy.
• Now, more than 150 procedures insurer would bear at least
are covered and the list keeps 50% of health checkup
growing. expenses.

x. Duration of pre and xi. Add on covers

post hospital cover

• Duration of pre and post 1. Maternity cover: offered by most insurers, with varying waiting periods.
hospital coverage is extended 2. Critical illness cover: Available as an option for certain ailments which are
to 60 days and 90 days by life threatening and entail expensive treatment.
most insurers especially in 3. Reinstatement of sum insured: After payment of claim, the sum insured
their high end product. can be restored to the original limit by paying extra premium.
• Few insurers have also capped 4. Coverage for AYUSH – Ayurvedic – Yoga - Unani – Siddha – Homeopath:
these expenses linked to 5. Few policies cover expenses towards AYUSH treatment up to a certain
certain percentage of claim percentage of the hospitalization expenses.
amount, subject to a
maximum limit.
104
C. Hospitalization indemnity product
d) SPECIAL FEATURES
xii. Value added covers

Outpatient • Few companies now offer limited cover for out-patient expenses under some of the high-
cover end plans.

• This provides for fixed lump sum payment for each day of hospitalization for a specified
Hospital cash periods. This is in addition to the hospitalization claim but within the overall sum insured
of the policy or may be with a separate sub-limit.

Recovery • Lump sum benefit is paid if the total period of stay in hospital due to sickness and/or
benefit accident is not less than 10 days.

Donor‘s • The policy provides for reimbursement of expenses towards donor in case of major organ
expenses transplant as per the terms and condition defined in the policy.

Reimbursement • Expenses incurred towards ambulance by Insured/insured person are reimbursed up to a

of ambulance certain limit specified in the schedule of the policy.

Expenses for • This is intended to cover the expenses incurred by accompanying person towards food,
accompanying transportation whilst attending to insured patient during the period of hospitalization.
person Lump sum payment or reimbursement payment as per the policy terms is paid

Family • Earlier, primary insured, spouse, dependent children were granted cover. Now there are
definition policies where parents and in-laws can also be granted cover under the same policy.
•
105
 D. Top-up covers or high deductible insurance plans

1. This policy works along with a basic health cover having a low sum insured and comes at a
comparatively reasonable premium.
2. For example, Individuals covered by their employers can also opt for a top-up cover for
additional protection (keeping the sum insured of the first policy as the threshold).
3. This can be for self and family, which comes in handy in the unfortunate event of high cost
treatment

E. Senior citizen policy

These plans are designed to offer cover to elderly people e.g. people over 60 years of age. The
structure of the coverage and exclusions are much like a hospitalization policy.

1. Special attention is paid to diseases of the elderly in setting coverage and waiting period.
2. Entry age is mostly after 60 years and renewable lifelong. Sum insured range from Rs. 50,000 to Rs. 5,00,000.
3. There is variation of waiting period applicable to certain ailments.

IRDAI has mandated special provisions for insured persons who are Senior Citizens:
1. The premium charged for health insurance products offered to senior citizens shall be fair, justified,
transparent and duly disclosed upfront.
2. The insured shall be informed in writing of any underwriting loading charged over and above the premium
and the specific consent of the policyholder for such loadings shall be obtained before issuance of a policy.
3. All health insurers and TPAs shall establish a separate channel to address the health insurance related
claims and grievances of senior citizens.

106
F. Fixed benefit covers - Hospital cash, critical illness

The greatest risk to an insurer in a health insurance policy is :

1. unnecessary and unreasonable use of the policy benefits.
2. hospitals tend to over treat him.
3. prolong the length of stay in the hospital,
4. carry out unnecessary diagnostic and laboratory tests and thus inflate the cost of
treatment beyond the necessary amount.

The answer to this is the Fixed Benefit cover. The package charges would include all components of
the cost such as:
a) Room rent,
b) Professional fees,
c) Diagnostics,
d) Drugs,
e) Pre and post hospitalization expenses etc.

Some of the fixed benefit insurance plans are:

5. Hospital daily cash insurance plans
6. Critical illness insurance plans

107
Hospital Daily Cash Policy
Per day amount limit

• Hospital cash coverage provides a fixed sum to the insured person for each day of hospitalization.
• Per day cash coverage could vary from (for example) Rs. 1,500- Rs. 5,000 or even more per day. .

Number of payment days

• the number of days of daily cash allowed is linked to the disease for which treatment is being taken

Standalone cover or add-on cover

• available as a standalone policy as offered by some insurers while, in other cases, it is an add-on
cover to a regular indemnity policy.
• These policies help the insured to cover incidental expenses as the payout is a fixed sum and not
related to the actual cost of treatment.

Supplementary cover

• These policies could supplement a regular hospital expenses policy as it is cost effective and
provides compensation for incidental expenses and also expenses not payable under the indemnity
policy

Other advantages of the cover

• .It beats medical inflation as a fixed sum per day is paid for the duration of hospitalization whatever
may be the actual expense 108
Critical Illness Policy

This product is also known as the dreaded disease cover or a

trauma care cover.

[Link] illness policy is a benefit policy with a provision to pay a lump sum amount on
diagnosis of certain named critical illness.

[Link] is sold:
• As a standalone policy or
• As an add-on cover to a few health policies or
• As an add-on cover in some life insurance policies

[Link] illnesses are major illnesses that could not only lead to very high
hospitalization costs, but could also cause disability, loss of limbs, loss of earning etc.
and may require prolonged care post hospitalization.

4.A critical illness policy is often recommended to be taken in addition to a hospital

indemnity policy, so that the compensation under the policy could help in overcoming
the financial burden of a family whose member is affected by such illness.

109
Critical Illness Policy

The critical illnesses covered vary across insurers and products, but the common ones
include:
1. Cancers of specified severity
2. Acute myocardial infarction
3. Coronary artery surgery
4. Heart valve replacement
5. Coma of specified severity
6. Renal failure
7. Stroke resulting in permanent symptoms
8. Major organ / bone marrow transplant
9. Multiple sclerosis
10. Motor Neuron disease
11. Permanent paralysis of limbs
12. Permanent disability due to major accidents
110
G. Long term care insurance

There are two types of plans for long term care:

1.  Pre-funded plans which are purchased by healthy insured to take care of their
future medical expenses and
2.  Immediate need plans which are purchased by a lump sum premium when the
insured is requiring long term care.
 
•The severity of disability (and expected survival period) decides the quantum of benefit.
• Long term care products are yet to be developed in Indian market.

111
IC-38 Life Insurance
G. Long term care insurance

Bhavishya Arogya policy : . Introduced in the year 1990, the policy is basically meant to
take care of the healthcare needs of an insured person after his retirement, while he pays premium
during his productive life.
Deferred The policy is a sort of deferred or future Mediclaim policy and provides cover similar
Mediclaim to the Mediclaim policy. The proposer can join the scheme any time between the
age of 25 and 55 years.

Retirement Age He can choose a retirement age between 55 and 60 years with a condition that
there should be a clear gap of 4 years between the date of joining and the
retirement age chosen

Pre-retirement The pre-retirement period means the period starting from the date of acceptance of
period the proposal and ending with the policy retirement age .
During this period the insured pay installment/single premium amount

Withdrawal In case, the insured dies or wishes to withdraw from the scheme either before the
retirement age or after retirement age chosen, then appropriate refund of premium
would be allowed subject to no claim having occurred under the policy.

Assignment The scheme provides for assignment.

Exclusions The policy does not have exclusion of pre-existing diseases, 30 days waiting period
and first year exclusion for specified diseases as in Mediclaim
Group insurance Policy can also be availed of on group basis in which case, facility of group discount
variant is available.

112
 H. Combi-products
1. Health plus Life Combi Products therefore mean products which offer the combination of a life
insurance cover of a life insurance company and a health insurance cover offered by non-life
and/or standalone health insurance company.
2. The products are jointly designed by the two insurers and marketed through the distribution
channels of both insurers
3. Free Look option is available to the insured and is to be applied to the 'Combi Product' as a
whole. However, the Health portion of the 'Combi Product' shall entitle its renewability at the
option of policyholder from the respective Non-Life/standalone health Insurance Company.

I. Package policies

1. Package or umbrella covers give, under a single document, a combination of covers.

2. For instance in other classes of business, there are covers such as Householder’s Policy,
Shopkeeper’s Policy, Office Package Policy etc. that, under one policy, seek to cover various
physical assets including buildings, contents etc.
3. Such policies may also include certain personal lines or liability covers.

113
J. Micro insurance and health insurance for poorer sections

1. Jan Arogya Bima Policy

2. Universal Health Insurance Scheme (UHIS)

114
J. Micro insurance and health insurance for poorer sections
.
1. Jan Arogya Bima Policy

Key Features
1. This policy is designed to provide cheap medical insurance to poorer sections of the society.
2. The coverage is along the lines of the individual Mediclaim policy. Cumulative bonus and medical check-up
benefits are not included.
3. The policy is available to individuals and family members.
4. The age limit is 5 - 70 years.
5. Children between the age of 3 months -5 years can be covered provided one or both parents are covered
concurrently.
6. The sum insured / insured person = Rs.5,000
7. Premium payable as per the following table.

Age of the person insured Up to 46 yrs 46-55 56-65 66-70

Head of the family 70 100 120 140
Spouse 70 100 120 140
Dependent child up to 25 years 50 50 50 50
For family of 2+1 dependent child 190 250 290 330
For family of 2+2 dependent children 240 300 340 380

• Premium qualifies for tax benefit under Section 80D of the Income Tax Act. 115
• Service tax is not applicable to the policy.
J. Micro insurance and health insurance for poorer sections

2. Universal Health Insurance Scheme (UHIS)

This policy is available to groups of 100 or more families. In recent times even individual UHIS
Policies were made available to the public.

Benefits
1. Medical reimbursement : hospitalization expenses up to Rs.30,000 to an individual / family
subject to the following sub limits.
Particulars Limit
Room, boarding expenses
Up to Rs.150/- per day
If admitted in ICU Up to Rs.300/- per day
Surgeon, Anaesthetist, Consultant, Specialists fees, Nursing expenses Up to Rs.4,500/- per illness/ injury
Anaesthesia, Blood, Oxygen, OT charges, Medicines, Diagnostic Up to Rs.4,500/- per illness/ injury
material and X-Ray,
Total expenses incurred for any one illness Up to Rs. 15,000/-

2. Personal accident cover

Coverage for death of the earning head of the family (as named in the schedule) due to accident:
Rs.25,000/-.

116
J. Micro insurance and health insurance for poorer sections

2. Universal Health Insurance Scheme (UHIS)

3. Disability cover

If the earning head of the family is hospitalised due to an accident / illness compensation of Rs.
50/- per day will be paid per day of hospitalisation up to a maximum of 15 days after a waiting
period of three days.

4. Premium

Entity Premium
For an individual Rs.365/- per annum
For a family up to five (including the first three children) Rs.548/- per annum
For a family up to seven(including the first three children and
Rs.730/- per annum
dependent parents)

Premium subsidy for BPL families For families below the poverty line, the
Government will provide a premium subsidy.

117
K. Rashtriya Swasthya Bima Yojana

RSBY has been launched by the Ministry of Labour and Employment, Government of India, to provide
health insurance coverage for the below poverty line (BPL) families
Features
1. Total sum insured of Rs. 30,000 per BPL family on a family floater basis.
2. Pre-existing diseases to be covered.
3. Coverage of health services related to hospitalization and services of surgical nature which can be provided
on a day-care basis.
4. Cashless coverage of all eligible health services.
5. Provision of smart card.
6. Provision of pre and post hospitalization expenses.
7. Transport allowance of Rs.100/- per visit.
8. The Central and State Government pays the premium to the insurer.
9. Insurers are selected by the State Government on the basis of a competitive bidding.
10. Choice to the beneficiary between public and private hospitals.
11. Premium to be borne by the Central and State governments in the proportion of 3:1. Central
Government to contribute a maximum amount of Rs. 565/- per family.
12. Contribution by the State Governments: 25 percent of the annual premium and any additional premium
beyond Rs 750.

118
K. Rashtriya Swasthya Bima Yojana

RSBY has been launched by the Ministry of Labour and Employment, Government of India, to provide
health insurance coverage for the below poverty line (BPL) families
Features

13.  Beneficiary to pay Rs. 30/- per annum as registration fee/ renewal fee.
14.  Administrative cost to be borne by the State Government.
15.  Cost of smart card additional amount of Rs. 60/- per beneficiary would be available for this purpose.
16.  The scheme shall commence operation from the first of the month after the next month from the date of
issue of smart card. Thus, if the initial smart cards are issued anytime during the month of February in a
particular district, the scheme will commence from 1st of April.
17. The scheme will last for one year till 31st March of next year. This would be the terminal date of the scheme
in that particular district. Thus, cards issued during the intervening period will also have the terminal date as
31st March of the following year.

Claim settlement to be done through TPA’s mentioned in the schedule or by the Insurer.

119
.
L. Pradhan Mantri Suraksha Bima Yojana

1. PMSBY covers personal accident death and disability

2. All savings bank account holders in the age 18 to 70 years in participating banks are entitled to
join
3. The cover shall be for the one year period from 1st June to 31st May for which option to join /
pay by auto-debit from the designated savings bank account on the prescribed forms will be
required to be given by 31st May of every year.
4. Premium Rs.12/- per annum per member. The premium will be deducted from the account
holder’s savings bank account through auto debit facility on or before 1st June of each annual
coverage period

Table of Benefits Sum Insured

Death Rs. 2 Lakh
Total and irrecoverable loss of both eyes or loss of use of both
hands or feet or loss of sight of one eye and loss of use of hand
or foot Rs. 2 Lakh
Total and irrecoverable loss of sight of one eye or loss of use of
one hand or foot Rs. 1 Lakh

Termination of cover:
• On member attaining the age of 70 years (age nearest birth day) or
• Closure of account with the Bank or insufficiency of balance to keep the insurance in force or
• In case a member is covered through more than one account, insurance cover will be restricted to one only and the other
cover will terminate while the premium shall be forfeited

120
M. Pradhan Mantri Jan Dhan Yojana

Special Benefits under PMJDY Scheme

1. Interest on deposit.
2. Accidental insurance cover of Rs.1.00 lac
3. No minimum balance required.
4. Life insurance cover of Rs.30,000/-
5. Easy Transfer of money across India
6. Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts.
7. After satisfactory operation of the account for 6 months, an overdraft facility will be permitted
8. Access to Pension, insurance products.
9. Accidental Insurance Cover
10. RuPay Debit Card which must be used at least once in 45 days.
11. Overdraft facility upto Rs.5000/- is available in only one account per household, preferably
lady of the household.

As on 13th May 2015, a record 15.59 Crore accounts have been opened with a balance in account
of Rs. 16,918.91 Crores. Of these, 8.50 Crore accounts have been opened with zero balance.
121
N. Personal Accident and disability cover

A Personal Accident (PA) Cover provides compensation due to death and disability in the event of
unforeseen accident.
In a PA policy, while the death benefit is payment of 100% of the sum insured, in the event of
disability, compensation varies from a fixed percentage of the sum insured in the case of
permanent disability to weekly compensation for temporary disablement.

Types of disability covered

Permanent total disability (PTD)

• means becoming totally disabled for lifetime viz. paralysis of all four limbs, comatose
condition, loss of both eyes/ both hands/ both limbs or one hand and one eye or one eye and
one leg or one hand and one leg,
Permanent partial disability (PPD)
• means becoming partially disabled for lifetime viz. loss of fingers, toes, phalanges etc

Temporary total disability (TTD)

• means becoming totally disabled for a temporary period of time. This section of cover is
intended to cover the loss of income during the disability period.

122
 N. Personal Accident and disability cover

1. Family Package Cover

2. Group Personal Accident Policies
3. Broken bone policy and compensation for loss of daily activities

PA policies are offered to individuals, family and also to groups.

i. Family Package Cover ii. Group Personal Accident Policies

Family package cover may be granted on the Following are different types of group
following pattern: policies:

1. Earning member (Persons Insured) and 1. Employer and Employee relationship:

Spouse, if earning: Independent capital sum These policies are granted to firms,
insured for each, as desired, within usual association etc. to cover: · Named
limitations as in individual. employees
2. Spouse (if not earning member): usually 50 •Unnamed employees
percent of the capital sum insured of the 2. Non Employer-Employee relationship :
earning member. This may be limited to a These policies are granted to
specified upper limit e.g. Rs.1,00,000 or Rs. associations, societies, clubs, etc. to
3,00,000. cover:
3. Children (between the age of 5 years and 25 •Named members
years): usually 25 percent of the capital sum •Members not identified by name
insured of the earning parent subject to a (Note: Employees may be covered
specified upper limit e.g. Rs. 50,000 per child. separately)

123
N. Personal Accident and disability cover

iii. Broken bone policy and compensation for loss of daily activities

1. Fixed benefit or percentage of sum insured mentioned against each fracture is paid at the
time of claim.
2. Quantum of benefit depends on the type of bone covered and nature of fracture sustained.
3. To illustrate further, compound fracture would have higher percentage of benefit than simple
fracture. Again, percentage of benefit for femur bone (thigh bone) would have higher
percentage over benefit of finger bone.
4. The policy also covers fixed benefit defined in the policy for loss of daily activities viz. eating,
toileting, dressing, continence (ability to hold urine or stools) or immobility so that insured
can take care of cost associated to maintain his/her life.
5. It also covers hospital cash benefit and accidental death cover.
6. Different plans are available with varying sums insured and benefit payout.

124
O. Overseas travel insurance

Scope of coverage
Such policies are primarily meant for accident and sickness benefits, but most products available
in the market package a range of covers within one product.

The covers offered are:

1. Accidental death / disability
2. Medical expenses due to illness / accident
3. Loss of checked in baggage
4. Delay in arrival of checked in baggage
5. Loss of passport and documents
6. Third party liability for property / personal damages
7. Cancellation of trips
8. Hijack cover
Types of plans Business and Holiday Plans, the Study Plans and the Employment Plans
Who can provide this non-life and standalone health insurance companies, either as a standalone product or
insurance? as an add-on cover to an existing health policy,

Who can take the policy? An Indian citizen travelling abroad on business, holiday or for studies can avail this
  policy. Employees of Indian employers sent on contracts abroad can also be covered

Sum insured and The cover is granted in US Dollars and generally varies from USD 100,000 to USD
premiums 500,000. The plans are usually of two types:
1. World-wide excluding USA / Canada
2. World-wide including USA / Canada

125
 P. Group health cover

1. A group should consist of persons with a commonality of purpose, and the group organizer should
have the mandate from a majority of the members of the group to arrange insurance on their
behalf.
2. No group should be formed with the main purpose of availing insurance.
3. The premium charged and benefits available should be clearly indicated in the group policy issued to
individual members.
4. Group discounts should be passed on to individual members and premium charged should not be
more than that given to the insurance company.

Group Health Insurance Policies may be offered by any insurance company, provided that all such products shall
only be one year renewable contracts.

1. Group Policies
Scope of coverage policy taken by employers covering employees and their families including dependent
spouse, children and parents / parents in law.
Tailor-made cover  Group policies are often tailor-made covers to suit the requirements of the group

Maternity cover Maternity cover would provide for the expenses incurred in hospitalization for delivery of
child and includes C- section delivery. This cover is generally restricted to Rs. 25,000 to Rs.
50,000 within the overall sum insured of the family.

Child cover coverage is given to babies from day one, sometimes restricted to the maternity cover limit
and sometimes extended to include the full sum insured of the family.

126
P. Group health cover

1. Group Policies

Pre-existing diseases Several exclusions such as the pre-existing disease exclusion,30 days waiting period, 2
covered, waiting years waiting period, congenital diseases may be covered in a tailor-made group policy.
period waived off
Premium calculation The premium charged for a group policy is based on the age profile of the group
members, the size of the group and most importantly the claims experience of the
group
Non-employer regulatory provisions strictly prohibit formation of groups primarily for the purpose of
employee groups taking out a group insurance cover. When group policies are given to other than
employers, it is important to determine the relation of the group owner to its members.
Pricing there is provision for discount on premium based on size of the group as also the claims
experience of the group
Premium payment The premiums could be either totally paid by the employer or group owner, but it is
usually on a contribution basis by the employees or group members.
Add-on benefits Tailor-made group policies offer covers such as dental care, vision care, and cost of
health checkup and sometimes, critical illness cover too at additional premiums or as
complimentary benefits.

127
 Q. Special Products

Disease covers
1. In recent years, disease specific covers like cancer, diabetes have been introduced in the Indian
market, mostly by life insurance companies.
2. The cover is long term - 5 years to 20 years and a wellness benefit is also included – a regular
health check-up paid for by the insurer.
3. There is incentive for better control of factors like blood glucose, LDL, blood pressure etc. in the
form of reduced premiums from second year of policy onwards.

Product designed to cover diabetic persons

4. This policy can be taken by persons between 26 and 65 years and is renewable up to 70 years.
5. Sum Insured ranges from Rs. 50,000 to Rs. 5,00,000. Capping on Room rent is applicable.
6. Product is aimed to cover hospitalization complications of diabetes like diabetic retinopathy
(eye), kidney, diabetic foot, kidney transplant including donor expenses

128
R. Key terms in health policies

1. Network Provider 12. Malus/ Bonus

2. Preferred provider network (PPN) 13. No claim discount
3. Cashless service 14. Co-payment
4. Third party administrator (TPA) 15. Deductible / Excess
5. Hospital 16. Room rent restrictions
6. Medical practitioner 17. Renewability clause
7. Qualified nurse 18. Cancellation clause
8. Reasonable and necessary expenses 19. Free look in period
9. Notice of claim 20. Grace period for renewal
10. Free health check
11. Cumulative bonus

129
R. Key terms in health policies

Network provider Preferred provider Cashless service

• hospital/nursing home/day network (PPN) • A cashless service enables the
care center which is under tie- • An insurer has the option to insured to avail of the
up with an insurer/TPA for create a preferred network of treatment up to the limit of
providing cashless treatment hospitals to ensure quality cover without any payment to
to insured patients treatment and at best rates the hospitals. All that the
insured has to do is approach a
network hospital and present
his medical card as proof of
insurance .
Third party administrator (TPA)
• Several insurers across the world utilize the services of independent organizations for managing health
insurance claims. These agencies are known as the TPAs.
• In India, a TPA is engaged by an insurer for provision of health services which includes among other things:
• Providing an identity card to the policyholder which is proof of his insurance policy and can be used for
admission into a hospital
• Providing a cashless service at network hospitals
• Processing of claims

130
R. Key terms in health policies

Hospital
must comply with all minimum criteria as under:
 has at least 10 inpatient beds in those towns having a population of less than 10,00,000 and 15
inpatient beds in all other places;
 has qualified nursing staff under its employment round the clock;
 has qualified medical practitioner(s) in charge round the clock;
 has a fully equipped operation theatre of its own where surgical procedures are carried out;
 maintains daily records of patients and will make these accessible to the Insurance company’s
authorized personnel.

Medical practitioner

 a person who holds a valid registration from the medical council of any state of India and is thereby
entitled to practice medicine within its jurisdiction; and is acting within the scope and jurisdiction of
his license.

Qualified nurse
 a person who holds a valid registration from the Nursing Council of India or the Nursing Council of
any state in India

131
R. Key terms in health policies

Reasonable and necessary expenses

 IRDAI defines Reasonable Charges as the charges for services or supplies, which are the standard
charges for the specific provider and consistent with the prevailing charges in the geographical area for
identical or similar services, taking into account the nature of the illness / injury involved .

Notice of claim
 The time limit for submission of claim documents is normally fixed at 15 days from the date of discharge.
This enables quick and accurate reporting of claims, and also enables the insurer to carry out
investigations wherever required.

Free health check

 In individual health policies, a provision is generally available to give some form of incentive to a claim
free policyholder. Many policies provide for reimbursement of the cost of health check-up at the end of
four continuous, claim free policy periods. This is normally capped at 1% of the average sum insured of
the preceding three years.

Cumulative bonus
 Another form of encouraging a claim free policyholder is providing a cumulative bonus on the sum
insured for every claim free year.
132
R. Key terms in health policies

Malus/ Bonus
 Just as there is an incentive to keep the health policy free of claims, the opposite is called a malus. Here, if
the claims under a policy are very high, a malus or loading of premium is collected at renewal.

No claim discount
 Some products provide for a discount on premium for every claim free year instead of a bonus on sum
insured.

Co-payment
 Co-payment is the concept of the insured bearing a portion of each and every claim under a health
policy. These could be compulsory or voluntary depending on the product..

Deductible / Excess
 Also called as excess, in health policies, it is the fixed amount of money the insured is required to pay
initially before the claim is paid by insurer, for e.g. ifthe deductible in a policy is Rs. 10,000, the insured
pays first Rs. 10,000 in each insured loss claimed for

Room rent restrictions

 several products today place a restriction on the category of room that an insured chooses by linking it to
the sum insured. 133
R. Key terms in health policies

Renewability clause
  The IRDA guidelines on renewability of health insurance policies makes lifetime guaranteed renewal of the
health policies compulsory. An insurance company can deny renewal only on the grounds of fraud or
misrepresentation or suppression by insured (or on his behalf) either in obtaining insurance or
subsequently in relation thereto.

Cancellation clause
 An insurance company may at any time cancel the policy only on grounds of misrepresentation, fraud, non-
disclosure of material fact or non-cooperation by the insured.

Free look in period

 The customer must exercise this right within 15 days of receiving the policy document. He has to
communicate the same to the insurer in writing

Grace period for renewal

 a 30 days grace period is allowed for renewal of individual health policies.

IC-38 Life Insurance 134

 CHAPTER 20
HEALTH INSURANCE UNDERWRITING
1. What is underwriting? 6. Underwriting process
2. Underwriting - Basic concepts 7. Group health insurance
3. File and Use guidelines 8. Underwriting of Overseas Travel Insurance
4. Other health insurance regulations of IRDAI 9. Underwriting of Personal Accident Insurance
5. Basic principles and tools for underwriting

135
A. What is underwriting?

Underwriting is the process of assessing the risk appropriately and deciding the terms on which the
insurance cover is to be granted. Thus, it is a process of risk selection and risk pricing.

Need for underwriting Underwriting – risk

assessment

1. Underwriting is a process of risk selection which

1. Underwriting is the backbone of an insurance
is based upon the characteristics of a group or
company as acceptance of the risk carelessly or individual.
2. Here based on the degree of the risk, the
for insufficient premiums will lead to insurer’s
underwriter decides whether to accept the risk
insolvency. and at what price.
3. Under any circumstances, the process of
2. The job of the underwriter is to classify the risk
acceptance has to be done with fairness and on
and decide the terms of acceptance at a proper an equitable basis
4. This classification is normally done through
price
standard acceptance charts whereby every
represented risk is quantified and premiums are
calculated accordingly.

136
A. What is underwriting?

Factors which affect chance of illness

The factors which affect morbidity (risk of falling ill) should be considered carefully while assessing
risk are as follows:

Factors
• Age
• Gender
• Habits
• Occupation
• Family history
• Build
• Past Illness or surgery
• Current health status & other factors
or complaints
• Environment & residence

137
B. Underwriting – Basic concepts

1. Underwriting purpose
There are two purposes
•To prevent anti-selection that is selection against the insurer
•To classify risks and ensure equity among risks

selection of risks refers to the process of Anti-selection (or adverse selection) is the
evaluating each proposal for health insurance tendency of people, who suspect or know that
in terms of the degree of risk it represents their chance of experiencing a loss is high, to
and then deciding whether or not to grant seek out insurance eagerly and to gain in the
insurance and on what terms. process.

2. Equity among risks

The term “Equity” means that applicants who are exposed to similar degrees of risk must be placed
in the same premium class. To usher equity, the underwriter engages in a process known as risk
classification

IC-38 Life Insurance 138

B. Underwriting – Basic concepts

Standard risks

Preferred risks
Risk Classification
Substandard risks

Declined risks

3. Selection process
Underwriting or the selection process may be said to take place at two levels:
•At field level
•At underwriting department level

139
C. File and Use guidelines

File and use procedure for health insurance products as per IRDA guidelines:

a) No health insurance product shall be marketed by any insurer unless it has the prior clearance of the Authority
accorded as per the File and Use Procedure.
b) Any subsequent revision or modification of any approved health insurance product shall also require the prior
clearance of the Authority as per the guidelines. Any revision or modification in a policy shall be notified to
each policy holder at least 3 months prior to the date when such revision or modification comes into effect.
The possibility of a revision or modification of the terms of the policy including the premium must be disclosed
in the prospectus.
c) The File and Use application form has been standardized by IRDAI and has to be sent along with many
annexures including the Database sheet and the Customer Information Sheet and shall be certified by the
Appointed Actuary and the CEO of the insurance company
d) To withdraw a health insurance product, the insurer shall take prior approval of the Authority by giving reasons
for withdrawal and complete details of the treatment to the existing –policyholders.

140
C. File and Use guidelines

e) All particulars of any product shall after introduction be reviewed by the Appointed Actuary at least
once a year. If the product is found to be financially unviable, or is deficient in any particular the Appointed
Actuary may revise the product appropriately and apply for revision under File and Use procedure.

f) Five years after a product has been accorded File and Use approval, the Appointed Actuary shall review
the performance of the product in terms of morbidity, lapse, interest rates, inflation, expenses and other
relevant particulars as compared to the original assumptions made while designing such product and seek
fresh approval with suitable justifications or modifications of the earlier assumptions made.

141
D. Other Health Insurance regulations of IRDAI

Guidelines regarding portability of health policies

1. Portability shall be allowed in the following cases: 
a) All individual health insurance policies issued by non-life insurance companies including family
floater policies
b) Individual members, including the family members covered under any group health insurance policy
of a non-life insurance company shall have the right to migrate from such a group policy to an
individual health insurance policy or a family floater policy with the same insurer. Thereafter, he/she
shall be accorded the right for portability at next renewal

On receipt of such the insurance company shall

intimation, the insurance address the existing
Policyholder needs to company shall give the the applicant shall fill & insurance company seeking
apply for portability applicant, the Portability submit the Portability necessary details of medical
atleast 45 days prior Form ,with a proposal form Form ,with a proposal history and claim history of
to renewal and relevant product form the concerned policyholder
literature on products which through the web portal of
could be offered the IRDA.

On receipt of the data from the existing the existing insurance

insurance company, the new insurance company shall furnish the
company may underwrite the proposal requisite data prescribed in
and convey its decision to the the web portal of IRDA
policyholder within 15 days in within 7 working days of the
accordance with the u/w policy receipt of the request.

142
D. Other Health Insurance regulations of IRDAI

Guidelines regarding portability of health policies

Where the outcome of acceptance of portability is still awaited from the new insurer on the date of renewal

1. the existing policy shall be allowed to be extended, if requested by the policyholder, for the short period
by accepting a pro- rate premium for such short period, which shall be of at least one month and
2. the existing policy shall not be cancelled until such time a confirmed policy from new insurer is received
or at the specific written request of the insured
3. the new insurer, in all such cases, shall reckon the date of the commencement of risk to match with date
of expiry of the short period, wherever relevant.
4. if for any reason the insured intends to continue the policy further with the existing insurer, it shall be
allowed to continue by charging a regular premium and without imposing any new condition
 In order to accept a policy which is porting-in, insurer shall not levy any additional loading or charges exclusively
for the purpose of porting.
 No commission shall be payable to any intermediary on the acceptance of a ported policy.
  For any health insurance policy, waiting period already elapsed under the existing policy with respect to pre-
existing diseases and time bound exclusions shall be taken into account and reduced to that extent under the
newly ported policy.
• Note 1: In case the waiting period for a certain disease or treatment in the new policy is longer than that in the earlier policy for the
same disease or treatment, the additional waiting period should be clearly explained to the incoming policy holder in the portability
form to be submitted by the porting policyholder.
• Note 2: For group health insurance policies, the individual member's shall be given credit as stated above based on the number of
years of continuous insurance cover, irrespective of, whether the previous policy had any pre-existing disease exclusion/time bound
exclusions.

 The portability shall be applicable to the sum insured under the previous policy and also to an enhanced sum
insured, if requested by the insured, to the extent of cumulative bonus acquired from the previous insurer(s)
under the previous policies.

143
E. Basic principles of insurance and tools for underwriting

1. The core principles of underwriting are Utmost good faith (Uberrima fides) and the insurable
interest

2. Tools of underwriting
1. Proposal Form
2. Age Proof
a) Standard age proof
b) Non-standard age proof
3. Financial Documents
Normally the financial documents are only asked for in cases of
• Personal accident covers or
• high sum assured coverage or
• when the stated income and occupation as compared to the coverage sought,
show a mismatch.
4. Medical reports
5. Reports of Sales person

144
F. Underwriting Process

1. Medical underwriting: Medical underwriting is a process in which medical reports are called
for from the proposer to determine the health status of an individual applying for health
insurance policy.
2. Non Medical Underwriting: Most of the proposers which apply for health insurance do not
need medical examination.
3. Numerical rating method: This is a process adopted in underwriting, wherein numerical or
percentage assessments are made on each component of the risk.
4. Underwriting decisions:
 Accept risk at standard rates
 Accept risk at an extra premium (loading), though it may not be practiced in all companies
 Postpone the cover for a stipulated period/term
 Decline the cover
 Counter offer (either restrict or deny part of the cover)
 Impose a higher deductible or Co-pay
 Levy permanent exclusion(s) under the policy

145
F. Underwriting Process

IC-38 Life Insurance 146

G. Group health insurance

Standard underwriting process for group health insurance requires evaluating the proposed
group on the following factors:
1. Type of group
2. Group size
3. Type of industry
4. Eligible persons for coverage
5. Whether entire group is being covered or there is an option for members to opt out
6. Level of coverage – whether uniform for all or differently
7. Composition of the group in terms of sex, age, single or multiple locations, income levels of
group members, employee turnover rate, whether premium paid entirely by the group
holder or members are required to participate in premium payment
8. Difference in healthcare costs across regions in case of multiple locations spread in different
geographical locations
9. Preference of the group holder for administration of the group insurance by a third party
administrator (of his choice or one selected by the insurer) or by the insurer itself
10. Past claims experience of the proposed group

IC-38 Life Insurance 147

G. Group health insurance

Underwriting other than employer- employee groups

Diverse groups are similar to generally accepted group underwriting factors, additional aspects
include:
1. Size of the group (small group size may suffer from frequent changes)
2. Different levels of healthcare cost in different geographical regions
3. Risk of adverse selection in case all group constituents do not participate in the group
health insurance plan
4. Continuation of members in the group in the policy

Non-employer groups include:

•Employer welfare associations
•Holders of credit cards issued by a specific company
•Customers of a particular business where insurance is offered as an add-on benefit
•Borrowers of a bank and professional associations or societies

IC-38 Life Insurance 148

H. Underwriting of Overseas Travel Insurance

The underwriting would follow the pattern for health insurance in general.
 
The premium rating and acceptance would as per individual company guidelines but a few
important considerations are given below:
 
1. Premium rate would depend on the age of the proposer and the duration of foreign
travel.
2. As medical treatment is costly overseas, the premium rates are normally much higher
compared to domestic health insurance policies.
3. Even among the foreign countries, USA and Canada premium is the highest.
4. Care should be taken to rule out the possibility of a proposer using the policy to take
medical treatment abroad and hence the existence of any pre-existing disease must be
carefully considered at the proposal stage.

149
I. Underwriting of Personal Accident Insurance

Classification of Risk : On the basis of occupation, the risks associated with the insured person
may be classified into three groups:

Risk Group I

• Accountants, Doctors, Lawyers, Architects, Consulting Engineers, Teachers, Bankers, persons engaged in
administration functions, persons primarily engaged in occupations of similar hazards.

Risk Group II

• Builders, Contractors and Engineers engaged in superintending functions only, Veterinary Doctors, paid drivers
of motor cars and light motor vehicles and persons engaged in occupation of similar hazards.
• All persons engaged in manual labour (except those falling under Group III), cash carrying employees, garage
and motor Mechanics, Machine operators, Drivers of trucks or lorries and other heavy vehicles, professional
athletes and sportsmen, woodworking Machinists and persons engaged in occupations of similar hazards.

Risk Group III

• Persons working in underground mines, explosives magazines, workers involved in electrical installation with
high tension supply, Jockeys, circus personnel, persons engaged in activities like racing on wheels or
horseback, big game hunting, mountaineering, winter sports, skiing, ice hockey, ballooning, hang gliding, river
rafting, polo and persons engaged in occupations / activities of similar hazard.

150
I. Underwriting of Personal Accident Insurance

1. Age Limits
The minimum and maximum age for being covered and renewed varies from company to company.
Generally a band of 5 years to 70 years is the norm.

2. Medical Expenses
1.  A personal accident policy can be extended by endorsement, on payment of extra
premium to cover medical expenses incurred by the insured in connection with the
accidental bodily injury.
2.  These benefits are in addition to the other benefits under the policies.
3.  It is not necessary that person has to be hospitalised.

3. War and Allied Risks

War risk cover may be covered to Indian personnel / experts working in foreign countries on civilian
duties with additional premium. 
• P.A. policies issued during peace time or normal period would be at say 50 percent extra
over the normal rate (i.e. 150 percent of the normal rate.)
• P.A. policies issued during abnormal/ apprehensive period (i.e. during the period when
warlike conditions have already occurred or are imminent in foreign country/i.e. where
the Indian personnel are working on civilian duties) at say 150 percent extra over the
normal rate (i.e. 250 percent of the normal rate)
 

151
 CHAPTER 21
HEALTH INSURANCE CLAIMS

152
A. Claims management in insurance

Stakeholders in claim process

Customer The person who buys insurance is the first stakeholder and „receiver of the claim‟.
Owners of the insurance company have a big stake as the „payers of the claims‟. Even if the
Owners claims are met from the policy holders‟ funds, in most cases, it is they who are liable to keep the
promise.

Underwriters Underwriters within an insurance company and across all insurers have the responsibility to
understand the claims and design the products, decide policy terms, conditions and pricing etc.
The regulator (Insurance Regulatory and Development Authority of India) is a key stakeholder in
its objective to:
Regulator ü
Maintain order in the insurance environment
ü
Protect policy holders‟ interest
ü
Ensure long term financial health of insurers.
Third Party
Service intermediaries known as Third Party Administrators, who process health insurance claims.
Administrators
Insurance agents / Insurance agents / brokers not only sell policies but are also expected to service the customers in
brokers the event of a claim.
They ensure that the customer gets a smooth claim experience, especially when the hospital is on
Providers / Hospitals the panel of the TPA the Insurer to provide cashless hospitalization.

153
 B. Management of health insurance claims

A claim may be serviced either by the insurance company itself or through the services of a Third Party
Administrator (TPA) authorized by the insurance company.

The general process and supporting documents for a claim under fixed benefit product or critical illness or
daily cash product etc. would be quite similar, except for the fact that such products may not come with
cashless facility.

The claim under an indemnity policy could be a:

a) Cashless claim
The customer does not pay the expenses at the time of admission or treatment. The network
hospital provides the services based on a pre-approval from the insurer/TPA and later submits the
documents to the insurer/TPA for settlement of the claim.
b) Reimbursement claim
The customer pays the hospital from his own resources and then files his claim with Insurer/TPA
for payment of the admissible claim.

In both cases, the basic steps remain the same.

154
B. Management of health insurance claims

Claim process broadly comprises of following steps

155
B. Management of health insurance claims

Claims Process In Health Insurance:

a) Intimation : Claim intimation is the first instance of contact between the customer and the claims
team.
b) Registration : Registration of a claim is the process of entering the claim in the system and
creating a reference number using which the claim can be traced any time. This number is called
Claim number
c) Verification of documents : Once a claim is registered, the next step is to check for the receipt of
all the required documents for processing.
d) Capturing the billing information : Billing is an important part of the claim processing cycle.
Typical health insurance policies provide for indemnifying expenses incurred in the treatment
with specific limits under various heads
e) Coding of claims : The most important code set used is the World Health Organization (WHO)
developed International Classification of Diseases (ICD) codes. While ICD is used to capture the
disease in a standardized format, procedure codes such as Current Procedure Terminology (CPT)
codes capture the procedures performed to treat the illness.
f) Processing of claim : The heart of claims processing in any insurance policy, is in answering two
key questions:
a) Is the claim payable under the policy?
b) If yes, what is the net payable amount?

156
B. Management of health insurance claims

Admissibility of a claim
For a health claim to be admissible the following conditions must be satisfied.
i. The member hospitalized must be covered under the insurance policy
It is important to ensure that the person covered under the policy and the person hospitalized
is the same. This kind of fraud is very common in health insurance.

ii. Admission of the patient within the period of insurance

iii. Hospital definition

 iv. Domiciliary hospitalization

  Some policies cover domiciliary hospitalization i.e. treatment taken at home in India for a
period exceeding 3 days for an ailment which normally requires treatment at hospital/nursing
home.
Domiciliary hospitalization, if covered in a policy, is payable only if:
a)  The condition of the patient is such that he/she cannot be removed to the
Hospital/Nursing Home or
b)  The patient cannot be removed to Hospital/Nursing Home for lack of accommodation
therein

iv. Duration of hospitalization 

Health insurance policies normally cover hospitalization exceeding 24 hours as an in-patient.
157
B. Management of health insurance claims

Admissibility of a claim
vi. OPD
 Some policies cover treatment/consultations taken as an out-patient also, subject to a specific sum
insured which is usually less than the hospitalization sum insured.
 The coverage under OPD varies from policy to policy. For such reimbursements, the clause for 24
hours hospitalization is not applicable.

vii. Treatment procedure/line of treatment

 Hospitalization is typically associated with Allopathic method of treatment. However, the patient
could undergo other modes of treatment such as: 
1. Unani
2.  Siddha
3.  Homeopathy
4.  Ayurveda
5.  Naturopathy etc.
Most policies exclude these treatments while some policies cover one or more of these treatments
with sub-limits.

viii. Pre-existing illnesses

ix. Initial waiting period

158
B. Management of health insurance claims

Admissibility of a claim
[Link]
 
The policy lists out a set of exclusions which in general can be classified as:
a)  Benefits such as maternity (though this is covered in some policies).
b)  Outpatient and Dental treatments.
c)  Illnesses which are not intended to be covered such as HIV, Hormone therapy, obesity
treatment, fertility treatment, cosmetic surgeries, etc.
d)  Diseases caused by alcohol/drug abuse.
e)  Medical treatment outside India.
f)  High hazard activities, suicide attempt, radioactive contamination
g)  Admission for tests/investigation purpose only.

xi. Compliance with conditions with respect to the claims.

In general, these relate to:
h)  Intimation of claim within certain period – we have seen the importance of intimation
earlier. The policy could stipulate a time within which such intimation must reach the
company.
i)  Submission of claim documents within a certain period.
j)  Not being involved in misrepresentation, misdescription or non-disclosure of material
facts.

159
B. Management of health insurance claims

Arriving at the final claim payable

i. Sum insured available for the member under the policy

ii. Balance sum insured available under the policy for the member after taking into account any
claim made already
iii. Sub-Limits
iv. Check for any limits specific to illness
v. Check whether entitled or not to cumulative bonus
vi. Other expenses covered with limitation
vii. Co-payment

160
B. Management of health insurance claims

Non-payable items in a health claim

The expenses incurred in treating an illness can be classified into:

•Expenses for cure and
•Expenses for care.

 Once the payable claim amount is arrived at, payment is done to the customer or the hospital as
the case may be.
 Processing of a claim requires the scrutiny of a list of key documents. These are:
1. Discharge summary with admission notes,
2. Supporting investigation reports,
3. Final consolidated bill with break up into various parts,
4. Prescriptions and pharmacy bills,
5. Payment receipts,
6. Claim form and
7. Customer identification.

161
B. Management of health insurance claims

Denial claims : Claims can be denied due to the following reasons

I. Date of admission is not within the period of insurance.
II. The Member for whom the claim is made is not covered.
III. Due to Pre-existing illness (where the policy excludes such condition).
IV. Undue delay in submission without valid reason.
V. No active treatment; admission is only for investigation purpose.
VI. Illness treated is excluded under the policy.
[Link] cause of illness is abuse of alcohol or drugs
[Link] is less than 24 hours.

In case of denial of Claim , Apart from the representation to the insurer, the customer has the
option, to approach the following in case of denial of claim:

1. Insurance Ombudsman or
2. The consumer forums or
3. IRDAI or
4. Law courts.

162
B. Management of health insurance claims

Suspect claims for more detailed investigation

Insurers have been trying to handle the problem of fraud in all lines of business. In terms of
sheer number of fraud claims handled, health insurance presents a great challenge to the
insurers.

Few examples of frauds committed in health insurance are:

i. Impersonation, the person insured is different from person treated.
ii. Fabrication of documents to make a claim where there is no hospitalization.
iii. Inflation of expenses, either with the help of the hospital or by addition of
external bills fraudulently created.
iv. Outpatient treatment converted to in-patient / hospitalization to cover cost of
diagnosis, which could be high in some conditions.

163
 B. Management of health insurance claims
Cashless settlement process by TPA

A customer covered under health insurance suffers from an illness or sustains an injury and so is advised admission into
a hospital. He/she (or someone on his/her behalf) approaches the hospital’s insurance desk with the insurance details
such as:
Step 1
i. TPA name,
ii. His membership number,
iii. Insurer name, etc.
The hospital compiles the necessary information such as:
[Link] diagnosis
[Link],
Step 2 iii. Name of treating doctor,
iv. Number of days of proposed hospitalization and
[Link] estimated cost
This is presented in a format, called the cashless authorization form.

The TPA studies the information provided in the cashlessauthorization form. It checks the information with the policy
Step 3 terms and the agreed tariff with the hospital, if any, and arrives at thedecision on whether the cashless authorization
could be provided and if so, for how much amount it should be [Link] TPA could ask for more information to
arrive at the [Link] the decision is made, it is communicated to the hospital without delay. Both forms have now
been standardized under IRDAI Health Insurance Standardization Guidelines; refer to Annexure at the end).
The patient is treated by the hospital, keeping the amount authorized by the TPA as credit in the patient‟s account. The
Step 4 member may be called on to make a deposit payment to cover the non-treatment expenses and any co-pay required
under the policy.

Step 5 When the patient is ready for discharge, the hospital checks the amount of credit in the account of the patient approved
by the TPA against the actual treatment charges covered by insurance. If the credit is less, the hospital requests for
additional approval of credit for the cashless treatment. TPA analyses the same and approves the additional amount.
Step 6 Patient pays the non-admissible charges andIC-38
getsLife
discharged. 164
InsuranceHe will be asked to sign the claim form and the bill, to
complete the documentation.
C. Documentation in health insurance claims

1. Discharge summary 6. Identity proof

2. Investigation reports 7. Documents contingent to specific claims
3. Consolidated and detailed bills
4. Receipt for payment
5. Claim form

 D. Claims reserving

1. Reserving
i. This refers to the amount of provision made for all claims in the books of the insurer based
on the status of the claims.
ii. While this looks very simple, the process of reserving requires enormous care – any mistake
in reserving affects the insurer’s profits and solvency margin calculation.

165
E. Role of third party administrators (TPA)

"Third Party Administrators or TPA means any person who is licensed under the IRDAI (Third Party
Administrators - Health Services) Regulations, 2001 by the Authority, and is engaged, for a fee or
remuneration by an insurance company, for the purposes of providing health services.

166
F. Claims management – personal accident

Personal accident is a benefit policy and covers accidental death, accidental disability (permanent /
partial), Temporary total disability and may also have add-on coverage of accidental medical
expenses, funeral expenses, educational expenses etc. depending on particular product.
Claim documentation
a)
Duly completed Personal Accident claim form signed by the claimant‟s nominee/family member
b) Original or Attested copy of First Information Report. (Attested copy of FIR / Panchnama / Inquest
Panchnama)
c) Original or Attested copy of Death certificate.
Death claim d) Attested copy of Post Mortem Report if conducted.

e) Attested copy of AML documents (Anti-money laundering)- for name verification (passport / PAN
card / Voter's ID /Driving license) for address verification (Telephone bill /Bank account statement /
Electricity bill / Ration card)
f) Legal heir certificate containing affidavit and indemnity bond both duly signed by all legal heirs and
notarized
a) Duly completed Personal Accident claim form signed by the claimant.
Permanent Total
Disability (PTD) and b) Attested copy of First Information Report if applicable.
Permanent Partial
Disability(PPD) Claim Permanent disability certificate from a civil surgeon or any equivalent competent doctors certifying
c) the disability of the insured.
Medical certificate from treating doctor mentioning the type of disability and disability period.
Temporary Total Leave certificate from employer giving details of exact leave period, duly signed and sealed by the
Disability(TTD) Claim a) employer.
Fitness certificate from the treating doctor certifying that the insured is fit to perform his normal
167
b) duties.
G. Claims management- Overseas travel insurance

In case of overseas travel insurance the claim servicing usually involves a Third Party service provider
(Assistance Company) who has established a network for providing necessary support and assistance
all over the world.
Claims services essentially include:
[Link] down the claim notification 24*7 basis;
[Link] the claim form and procedure;
[Link] customer on what to do immediately after loss;
[Link] cashless services for medical and sickness claims;
[Link] for repatriation and evacuation, emergency cash advance

168
G. Claims management- Overseas travel insurance

Reimbursement of medical expenses and other non-medical claims:

 Reimbursement claims are normally filed by insured after they return to India
 Upon receipt of the claim papers, claim is processed as per usual process. Payments for all
admissible claims are made in Indian Rupee (INR), unlike in cashless claims where payment is
made in foreign currency.
 While processing the reimbursement claims, currency conversion rate is applied as on date of
loss to arrive at quantum of liability in INR.
 Then the payment is made though cheque or electronic transfer.
1. Personal accident claims are processed in similar fashion as explained in personal
accident claims section.
2. Bail bond cases and financial emergency cases are paid upfront by Assistance Company
and later claimed from insurance company.
3. Claims repudiation of untenable claims follows the same process as for all other claims.

169
Thank You

IC-38 Life Insurance 170