Insurance policy becomes effective as soon as first premium is paid

The Thane District Consumer Forum has allowed the claim of a complainant whose vehicle met with accident within hours of taking out the policy

July 12, 2012 3:45 IST | India Infoline News Service
On 11th July, the Thane District Consumer Forum ruled that insurance policy becomes effective from the time the premium is paid. The Forum has allowed the claim of a complainant whose vehicle met with accident within hours of taking out the policy.

The bench of Forum president RB Somani and member Jyoti Iyer held that Darshan G Deore, the complainant, was entitled to get Rs. 3.35 lakh from Tata AIG General Insurance, after deduction of depreciation amount. The Forum ordered payment of Rs. 10,000 towards mental suffering of Mr Deore and Rs. 1,450 towards legal expenses.

Mr Deore had bought the vehicle policy on 25 October 2008 at 20.34 hours, paying first premium on the spot. But his car had an accident immediately thereafter. The denied his insurance claim, saying that policy was effective from 26 October 2008.
But dismissing the submission of the insurer, the Forum said insurance policy comes into effect as soon as the first premium is paid.

Akshay Mehrotra, Chief Marketing Officer of Policybazaar.com, said, “What is important here to now is what the cover-note states. A cover-note is a temporary insurance’s certificate that is issued by the insurer before the issuance of a policy after the insured has given a duly filled in proposal form and has paid the premium in full. This note is valid for only a brief period till the time the actual policy is issued. Though it is the temporary insurance certificate, but has equal importance of an insurance policy.”

Pankaaj Maalde, head-financial planning, ApnaPaisa.com said, “Insurance policy becomes effective only after the proposal for insurance is accepted by the insurer. Payment of premium is not enough because every proposal has risk attached to it. Insurance companies are in a business and they have internal underwriting guidelines which have to be followed before risk is accepted."

Mr Maalde, further said, "The underwriting team of the insurer has to assess the risk in the proposal before it becomes policy. Insurance companies have right to reject the proposal if they think the risk is not acceptable or there is misrepresentation. One can fight for the claim if he thinks there is delay in issuing policy without any reasonable cause and appropriate authority may order in favor of policy holder.”

Mr Mehrotra added, “Taking an example of this case, when the policyholder renewed car insurance an immediate insurance cover (cover note) was issued. What is important is to note is whether the previous policy which was renewed was active at the time of renewal or not? If the previous policy was active at the time of renewal then the insurer is liable to accept the claim. We as consumers always forget to read as to what is written in a policy docket or a cover note in this case. When a cover note is issued it clearly states the time from which the coverage starts. Consumers buying online have a distinct advantage as an e-policy is issued which is permanent policy eliminating any risk to consumer.”

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