Friday, June 17, 2011

Importance of disclosing health information

Last week I read a blog post (in Malayalam) shared in Facebook by one my friends. A heart wrenching story of a father who lost his son. The young man, in his late twenties, passed away in his sleep. If fate was in its cruel mood, the insurance company's denial to pay the insurance amount was probably even worse.

The young man had taken two policies. One was from LIC (sum assured of 1 lakh and annual premium of Rs. 5,000 or so) and another from a new generation private insurance company (ULIP: sum assured is not mentioned and monthly premium was Rs. 5,000). Like thousands of other Indians, both the covers were taken through insurance agents - who were either close friends or relatives. The young man had a previous history of epilepsy and was under treatment from a leading hospital. He was healthy otherwise. Married and working for a private IT firm. The agent in the case of private insurer, even though alerted by the young man, advised them not to disclose the information. In fact the application form was filled up by the agent himself and he assured them with typical "dont worry", "I will be there" and "no problem". At the time of claim, LIC processed the claim without much problem and the private player promptly denied (they found out the treatment history from hospital). And as one could guess, the agent who sold the private insurance policy had vanished (changed jobs and wouldn't take the phone)!

Who is to blame here? The insurer? Insured? Agent? Or the whole system? Though it is easy to blame anyone, in my opinion, the fault lies with all.

The insurer, even though is legally correct in rejecting the claim, cannot possibly escape the blame because they appointed the agent. His casualness with the disclosed information had led to the claim rejection. If they are not training him properly and not holding him responsible, they have to bear the loss. (but in this case, how can one prove this, right?) So dear private insurer, you won. But you lost the goodwill and trust of so many.

The insured, irrespective of the fact that he/she disclosed the information, kept silent on the non inclusion (on false promises by the agent) and signed the documents. A big mistake as far as insurance goes. Ideally the insured has to go through the fine print and ensure that all relevant information is disclosed. Agent can help, but the responsibility lies with the insured.

The agent is perhaps the guilty of them all in this case. He has to know. His greed (or desperation) for an extra sale made him suppress important information. Had he filled it, he would have lost the sale (the insurance company would have at least asked for a medical test). I still have no idea why the young man needed a ULIP.

The system, because such things still happen. Why is it that each insurer wants different sets of information for providing insurance? Why not have an IRDA approved uniform format for insurance forms? Why do we include ULIPs under the general ambit of insurance (whereas in most cases insurance is just 10% and investment is 90%)? Why can’t we call ULIP as an investment product with an insurance cover (and not the other way around)? Why don’t we see one ad from IRDA, educating the general public on insurance products? Why do even LIC promote ULIPs and Endowment plans, where as they should be ideally be ensuring sufficient life cover for general public?

What could be a fair judgement in this case?
The insured and the insurer are bound by a good faith bond of honesty and fairness. Rejection of the claim in that sense by the insurer is justified. Material facts were not disclosed. But that applies only for the insurance component. What about the investment component in ULIP? If that is denied, then is it not better to just opt for a term plan for insurance and investment option for investment purpose? In my opinion the insurer has to either give the investment component as claim or provide an option for the nominee to continue with the investment fund till maturity. They cannot simply take away everything just because a stupid agent was not doing his job properly.

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information. 


rajvishal25 said...

Can't agree more....

santa said...

It is important that HIV positive people disclose their status to people with whom they are going to have sex so that these people can make informed decisions about protecting their own health. People with HIV may also find it helpful in dealing with the stress of diagnosis and chronic illness to share their status with others. Thanks for sharing.