Regarding Section 45 of insurance act 1938

POSTED BY Prasoon ON April 26, 2012 10:51 am COMMENTS (17)

It says

‘No Policy of life insurance shall after the expiry of two years from the date on which it was effected, be called in question by an Insurer on the ground that statement made in the proposal for insurance or in any report of a medical officer, or referee, or friend of the insured, or in any other document leading to the issue of the Policy, was inaccurate or false, unless the Insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policyholder and that the policyholder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose.’

On what ground insurer can still (after two years) call the policy in question and reject the claim? Can someone please provide couple of examples?

Also, what are the cases which could have been rejected within two years but will be honored after two years? Some examples please.

17 replies on this article “Regarding Section 45 of insurance act 1938”

  1. Sachin says:

    I got one more question after reading this all, say I have a policy for last 5 years and now there is some material change (change in health) and I updated the same to insurance company, is there a chance that my premium will go up?

    1. Sachin

      You dont need to update any health change after taking the life insurance policy , the premium you pay already factors in the health changes in future . So its already covered

      Manish

    2. Dear Sachin, no you need not to inform your insurer after 5Y of taking policy, of your current health condition.

      Thanks

      Ashal

  2. Prasoon says:

    Thanks to Abhinav, Ramesh and Manish for answering/clarifying the thing!!

  3. Prasoon

    Let me clarify it .. This section is only applicable to everything other than “immaterial facts” . Now let me tell you what is a “material” fact . A material fact is any information which can influence your premium . So things like your health condition , Past policy info etc etc are Material fact, this section which you are mentioning is not applicable to those kind of things .

    Only for small , immaterial; things like “wrong address” , “Spelling mistake” , “A mistake in age” etc etc can not be questioned later after 2 yrs on any ground .

    Manish

    1. Prasoon says:

      Thanks for clarifying! I got the point now 🙂

  4. Prasoon says:

    It’s nothing like that. Your answers were satisfactory, and I never question that. I was just questioning the relevance of this section. Again, as you said in your last reply –

    ‘This section merely closes the door for insurance companies to deny claims beyond 2 years for any grounds where insurer is not able to establish there was a fraud on part of the insured’

    Now why should an insurer should be allowed to deny claims WITHIN 2 YEARS for any grounds where insurer is NOT able to establish there was a fraud on part of the insured?

    If insurer can still deny then that is wrong, illegal and unethical. And if insurer can’t deny then what is the relevance of this section?

    1. Ramesh says:

      If there is no medical test (most endowment policies and most Ulips), and the insured dies within 2 years. The insurance company will find the cause of death and if it comes out to be a known or almost known disease (say some kind of cancer), then the company can deny the claim citing that the insured did not reveal all the facts.

      This section saves the insured from this sort of issues, that any disease which can directly cause death and if it has not done it in 2.0 years, is either contracted after the start of the policy (no one is responsible), or it is not life threatening enough.

      There have been many instances in which a person with a known disease (life threatening) gets (or revives) a life insurance policy just to get a large claim after death.

      Please this link for an example (it is very long and complicated language) – http://indiankanoon.org/doc/1135652/

      1. Prasoon says:

        Thanks for your reply and particularly for that link!

  5. Abhinav Gulechha says:

    Please note, I had stated that this particular section does not prescribe some thing to the customer, I did not say “it does not make a difference to the customer”. what i meant to say that it does not absolve the customer from his/her duties under doctrine of good faith, to the insurance company. This section merely closes the door for insurance companies to deny claims beyond 2 years for any grounds where insurer is not able to establish there was a fraud on part of the insured.

    actually I should be sorry to you and this forum for not able to give desired answer to your query to your satisfaction…:(

  6. Prasoon says:

    Also, if it doesn’t make any difference, why is it there? Just to state that insurer can not deny the claim on any frivolous reason after two years? But then why two years, it should be from day one actually.

    Insurance is a contract of trust, and it can not be broken for some frivolous reason – whether the contract is two days old or two years old. This is what law, rules and regulations should be. Why do we need a separate section to state this?

  7. Prasoon says:

    I understand that customer is fully responsible for disclosing all the details. I am really sorry if I am still unable to make it clear about the original question. 🙁

    Can we conclude that this section does not make any difference to a customer?

  8. Abhinav Gulechha says:

    my dear friend, this section per-se is not intended to prescribe something to the customer….

    as a customer, you have to ensure the following:

    a) at the time of taking the policy, you have to ensure that you disclose your details in full at the time of taking the policy (medical history, other policy details etc.) as required in the proposal. also undergo all possible medical tests asked by insurance company.

    b) Post taking the policy, in case there is any material change in your activities, check what is written in poldoc, if required to disclose, go ahead and disclose. PERIOD.

  9. Prasoon says:

    You said in 2)

    After 2 years, it can reject the claim only if it can prove that the insured did not disclose at the time of taking the policy, AND NOT for any other frivolous reason.

    Does that mean insurer gets a freehand in rejecting the claim for frivolous reasons, if the policy is less than two years old?

    But in the same section you said that

    insurer can deny the claim at any time after issuance, if there is a fraud/ suppression of facts involved.

    So here I am a bit confused between ‘frivolous reason’ and ‘ fraud/ suppression of facts’

    Let’s consider following cases –

    case 1 – A person hides a fact knowingly or unknowingly. Insurer rejects the claim. Claimant goes for grievance redressal. Decision goes in favor of insurer, regardless of whether policy2 – as you said.

    case 2 – Insurer rejects the claim for frivolous reasons. Claimant goes for grievance redressal. Decision goes in favor of claimant, regardless of whether policy2 – as you said.

    To keep it short and simple, all I wanted to know – what difference this section makes to a customer? Can there be some example of difference?

  10. Abhinav Gulechha says:

    Replies below:

    1) How will claimant prove that policyholder was unaware of the problem at the time of taking the policy? Also, policyholder will be no more at that stage to put his case.

    Please read Section 45 again. The Act requires the INSURER to prove these facts, if at all it wants to deny the claim.

    2) Can insurer decline the claim in this case on the same ground if it is under two years of taking the policy.

    dear friend, insurer can deny the claim at any time after issuance, if there is a fraud/ suppression of facts involved. Section 45 merely tries to protect the interests of the customer, and tells the insurance company, that if the person is in your system for more than 2 years, it can reject the claim only if it can prove that the insured did not disclose at the time of taking the policy, AND NOT for any other frivolous reason

    (takeaway: 2 years is a wait and watch period for customer. Insurance company can deny claim for technical reasons and need not prove that there was fraud involved, However, even then, grievance redressal mechanism is always open for customer if he/she feels short charged)

    3) Also, if one goes through a proper blood/urine/BP/ECG medical test at the time of taking a policy – what could be grounds on which an insurer can reject the claim after two years?

    note that your initial question pertained to Section 45, hence I answered from that perspective only. As regards a valid point brought out by you, it depends on the terms and conditions in the policy document: there may/ may not be a clause which requires you to inform the company in case you start such activities, take up risky sports etc.

  11. Prasoon says:

    You said –

    However, if the insured was not aware of this problem at the time of taking the policy, then after 2 years of policy issuance, insurer cannot decline the claim on this ground.

    My questions –

    1) How will claimant prove that policyholder was unaware of the problem at the time of taking the policy? Also, policyholder will be no more at that stage to put his case.

    2) Can insurer decline the claim in this case on the same ground if it is under two years of taking the policy.

    3) Also, if one goes through a proper blood/urine/BP/ECG medical test at the time of taking a policy – what could be grounds on which an insurer can reject the claim after two years?

  12. Abhinav Gulechha says:

    Hi Prasoon

    The question you asked is amply clarified in the wordings in the section. Effectively, claim can be rejected in case insurer is able to prove that misstatement/ suppression was deliberate and insured knew of the fact at the time of taking the policy.

    For e.g.. if at the time of taking the policy, I know that I am suffering from high BP but have not disclosed in proposal form, and insurance company at claims investigation stage, comes across medical treatment papers that show that before taking the policy, same was diagnosed and medication is on, the insured/ claimant cannot seek any benefit from this section.

    However, if the insured was not aware of this problem at the time of taking the policy, then after 2 years of policy issuance, insurer cannot decline the claim on this ground.

    Have I been able to answer your query?

    Asides this question, as a general advice, always disclose your complete medical history and dont shy away from medical test.

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