Procedure of Effecting a Life Insurance Policy

A life insurance contract, like any other contract, is created only when a definite offer is accepted. In insurance the intending policyholder makes the offer and the insurer accepts it. The steps by which a life policy comes into existence — the procedure of effecting a policy — are set out below in their usual order.

1. Submission of the proposal form. The person wishing to insure his life fills in and submits a printed proposal form. In it he gives full particulars — name, age, occupation, income, the sum he wishes to insure, the type and term of policy desired, details of the nominee, and his personal and family health history. Because life insurance is a contract of utmost good faith (uberrimae fidei), every material fact must be disclosed truthfully and completely; concealment can make the policy void later.

2. Proof of age. As the premium depends directly on age, the proposer must furnish acceptable proof of age (a birth certificate, school certificate, or similar document). Age is admitted at this stage so that no dispute arises when a claim is made.

3. Medical examination. The insurer usually requires the life proposed to be examined by its approved medical practitioner, who submits a confidential report on the proposer's state of health. For small sums or healthy young lives some insurers may waive this and issue the policy on the proposal alone (a non-medical scheme).

4. Report of the agent / field officer. The agent who introduces the proposal submits a confidential report (the "moral hazard" report) giving his own assessment of the proposer's habits, financial standing and general suitability.

5. Scrutiny and underwriting. The insurer's underwriting department studies the proposal form, the proof of age, the medical report and the agent's report together, and assesses the risk. It may (a) accept the proposal at the ordinary rate of premium, (b) accept it at an extra premium if the life is sub-standard (poor health, hazardous occupation), or (c) reject it if the risk is unacceptable.

6. Acceptance and communication. If the proposal is accepted, the insurer communicates its acceptance and the exact premium payable. …