Q.Describe the procedure of effecting a life insurance policy.

A life policy comes into existence through a definite sequence of steps, because it is a contract of utmost good faith created by offer and acceptance.

The risk begins only when the first premium is paid, and the policy bond is the written evidence of the completed contract.

A life insurance contract is created when the proposer's offer is accepted by the insurer. The usual steps are:

1. Submission of the proposal form — the proposer gives full particulars (name, age, occupation, income, sum and type of policy, nominee, health and family history). Since insurance is a contract of utmost good faith (uberrimae fidei), every material fact must be disclosed truthfully.
2. Proof of age — as the premium depends on age, acceptable proof (birth/school certificate) is furnished and age is admitted.
3. Medical examination — the life proposed is examined by the insurer's approved doctor, who submits a confidential health report; small or healthy lives may be accepted without it (non-medical scheme).
4. Agent's confidential report — the introducing agent reports on the proposer's habits, financial standing and suitability (the moral-hazard report).
5. Scrutiny and underwriting — the insurer assesses the risk from all the reports and either accepts at the ordinary rate, accepts at an extra premium for a sub-standard life, or rejects the proposal.
6. Acceptance and communication — the insurer communicates acceptance and the premium payable.
7. Payment of first premium and issue of policy — on payment of the first premium the risk begins and the contract becomes binding; the insurer issues the policy bond, the formal written evidence of the contract.

Students frequently state that cover starts as soon as the proposal is submitted — it does not; the risk begins only on payment of the first premium. Do not omit underwriting, which is the step where the insurer actually assesses the risk.