Preparation of policy

After formation of the KOI the policy is prepared.

The steps to be followed are:--the issue of prospectus

filling up of proposal formconstruction of policy and alteration in policy.

prospectus
The prospectus of a company discloses mainly its

financial position. But the prospectus of an insurance co. explains different types of polices , privileges , and conditions of polices , proceedings of IK , settlement of claims , rates of premium , rules and regulations. Thus the prospectus is an invitation to the public to offer for insurance.

 But the prospectus becomes a binding document

between the insurer and the insured only when it is referred to in the policy In Thistleton Vs Commercial Union assurance Co. Ltd.1926 the assured was denied loan at a rate specified in the prospectus held the prospectus was not strictly collateral to the policy. Unless the prospectus has been referred to in the policy , it would have no legal binding.

 In Sun Life Assurance Co. Ltd. Vs Mukherjee ,it was

written in the policy that the co. would issue a paid up policy for an amount to be determined by the co.--Where as the prospectus stated that the total amount of premiums paid will be refunded as paid up value. Held the prospectus not being referred to in the policy could not be referred to construe the K Appeal allowed.

Proposal Form
The proposal form includes information pertaining to the amount , kind and term of policy. There are different types of proposal forms for each type of policy with and without medical examination. The proposer has to disclose all material facts truly and fully in good faith.

 The material information of the proposal form is supplemented by a personal statement , medical report , agents report etc. The proposal form will become an offer ,if accompanied by premium ,if not ,it would be an invitation to offer. The letter of acceptance issued by the insurer becomes acceptance. If the insurer wants to alter the terms and conditions of offer it would be a counter offer.

 The proposal is incorporated into policy only by

reference. Sec. 51 Ins. Act 1938 requires the insurer to supply to the insured certified copies of information furnished in his proposal and medical repot on application and on payment of fee not exceeding Re. one.

Construction of policy
A policy is the formal document which evidences the KOI which has already been made .
It has been the practice of the insurer to issue a

policy in which the K is completely expressed. Sec. 3(2)(f)of Ins. Act 1938 clearly lays down the necessity of a standard form thus .a certified copy of the published prospectus ,if any , and of the standard policy forms of the insurer and statements of the assured ,rates ,advantages ,terms

and conditions to be offered in connection with

life insurance business by an actuary , that such rates ,advantages ,terms and conditions are workable and sound.
Points to be noted : in construction of the policy.

1.Any ambiguity in the policy will be construed against the insurer ie. Any benefit of doubt should go to the assured. 2.If the policy issued is not in conformity with the terms of the K already made , the insured may require the insurer to rectify it.

3 .The written portion of the policy will override the printed part in case of conflict. 4.If the K is contained in more than one document spread over different dates the later in date should be given greater weight in case of conflict. 5.The policy should refer the proposal made by the proposer, payment of the premiums , conditions when sum assured is payable. 6.If the policy makes no reference to the prospectus or

rules of the co. , they cant be taken into account in interpreting the policy. 7.The particulars relating to names and address of the assured , sum assured , premiums are grouped in the form of a schedule. 8. Though , the policy is not a K ,only the evidence of it , yet the K will normally interpreted as per the contents of the policy.

Alteration of policy
The terms and conditions of the policies can be

altered during the currency of the policy by the mutual consent of the parties. Revival of a policy , lapsed for non payment of premium is also an instance of alteration by mutual agreement. Conditions of policies : Loan on policy Days of grace--- Premium notice---Payment of premium Return of premium---Lapse of policy ---Revival of lapsed policySurrender value and its adjustments

Reinsurance Double Insurance and Over Insurance

Reinsurance :

An insurer in order to safeguard his own interest may insure the same risk either wholly or partly with another insurer this is called reinsurance. The reason for reinsurance , like the reason for original insurance is the necessity of spreading the risk. Reinsurance can be resorted in all kinds of insurance. The reinsurer is liable to pay the amount of the loss to the original insurer only if the original insurer has paid the amount to the assured.

However ,the reinsurer is not liable to the assured as there is no privity of contract between them. But reinsurance is subject to all the conditions in the original policy and the reinsurer is entitled to all the benefits which the original insurer is entitled under the policy. The policy of reinsurance is co extensive with the original policy.

 Double and over insurance:

Where the assured insures the same risk with two or more independent insurers , and the total sum insured exceeds the value of the subject matter , the assured is said to be over insured by double insurance. In the absence of any express condition in a KOI both double and over insurance are perfectly lawful.Ex.

 Rules in case of double and over insurance:

1. Recovery of actual loss only ,because of the rule of indemnity helps in case one of the insurers become insolvent. 2. Excess amount recovered if any to be held in trust. 3. The rule of contribution applies among the insurers. 4. No limit on life insurance.An assured may take any number of policies on his life and for any amounts.

Classification of KOI
Different writers classified into various categories. New verities of insurance are coming up with the

progress and development. Classification according to the nature of the interest affected : Personal ---Property and Liability insurances. Classification according to the nature of the event : LifeFire ---Marine and miscellaneous insurance. The IRDA publishes insurance data according to the classification basing upon the nature of the event.