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Why The Principle Of 'Utmost Good Faith' Must Be Taken Very Seriously
[Posted by: InsuringIndia Blog on 30-Mar-2016]
In today’s fast paced world everyone is aware of the pitfalls and challenges that modern life poses. In this scenario, it is very essential to safeguard and protect oneself and one’s family against all possible foreseeable and unpredictable mishaps. While a lot of people choose to insure themselves on several fronts like-health, annuity plans, car insurance, personal accident cover among others, it’s important to note that disclosure of all personal information can go a long way in ensuring that nothing goes wrong when you need your policy the most.
What is ‘Utmost Good Faith’?
This is a basic legal principle which requires every policy holder and the insurance company selling the policy, to have honest and transparent business transaction with each other. This means they should not suppress any crucial information or mislead on any fact that can later create problems. In fact, your policy could become null and void in case the material disclosure has failed on the principle of utmost good faith or Uberrima Fides.
What can go wrong in health and life insurance policies if you aren’t honest?
It’s a good thing if you’re relying on yourself to fill out your health insurance policy rather anyone else. Else, you risk some vital facts or sections being missed/ misinterpreted or wrongly filled. The result: Null and void policy.
Non-disclosure of facts while buying a health insurance policy can be yet another major reason for trouble. As per existing rules, it's important for both the insurance company and the insurance buyer to disclose all facts to each other. In a nutshell, it means you should not conceal any facts- like your age,height, weight,  details of your profession, a pre-existing medical condition and even a regular health check-up, if your health policy so requires.
Worse, if you’ve withheld facts that can potentially threaten your life and the insurance company finds out, then you’re surely at a loss.
If you’re a smoker or consume tobacco and have not disclosed it to save on high cost of premium then be assured that an insurance company will deploy methods—like a blood test/ consultation with a medical expert-- to find the truth. Once the actual facts are unearthed, then get ready to say goodbye to your life insurance cover.
If you have a history of alcohol abuse and don’t disclose it, then you’re taking a big risk with your policy.
If you buy a policy that does not correspond with your income, then chances are the insurance company might be suspicious that you’ve bought the policy for wrong reasons. Hence, buying a policy that you can afford can definitely save your nominees a lot of trouble.
Facts to consider
Always update the nominees on your policy.
Check for the ‘contestability period’ on your policy. This means that if the death of the policy holder occurs immediately after or a year after buying the policy, then the nominees could be headed for troubled waters, as your insurance company might be suspicious.
Drug overdose, death by suicide, misuse of non-prescribed medicines etc. are some of the exclusions in many policies. Always run a check on these before buying any policy.
Never withhold any vital information.

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*This is based on the difference between the highest and lowest premium's for a single person, age 25, looking for an individual health policy with the sum insured of Rs. 5 lakhs.
**This is based on the difference between the highest and lowest premium's for a single person, age 25, looking for a term plan, with the sum insured of Rs. 30 lakhs, and the premium paying term of 30 years.
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