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Section 45 of the Insurance Act refers to the rejection of an insured claim. According to this section, an insurance company can withdraw the policy under the ground of a misstatement if they can prove the misstatement within 3 years. After 3 years, an insurance company cannot return one’s premium and reject the insured claims. Understanding the various terms under this act can be difficult for those trying to get an insurance policy.
This article aims to break down the various components of section 45 of the Insurance Act. The article will also bring to light the major issues with the implication of section 45. After doing so, a solution will be put together in detail.
Insurance companies, in general, require you to fill out long forms asking about different details about your lifestyle. However, many individuals withhold information about certain details. This is known as a Misstatement. Insurance companies are given 3 years to prove this misstatement. The 3 years begins from the following dates:
The date from the above list that is more recent is considered. For example, if the revival or renewal of the policy took place most recently, then the company has three years to investigate the potential misstatement.
If there is a case of fraud, then the company receives the same 3 years for giving concrete evidence.
The section also outlines what constitutes fraud. It implies that the insured will come under question if:
In addition to this, if there is evidence of a misstatement., an insurer can repudiate the policy and claims and return the premium acquired back to the former policyholder.
However, since Section 45 of the Insurance Act of 1938 came into being, insurance companies have been greatly affected. In 2018, the companies lost around 250 crores to false claims. These claims are primarily made after faking an insured’s death.
C.L. Baradhwaj, Vice President of Future Generali India Life Insurance, voiced his concerns regarding section 45. He claimed that the possibility of an individual concealing material facts can significantly impact the coverage that the insurance offers. He urged all proposers to state material facts that will directly impact the terms of the insurance. Baradhwaj warned that the insured cannot claim that they did not read all the questions in the proposal form at the time of signing.
Like any other law, Section 45 of the Insurance Act has loopholes too. It was created to give the family of the insured a way to be financially secure after the policyholder’s death. However, many misuse it through false information. In order to curb this fraud, it is in the best interest of the company to receive more than three years.