Since time immemorial, I have often heard a lot of folks complaining about being “cheated” or “ripped” off by insurance companies without seeking recourse from the justice system. The next question then is why litigation has not succeeded in the courts.
Let us start by defining what insurance is.
WHAT IS INSURANCE – Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured. (Investopedia)
At the back of our minds, let us remember the fact that insurance is never bought but sold. And herein lies the major problem for this subject. It is rare for people to walk into an insurance company and purchase an insurance product even if the need is there. It means then that a sales agent or insurance advisor must solicit for clients in order for an insurance sale to happen.
By the way, most financial advisors have strict targets to meet and are always compensated by way of commissions. The desire to earn more exerts tremendous pressure on the part of the advisor which leads to misrepresentation of facts.
There are measures in place to guard against misrepresentation like business validation by way of calling and confirming placement of the business by the office, issuance of policy documents clarifying what the contract is all about and many other procedures. However, measures alone are not sufficient and cannot be 100% foolproof. They can be violated anytime so over and above measures, advisors need to embrace ethics holistically.
On the consumer side, the greatest weakness is the lack of product knowledge coupled with the lack of desire to read the literature that is provided in the form of a policy document. The policy document is evidence of the existence of an insurance policy. It stipulates all the policy terms and conditions. At this stage, consumers must be able to note any deviations from what they were told and signed for.
Policy documents come with a 30-day cooling-off period where one is expected to go through the policy document and confirm if they are in agreement with its contents. If not in agreement, the policy can be cancelled or altered without any prejudice.
Many people rush to append signatures on the document without reading the contents and obviously, we know that a man is bound by his signature. Consumers will be requested to return a tear-off slip with their signatures indicating whether they accept or decline the policy. Statistics point to the fact that the majority will sign and accept without going through or understanding what the contract is all about. The law again requires the insurance companies to receive and file all acknowledgement slips and as you will note below, these are the ones that will come to the defence and rescue of both the unethical agent and insurance company in the event of litigation.
Consumers will fail to observe issues and critical terms such as lapses, cancellations, the principle of utmost good faith, premium escalation clauses and many other terms. Many will be of the opinion that whatever contributions they make, they can withdraw them anytime they feel like pulling out of the contract.
Cancellations and lapses due to affordability issues will give rise to the termination of policies and many opt for policy termination in the forlorn hope that they will recover their contributions. But a policy being a contract by its own nature have penalty clauses for the breaching part. In this case, it will be forfeiture of all premiums contributed as the insurance company would need to cover costs incurred. This will result in the policyholder feeling aggrieved and cheated. In cases, where the litigation route was followed, I doubt if there is any that succeeded owing to lack of evidence of wrongdoing on the part of the company and its representatives.
I will pen off by encouraging all potential policyholders to read and understand the terms and conditions of their policies or to visit insurance offices for interpretation of their contracts. To the regulator, I also recommend that insurance companies be compelled to avail policy documents in vernacular to assist with a better understanding of the contracts.
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