Importance of Proposal Form in Insurance Contract.

What is the basic Importance of a Proposal Form in an Insurance Contract?


A proposal form is one of the most important documents required for a life insurance contract that subsides between the insurance company and the insured. It is desirable for speed, Convenient, and accuracy in handling offers to be insured. Also, the insured basic information like age, occupation, education, name, address, etc can be traced in the proposal form.

Definition of a proposal form:

A proposal form is a document that is drafted by the insurer and which seeks answers to the main material aspect of the risk. It is a questionnaire calved to draft material information pertaining to the risk to be insured. It is very important to note that the proposal form helps the insurance company to analyze the basic risk inherent in the discharge of premium to the insured by a proper calculation of the potential risk involved.

Functions of a proposal form:

1. Proposal form serves as a basis for an advertisement:
Most if not all the proposal form bears the name of a specified insurance company and contains details of the cover available under the company’s standard policy for that type of insurance. Most companies also list other types of policies which they underwrite. By such an act alone, awareness is created.

2. Proposal form provides the basis for the insurance contract
: the proposal form contains a declaration that the proposal is the basis of the contract and the insured wants the truth of the answers contained therein so that any illegality is a breach of contract and renders voidable.

3. A proposal form makes it easier and more reliable for underwriters to elicit facts that will enable them in the risk assessment to know whether to accept or to reject cover and if they are to accept, on what terms and conditions.

4. Risk calculation: The proposal form helps the insurance companies to calculate and analyze all the potential risks in relation to their policy while deciding on the amount due for premium

Structure of a proposal form:

The proposal form contains the following

a. General question

b. Particular question

c. Declaration

d. Signature and Date.

Particular Question:
This is the type of question specific to the type of insurance being proposed, and relating to the hazards concerned. The particular question includes the following questions, occupation and medical history of the life to be insured, employee annual wage roll, use of the building, and the value, height, and weight of the life insured.

General Question: These questions are often found in the majority of proposal forms, irrespective of the insurance and they include such questions as proposers name, proposers address, risk address, proposers’ occupation, and loss history.

Declaration:
The declaration is always seen towards the foot or end of the proposal form. It is to the effect that the proposal is the basis of the contract, and the proposal will accept the insurer’s usual form of contract. It equally warrants the truth of all answers. e.g “I declare that the statement and particulars given in this proposal are to the best of my knowledge and belief, true and complete and that this proposal shall form the basis for my contract with insurance company limited.

Signature and Date: Under the declaration, there is a space where the proposers sign and write the date. This makes the proposal form binding on him.

Conclusion
We have clearly stated that a proposal form is a document required for a life insurance contract that subsides between the insurance company and the insured. It provides the basics for an insurance contract and facilitates the basis of advertisement.

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