Did you know? Indisputability / Incontestable Clause - Section 45 in The Insurance Act, 1938 As specified in section 45 of the Insurance Act, in the first two years of the policy, if the insurance company comes to know that the proposer has not disclosed some material fact, it can declare the policy to be null and void. The insurance company can also keep all the premiums paid. The insurance company can enforce this right only during the first two years of the policy. After two years, the insurance company must establish fraud if it wishes to make the policy void. This clause is referred to as the ‘indisputability’ / ‘incontestable’ clause and applies to life insurance Scenario 1: Raj took out a endowment policy from an insurance company at the age of 30. At the time of completing the proposal form Raj declared all the material facts. Five years later Raj is diagnosed with diabetes. Even if Raj does not disclose this fact to the insurance company it will not affect his policy cover in any way as it happened five years after the policy cover had started. If Raj’s policy lapses and he revives the policy then, at the time of reviving it, the insurance company may ask him to disclose all material facts again. Scenario 2: At the age of 35 Raj wants to take out another policy (term insurance) but he is now a diabetic. This time while making the proposal, in accordance with the principle of utmost good faith, Raj will have to disclose that he is suffering from diabetes. Based on the disclosures made by Raj, the insurance company will assess his proposal and may decide to accept or reject the risk. If the company decides to accept the risk it will advise Raj of the premium it requires. If Raj does not disclose that he is suffering from diabetes and the insurance company finds out about this fact 6 months later, it may declare the policy to be null and void and keep all the premiums paid by Raj to date.
Posted on: Wed, 04 Sep 2013 11:30:00 +0000