Many proponents feel that filling up of the proposal form is a boring and tiresome job and the agent of the insurance company should take care of that. But actually, that should not be the case. The proposer himself is s

CS Professional · Insurance - Law & Practice · PYQS · June 2023
Many proponents feel that filling up of the proposal form is a boring and tiresome job and the agent of the insurance company should take care of that. But actually, that should not be the case. The proposer himself is supposed to fill up the same on his own. Despite that, many prefer the agent to do the job and most of the times the agents do it without asking for any details of the health status of the proponent. This innocent act may run into a nightmare, if the policyholder dies within two years from the date of commencement of the policy. In such a situation, mandatory investigations are carried out before passing such claims and the insurer may reject the claim, if the probe reveals that the policyholder had withheld some information which was material information for the purpose of underwriting by the insurer. It is the responsibility of the proponent to fill up the proposal form while the agent may only help him. Regulations too do not allow an agent to go beyond this." Thus, an insurance policy is a contract, and it must, therefore, conform to the rules of general contract law. Through a contract of insurance, the insurer agrees to make good any loss on the insured property or loss of life that may occur in course of time in consideration for a small premium to be paid by the insured. The business of insurance aims to protect the economic value of assets or economic value of life of a person. On the basis of the above facts, answer the following questions: (c) How can you differentiate between a warranty and a representation?

Answer & Explanation:

A warranty is a statement that is considered guaranteed to be true and, once declared, becomes an actual part of the contract. Typically, a breach of warranty provides sufficient grounds for the contract to be voided. Conversely, a representation is a statement that is believed to be true to the best of the other party's knowledge. In order to void a contract based on a misrepresentation, a party must prove that the information misrepresented is indeed material to the agreement. According to the laws of most states and in most circumstances, the responses that a person gives on an insurance application are considered to be a representations, and not warranties. The differences between a representation and a warranty are as follows: A representation, even when material, need only be substantially correct whereas a warranty must be strictly and literally complied with. Before a misrepresentation can be held to be sufficient to enable the insurer to avoid the contract, it must be shown to be material to the risk. On the other hand, with a warranty, any breach is sufficient to avoid the contract, whether it is material or not. Whereas a representation does not appear in the policy, a warranty must be incorporated in the policy whether expressly or by reference.

Topics: Insurance Contracts

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