Proposal Form and Cover Note
The proposal form is the offer. The cover note is cover before the policy arrives.
The proposal form is where an insurance contract begins. It is the customer's offer, written down, and the insurer's main source of facts about the risk. Most disputes about non-disclosure end up as arguments about what the proposal form asked and what the proposer answered.
A cover note is the opposite end of the process: a short document that gives temporary cover while the full policy is still being prepared. It is common in general insurance, especially motor and marine, and rare in life.
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What a Proposal Form Asks
IRDAI's 2024 master circular requires every proposal form to capture what the insurer needs to underwrite and service the policy, including:
- check_circleDetails of the proposer and of the subject matter: the person's age, occupation and health for life; the building's construction, use and location for fire; the vehicle's make, model and registration for motor.
- check_circlePast insurance and claims history, and any proposals declined or accepted on special terms.
- check_circleNomination, and bank account details of the proposer and the nominee.
- check_circleMobile number, and email address if available.
- check_circleThe text of sections 41 (no rebates) and 45 (when a life policy can be questioned) of the Insurance Act.
- check_circleA declaration, signed by the proposer, that the answers are true and complete. This declaration is what links the form to the principle of utmost good faith.
Who Fills the Form Matters
Agents often fill in forms for customers. Section 45 of the Insurance Act deems the person who solicits and negotiates the contract to be the insurer's agent for forming it. So if an agent writes "no" against a health question the customer answered honestly, the insurer may find it hard to blame the customer. Where the proposer does not read the form's language, the insurer must explain it and take a declaration that it was explained.
From Proposal to Policy: The Current Timelines
From IRDAI's 2024 master circular, which replaced the older 15-day decision rule your courseware may still quote.
- 1
Proposal received
No proposal deposit is needed with the form, except for policies issued on a declaration of good health where cover starts as soon as premium is paid.
- 2
Further requirements within 7 days
If the underwriter needs a medical report, an inspection or a clarification, the insurer must ask for everything at once, within 7 days of receiving the proposal, not piece by piece.
- 3
Decision within 7 days
Accept, accept on terms, or decline with reasons, within 7 days of the proposal or the last requirement, whichever is later.
- 4
Premium paid, cover starts
Cover begins from receipt of premium (section 64VB of the Insurance Act).
- 5
Documents within 15 days of acceptance
The policy document, a copy of the proposal form and the Customer Information Sheet, free of charge.
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Proposal Form vs Cover Note
What it is
Proposal form
The proposer's offer and disclosure
Cover note
Temporary evidence that cover exists
Who issues it
Proposal form
Insurer drafts, proposer completes and signs
Cover note
Insurer issues to the insured
When
Proposal form
Before the insurer decides
Cover note
After acceptance and premium, before the policy is issued
Used in
Proposal form
Almost all classes, unless IRDAI exempts
Cover note
Mainly general insurance: motor, marine, sometimes fire
Legal status
Proposal form
Basis of the contract; answers become part of it
Cover note
A full contract of insurance for its period, on the terms of the insurer's usual policy
| Proposal form | Cover note | |
|---|---|---|
| What it is | The proposer's offer and disclosure | Temporary evidence that cover exists |
| Who issues it | Insurer drafts, proposer completes and signs | Insurer issues to the insured |
| When | Before the insurer decides | After acceptance and premium, before the policy is issued |
| Used in | Almost all classes, unless IRDAI exempts | Mainly general insurance: motor, marine, sometimes fire |
| Legal status | Basis of the contract; answers become part of it | A full contract of insurance for its period, on the terms of the insurer's usual policy |
How a Cover Note Works
Suppose a Mumbai importer's cargo ships tomorrow, but the full marine policy will take a week to draft. The insurer accepts the risk, takes the premium and issues a cover note naming the insured, the subject matter, the period and the sum insured. If the cargo is damaged in that week, the cover note responds as if the policy were already issued, on the insurer's standard terms for that class.
A cover note is not a way round section 64VB: premium still comes first. Some marine and specialist covers are arranged without a proposal form at all. Older IRDAI rules required the insurer in such cases to record the information it was given and confirm it with the customer within 15 days, and placed the burden of proof on the insurer for anything it failed to record.
How IC-01 Tests This
Typical questions: "the proposal form is the basis of which principle?" (utmost good faith), "a cover note is issued when?" (pending the policy), and "is a cover note a valid contract?" (yes). The trap is treating the cover note as a mere receipt or a quotation. It is evidence of a binding contract for its stated period.
FAQs
What is a proposal form in insurance?expand_more
The form in which the prospect gives the insurer the information it needs to decide whether to accept the risk and on what terms. In contract terms it is the offer, and its declaration makes the answers part of the contract.
What is a cover note in general insurance?expand_more
A temporary document that confirms cover from acceptance and payment of premium until the full policy is issued. It is most often used in motor and marine insurance.
Is a proposal form required for every insurance policy?expand_more
IRDAI's 2024 regulations require a proposal to be evidenced by a proposal form, physical or electronic, unless the regulator exempts it. Some marine and specialist covers are placed without one.
How long does an insurer take to decide on a proposal?expand_more
Under IRDAI's 2024 master circular, 7 days from receipt of the proposal or of the last requirement it called for, whichever is later. Older material may say 15 days.
Next steps
- Contract Essentialsarrow_forward
- Policy & Endorsementsarrow_forward
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- Material Factsarrow_forward
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