You examine the financial plan that has been carefully drawn up by your consultant.
Horace, who was recommended by your sister, has done a fantastic job. He had listened carefully to your concerns, arranged a few insurance plans that would provide comprehensive coverage to you and your family. Most importantly, the insurance quotations are within your budget.
After a long hour of sitting down and completing several proposal forms, you sit back as Horace inspects the documents. To your surprise, Horace looks up and informs you that he will submit the application and inform you of the exact premium payable upon approval.
At this point, you are confused.
Didn’t Horace give you the premium quotations just 10 minutes ago?
By signing on the lengthy form, didn’t you just agree to the pricing?
Horace explains that it is the usual procedure that the insurance company must vet though the application. While the final prices remain unchanged in most situations, they are still not guaranteed yet until further confirmation by the insurance company.
What is happening here?!
Understanding how contracts work
A contract is an agreement. You agree to certain terms and conditions and the other party does the same.
One good example is renovation work. Your Interior Designer listens to what you want to do and provides a written quotation that states clearly the job scope and the pricing. You may accept, reject or negotiate for a better deal.
Once you have accepted the quotation, an agreement (contract) has been forged. You and the seller cannot bail anymore.
In a normal transaction, the seller makes you an offer. He is the offerer.
On the other hand, you are the offeree that has to decide what to do with the offer.
This is how most of the contracts work.
Understanding how Insurance contracts work
In the world of insurance, everything is turned upside-down.
You are the offerer; the insurance company is the one who decides whether to take up your offer.
We can hear the astonishment in your voice.
It is absolutely true.
Let us take you back in time.
Remember when you were filling up the thick stack of forms for your insurance policy, did you realise that they were called proposal forms?
You were making a request to the insurer to take you in as one of their customers.
The insurance quotation that was attached to the proposal form was actually a suggested pricing by you to the insurance company. The insurance company could then decide if they should accept, refuse or make a counterproposal.
Until the insurance company issues the official policy documents and signals their intention to agree to your proposal, the price of your insurance remains uncertain.
Insurance quotation – merely an invitation to treat
How about those premium tables on the insurer’s website and marketing material?
Shouldn’t those be an offer that you can accept?
Legally speaking, the insurance quotation on any marketing material are merely invitations to treat.
In fact, most advertising materials are deemed to be mere invitations and not offers.
What it means is that the seller is showcasing their products and inviting you to negotiate terms with him or her. It is not binding on either party. Thus, you cannot take a flyer and demand that the seller provides you with the product at the advertised price.
Likewise, you cannot take a pricing on the insurer’s site and demand the insurer to honour the insurance quotation.
While the prices may not be binding, the insurance companies do not usually amend them unless your health is less than optimal. Hence, you can still ballpark your insurance premium based on the published rate.
The intent of this article is to let you realise that the insurance quotations are not binding in any manner. That is why you may want to consider making certain allowances in your budget to cater for any variation in the final prices.
Good luck on your next insurance proposal and may your insurance company say “I do!”
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.
We like to remind readers that due to how insurance works, the premium pricing anywhere (including ours) are just estimates and never accurate until your policy is incepted.
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