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No medical test required', says the advertisement by the insurance company, and it seems just what you wanted to buy. But will it be the right thing to do? Today, many insurers are offering policies that don't insist on putting you through the entire gamut of tests before covering your life. However, be warned that these plans are not as customer-friendly as you might think. Here are the points you should keep in mind before picking up such insurance plans.

Declaration is key

The exemption from medical tests does not mean you can sweep your health problems under the carpet. You will still be required to make a declaration about your health condition in the application form and the premium rates will be fixed on the basis of your disclosure. The declaration puts the onus on you to prove that you are in fine fettle. If you hide a health condition, it can have severe repercussions on your insurance cover. The strictness of the claim procedure is inversely proportional to the leniency of the underwriting. "If a company does not conduct medical tests before the policy is purchased, it won't accept a claim easily as well," warns a financial planner.

Usually, a claim is rejected when the company has reason to believe that key facts were suppressed at the time of purchasing the policy. It's not easy to hoodwink insurance companies, especially when the amount at stake runs into lakhs of rupees. In the case of early death (within two years of taking the policy), insurance companies examine the cause in minute detail. The claims department of insurers has a panel of medical experts, who can determine whether a particular illness existed prior to taking the policy.

That's not all. "There are agencies that can dig out information by talking to neighbours, colleagues, acquaintances, even family members, of the deceased," says Sanjeev Pujari, appointed actuary of SBI Life. If the company finds evidence of fraud or suppression of facts, the claim is rejected. Roughly 2-3% of claims end up in the trash can on this count every year.

Admittedly, not all claims that are rejected due to suppression of facts are fraudulent. In some cases, a lay person may not even be aware of his health condition. For instance, borderline diabetics may not know about their illness till a medical test is conducted. However, an insurance company can reject the claim saying that the mild illness (which was suppressed) had ballooned and caused death. So, even an unintentional mistake can blow away an individual's life insurance cover.

On the other hand, if a buyer goes through a medical test, the responsibility of determining his health condition shifts to the insurance company. When Mumbai-based Paurav Mehta's (see picture) father died of a heart attack, the insurance company denied the claim, saying that he had not disclosed his heart illness at the time of buying the policy. But a court ruled that since the company had subjected the policyholder to medical tests and then fixed the premium, the claim cannot be denied.

Pay less after medical test

Stringent medical tests also mean lower premium rates for the buyer. An insurance company fixes the premium based on risk perception. "Medical tests help determine the risk for the insured person, which allows a fairer pricing that is beneficial to the customer," says Antony Jacob, managing director and CEO of Apollo Munich Health Insurance.

If a medical check-up of two individuals shows that one has normal sugar level, while the other is a borderline case, the normal person will be charged a lower premium for the same cover. "If an insurance company is fully aware of the health condition of the buyer, it will be able to offer him a competitive premium rate," says Pujari.

However, if the two people apply for a policy that does not require medical tests, both will be charged the same premium. This is because the insurance company will factor in the possibility of the risk for both and will, therefore, hike the premium rates. If you are in good health, there is little reason to pay for somebody else's medical problems. You just have to show your insurance company that you are a low-risk candidate and the best way to do that is to undergo a detailed medical examination.

Still, few buyers realise that insurance policies issued without any medical tests charge a higher premium than plans that require health check-ups. They are attracted by the convenience of a no-test policy compared with one that may require them to go to a hospital. "If the premium for a healthy person is Rs 8,000, someone with a health problem would be charged Rs 12,000. However, if the company does not conduct medical tests, it may charge everyone Rs 10,000 uniformly. So, the healthy person will be charged a higher premium for no fault of his," says Gopal Kumar, principal consultant, Allons Insurance Research & Consultants.

Cost-cutting by insurers

If medical tests reduce the risk for insurance companies, why do they push products that don't require screening of customers? "A medical examination can cost up to Rs 3,000-5,000. If they absorb this, their cost of acquiring a customer goes up," says Akshay Mehrotra, chief marketing officer of Policybazaar.com. Insurers admit that they save on costs, but deny that this is the purpose of offering such products. "We do it from the customer's point of view, so that they do not have to take the trouble of going to the diagnostic centre," says Subrahmanyam B, vice-president and head, health vertical, commercial lines and risk engineering, Bharti AXA General Insurance.

Cover may be inadequate

The policies that don't require medical tests are usually low-value plans. Even if you are young (below 30 years) and in very good health, no company will offer a cover of more than Rs 5 lakh without a medical test. For buyers in the age bracket of 30-40 years, the threshold is even lower at Rs 2 lakh. In most cases, such low-value plans may not be able to serve a person's life insurance needs. "If someone wants a higher cover, he should look for a pure protection plan, which will require him to undergo medical tests," says Aneesh Khanna, senior vice-president and head of marketing and product management, IDBI Federal Life Insurance.

One reason why such policies find so many takers is because they can be issued much faster. The results of a blood serum test can take up to a week. A buyer who has to show proof of Section 80C investments to the accounts department of his company the next day may not have that much time. "The basic concern is not the insurance cover or the policy features but the speed with which it can be issued to the buyer so that he can claim tax deduction before the 31 March deadline," says Khanna.

Life insurance is a key component of your financial portfolio because it helps safeguard all other investments. It is not something that should be bought in a hurry. "If a person is healthy and can spare the time, he should opt for policies that require a medical test. It will work out cheaper and better for him," says Khanna. Even if you have to spend a few hours-even a day off from work-to get yourself medically tested, it will be well worth the effort. The good news is that several insurance companies have now started arranging for medical tests at home. So you don't even have to take the trouble of visiting the doctor's clinic.

Besides, there is an unintended benefit that comes your way. A detailed medical examination will tell you how fit you really are. If there is a health problem, you will be able to take corrective steps to nip it in the bud. So go ahead and take that medical test when you buy an insurance policy.