I’ve been reading around on the google adsense official help forums and i came to realize that privacy policy is infact an important requirement for using google adsense on your website!
Ok hold on now! so how do you write a privacy policy? well that depends on your website and what you want your privacy policy to be like. But if you are not too much comfortable in writing your own privacy policy, this template (link not working now: http://www.jensense.com/2009/04/03/new-adsense-privacy-policy-sample-with-interest-based-targeting-included/ ) will work perfectly for you. I got the link confirmed from the top contributors on official google adsense help forums and currently i am using the same template for my site too.
Simply create a new page, name it privacy policy and paste the privacy policy template there. Edit the blanks with your website name and you’re done for the day. But make sure sooner or later you design your own privacy policy and replace the template one.
Please note, privacy policy is absolutely important to use google adsense on your website. So make sure you comply by their rule and avoid getting banned. Hopefully they won’t ban you just for not having a privacy policy, but it is a negative on your side, and who knows what they may get focused on! So keep your homework complete!