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How To Ensure Your Term Insurance Claim Never Gets Rejected

How to avoid term insurance claim rejection

How To Ensure Your Term Insurance Claim Never Gets Rejected


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March 03, 2020

By : Bajaj Allianz Life

Data available from the Insurance Regulatory Development Authority of India (IRDAI) proves that life insurance claim rejection is real. Life insurance companies settled 8,60,000 claims and rejected as many as 12,769 claims during FY 2016-17. If you don’t want your family to suffer in your absence, you should take all measures to ensure that your term insurance claim never gets rejected.

If you are reading this, probably you have purchased a term life insurance plan for the financial protection of your loved ones.

But what is term insurance? And why do you need one?

What is term insurance?

Term insurance is called the purest or simplest form of life insurance. Fortunately, it is also less expensive as compared to traditional insurance plans. The word “term” stands for the specific number of years – 10 years, 15 years, 20 years, etc. – the term insurance policy remains in force. A term insurance policy assures a predetermined sum (sum assured) of money that is paid to the nominee in case of the policyholder’s death.

The sum assured or death benefit is paid only if the policy is in force at the time of policyholder’s death and the premiums had been paid regularly by the policyholder during the tenure of the policy. For example, if the tenure of the term insurance plan is 15 years and the insured dies after 16 years of purchasing the policy, his family members or nominee(s) are not eligible for receiving any death benefit. Therefore, it is always prudent to ensure that you are covered by term insurance for the maximum tenure.

Why is term insurance important?

Two simple reasons why buying a term life insurance is important is that life is uncertain and you love your family. Think how your family members who depend upon you will survive when you are gone. Especially, if you are the sole earning member of the family, they require funds to sustain themselves, for children’s education and for taking care of daily expenses.

If you carry out some due diligence and buy an online term insurance plan with a sum assured that adequately provides for your family in your absence, your worries w.r.t future financial needs of your family would get reduced. With term insurance, you can either opt for lump sum pay-out or pay out in form of monthly income instalments which will take care of your family’s expenses in your absence. Also, the premium that you pay on your term insurance policy is eligible for income tax deductions. Therefore, term life insurance is not only important but it also has many benefits.

Why does your term insurance claim gets rejected?

Life insurance companies reject or repudiate death benefit claims when the policyholder has breached the policy terms and conditions or omits facts deliberately or by mistake. The below chart shows that private life insurance companies have rejected and repudiated 3.06% death claims during FY 2018-19. In numbers, it is more than 10,000 life insurance claims amounting to Rs. 564.18 crores.

Source: Relakhs.com

This again proves why you should be extremely careful when you fill the proposal form and disclose facts with your insurer while buying online term insurance.

So, how do you ensure that your term insurance claim never gets rejected? Following are the reasons why your term insurance claim can get rejected and avoiding them will help ensure that there is no death claim rejection in the future.

Your policy has lapsed without your knowledge

This may sound like an obvious reason but you will be surprised to know that many people face claim rejection because of a lapsed policy. If you have missed the due date for paying premium on your term insurance policy, the insurer will give you a maximum grace period of 30 days after which the policy lapses.

In case, the death of the policyholder occurs at this stage, the insurance company will reject the claim. To avoid this, you should set up auto pay or give standing instructions to your bank to debit the amount on or before the due date. Your term insurance plan may also lapse for another reason. Remember, it’s a term insurance so it’s only valid for a specific number of years. There is a revival period in all term plans to revive a lapsed policy. In case of death during lapsed period, no benefit is payable.

You have not disclosed medical history and lifestyle habits

While buying a term insurance plan, you may be tempted to hide important medical and lifestyle information to lower the premium amount or seek higher sum assured. But your family may have to pay the cost of this huge mistake as they may face rejection of death claim on account of such non-disclosure.

The insurance company calculates the premium amount and decides whether you should be provided with term insurance cover or not, based on your age, medical history, income, lifestyle habits (smoking and drinking) and occupation.

Hence if there is a death occurrence and you have not disclosed crucial information (for e.g. your previous and current medical conditions, surgeries you underwent and critical illnesses in your family such as cancer, heart disease and other hereditary conditions), your term insurance may be rejected on grounds of nondisclosure.

You should also disclose information on your lifestyle habits such as smoking and alcohol to avoid claims being rejected in the future.

You have entered incorrect or incomplete information on the proposal form

Some people may deliberately enter incorrect information on the proposal form or it may be done mistakenly. Whether the mistake is intentional or unintentional, it can lead to claim rejection or may even amount to fraud. You should never misrepresent facts such as age, income, qualification and occupation as it can lead to disqualification of the claim.

Also, be extra careful when you fill the life insurance application form and make sure that you have not put incorrect or incomplete information. Never rely on your insurance agent or any other person to do this work for you. With the availability of online term insurance, you don’t have to worry about lengthy forms that take hours to fill. You can complete the form in a few minutes; just ensure that you are not entering any incorrect information.

Non-disclosure of previous insurance policies

Many people are grossly unaware of how important it is to disclose your previous insurance policies to your current insurer. Even if it’s a small policy with a sum assured of Rs. 1 lakh, you shouldn’t take it lightly and disclose this information to your current life insurance company. This information must be disclosed before you buy the term insurance plan, failing which it may lead to claim rejection, depending on case to case basis.

Not updating nominee details

A nominee receives the proceeds of the death benefit after the death of the insured once the claim is approved. In some cases, policyholders forget or ignore the importance of updating nominee details in the event of the nominee’s death. In that case the insurance company shall ask for documents like succession certificate in order to identify the legal heir(s) of the policyholder and pay the policy benefits.

Apart from these major reasons when your term insurance claim is rejected, there are some types of death that are usually not covered by term insurance. They are also known as exclusions. Let’s explore them below.

Exclusions – Types of death not covered by term insurance

1. Death from a pre-existing medical condition: If a policyholder does not disclose a pre-existing medical condition, ailment or injury that had signs or symptoms prior to commencement or revival of the term insurance policy, the insurance company is not liable to pay the death claim.

2. Murder of the insured by the nominee: If the nominee is proved by a court of law to be directly or indirectly involved in the murder of the life assured, the insurance company can withhold the death benefit payable to the nominee. In this scenario the claim shall be paid to the legal heirs of the life assured.

3. Death under the influence of alcohol or drugs:Insurance companies mostly refuse to provide term insurance cover to habitual drinkers and drug abusers. Even if they hide their drinking problem or drug addiction from the insurer and buy term insurance, and die due to a road accident or some other accident under the influence of alcohol or drugs, their insurance claims may be rejected by the insurance company.

4. Death due to hazardous activity: If a policyholder dies while taking part in adventurous sports such as sports racing, paragliding, skydiving, bungee jumping, water rafting etc., death while participating in such activities may not be covered by term insurance.

5. Death during childbirth: If a female insured does not disclose the pregnancy and dies during childbirth due to any form of complications during pregnancy complications or childbirth, the term insurance company may not honour the death claim.

6. Suicides: In case the insured commits suicide within 12 months of policy commencement or revival (whichever is later), the beneficiary or nominee will receive 80% of the premium paid (not sum assured) in a non-linked policy. If the insured has a linked plan and commits suicide within 12 months of policy commencement or revival (whichever is later), the beneficiary will receive 100% of the total premiums paid. You need to check the policy document carefully before purchase because some insurers provide coverage for suicidal deaths and some don't.

Does a Term Plan cover Death caused by natural disasters?

A Term insurance plan normally covers the death of an insured person if it is caused due to natural disasters and calamities such as earthquakes, cyclones, floods and tsunamis, or any other ‘acts of god’. One should refer to the terms and conditions of the term plan he/she is purchasing or enquire with the insurer to understand the coverage and exclusions, provided under the said term plan.

How to file a term insurance claim (death claim) online?

To avoid term insurance claim rejection, it’s also important that you follow each step carefully and furnish all the documents correctly when filing a claim. Here’s a step-by-step procedure to file a term insurance claim online:

Step 1. Inform the insurance company through email or phone about the death of the policyholder.

Step 2. Make a claim intimation online regarding the place date and cause of death of the policyholder. Claim intimation can be made by any relative or member of the family of the deceased.

Step 3. Next, the claimant needs to fill a claim form and submit it along with all the required documents.

Document Checklist

The nominee or claimant needs to furnish the following documents along with the claim form:

Death certificate

Original term insurance policy documents

Identification proof of the beneficiary or nominee

Medical certificate to prove cause of death

Police FIR and post-mortem report in case of unnatural death

Age proof of the insured

Hospital certificate if the cause of death is an illness

Cremation and employer certificate – In case the policyholder dies within 3 years of policy inception

Step 4. After the claim form is submitted along with all the required documents, the insurer will review and verify the claim. They may also ask for additional documents if required. Once the insurance company is satisfied with the validity of the claim, they will release the death benefit to the nominee or legal heir.

Conclusion

There is no reason why policyholders should fear rejection of claims if they have provided correct and complete information to the life insurance company. If you are careful and diligent when filling the proposal form and take this process seriously, you can protect your loved ones from a lot of pain in the future. Remember the purpose of buying term insurance is to secure the future of your family, so don’t be careless. Don’t withhold or enter incorrect information just to save a few bucks on insurance premium.

Term insurance is more than just insurance cover; it comes with a host of benefits and a shield of protection to your family in your absence. Don’t delay and purchase a suitable term insurance plan today.

Sources:

1. https://www.livemint.com/Money/S2hEkAbn3eqH018BhLRxbN/Insurers-cant-deny-a-claim-after-3-years-of-policy-issuance.html

2. https://www.relakhs.com/irda-claim-settlement-ratio-2018-19-irda-data/

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