Top 5 Reasons For Term Insurance Claim Rejection
If there is one thing everybody universally wants, it is to ensure that their loved ones do not suffer any financial burden even if they are no longer around. In case you are the primary breadwinner in your family, you will no doubt agree that if you had the option to ensure that your debts or your liabilities do not burden your family, and that they can continue to achieve their life goals as per the plan even in your absence, you will no doubt grab the opportunity.
It turns out that such an option does exist, and it is called term insurance. What is term insurance and what are term insurance benefits? How does it work? What is a term life insurance claim? Let us look into those details –
What is term insurance?
Term insurance is essentially the purest or the simplest form of life insurance. It is usually less expensive compared to traditional life insurance plans. The word "term" in term life insurance stands for the specific number of years - or the term - for which the insurance policy remains in force. It gives the policyholder a life cover in return for premiums.
That answers the question of "What is term insurance?" Let us now see how term insurance works.
How does term insurance work?
In a term life insurance plan, the insurer provides a life cover for the life assured for a specific tenure. To put it in a different way, a term insurance policy assures a predetermined sum of money, known as the sum assured, to the nominee of the policyholder in case of the latter dies during the term of the policy. In return for this benefit, the policyholder will have to pay the insurer periodic payments known as premiums.
In the event of the policyholder’s demise during the tenure of the plan, the insurer disburses the death benefits to the nominees/beneficiaries. Here is an example to understand term insurance benefits better.
Say the tenure of a term insurance plan is 15 years, and the insured person dies around 10 years after purchasing the policy. In this case, his family members or nominee(s) are eligible for receiving the death benefits under the plan. Therefore, the term insurance benefits will help them financially in the face of this unforeseen incident.
However, how does the insurer know that the benefits need to be disbursed? Well, that is because the nominees need to raise a claim for their benefits with the insurance service provider.
What is a term insurance claim?
Term insurance claims are formal requests to the insurer, asking for the benefits due under the plan. The policyholder’s beneficiaries or nominees in case of the policyholder’s demise raise them during the tenure of the plan. By raising a claim with the insurance company through a seamless process, the nominee/beneficiary can avail the death benefit without having to undergo any hassles or difficulties.
In some cases, the insurer may reject the term insurance claim. Let us look at the possible reasons behind this -
Five common term insurance claim rejection reasons
There are many reasons why the insurance company may reject a claim. Here are the five most common ones –
1. The policy may have lapsed
In case any premiums due on a policy are not paid on time, most insurers offer a grace period during which the policyholder can pay their missed payments. If the payment is not made even during the grace period, then, the policy lapses or becomes inactive. In case any claim is raised on a policy that has lapsed, the insurer will reject it.
2. The policyholder may not have disclosed material information
While purchasing a term life insurance plan, it is necessary to honestly disclose all material information required. This may also include details of medical history and lifestyle habits. While evaluating a claim, if the insurer finds that such material information was not disclosed, then, the claim might be rejected on the ground of non-disclosure.
3. Incorrect or Incomplete information may have been entered
Incomplete details in the proposal form can also cost you or your loved ones dearly, since it could lead to insurance claim rejection depending on the underlined terms and conditions specified therein. This is why it is important to ensure that you do not misrepresent facts like age, qualification, income, occupation, etc. while filling out any form related to your policy.
4. It may be on account of non-disclosure of any previous insurance policies
If you have not disclosed any previous insurance policies to the current insurer, it may lead to a rejection of the claim made by your nominees.
5. Nominee details may not be up-to-date
Not updating the nominee details can also hinder the settlement of insurance claims. In case the insurer is not able to verify your nominee’s/legal heir’s eligibility for the term insurance benefits with documents like succession certificates or legal heir certificates, that could lead to hassles while claiming respective benefits.
Apart from these reasons, a claim may also be rejected if the nature of the policyholder’s demise is not included in the types of death covered by the plan. Here is a closer look at such term insurance exclusions.
Term insurance exclusions you should know about
Term insurance policies generally do not cover certain types of death. Some such exclusions are listed here –
• Death from any pre-existing medical condition
• Death occurring under the influence of alcohol or drugs
• Murder or suicide
• Death due to hazardous or dangerous activities
• Death due to childbirth
Tips to avoid term insurance claim rejection
Based on the common reasons for insurance claim rejection, here is what you can do to ensure that you avoid this situation for your nominees –
• Disclose all required information honestly and completely
• Ensure that your nominee’s details are correctly updated
• Pay your premiums on time
• Inform your insurer of any other life insurance covers that you may have
Knowing the reasons for claim rejection can make it easier for you to avoid those mistakes, so your loved ones find it easier to obtain the term insurance benefits in case of your unexpected demise. That way, term insurance can help them remain on track and fulfill their life goals as planned.
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