Top 4 reasons for rejection of life insurance claims

Vishwas, a 45-year-old father of two suffered a massive heart attack on his way to work. He was rushed to a hospital however was declared dead on admission. His family was shell shocked at his sudden untimely demise. Coming to grips with their new reality, they submitted a death claim only to receive another jolt. The claim was rejected by the life insurer as Vishwas’s policy was in a lapsed status.

Vishwas’s intention of buying a term plan was to take care of the very eventuality that his family was facing. However, a right intention and buying the best plans at the best rates alone does not result in successful claim settlement. This brings us to the question on what is that we need to do to ensure that our loved ones get the death claim benefits should a claim arise.

Given below are the reasons for claim rejection and how it can be avoided. Read on:

1)      Careless attitude in filling the application form:

The application form is the basis of the policy contract. It has questions pertaining to age, gender, height, weight, occupation, income, family medical history, profession, personal health, medical history, hobbies, smoking and alcohol consumption, existing policies etc. The answers provided for these questions form the basis on which the insurance company determines your premium and the terms on which insurance cover is granted to you.

Do not treat any question as irrelevant or trivial. Every question exists for a reason. For eg: A question on occupation lets the insurer know whether you are in a high-risk occupation. Working in a mine, as a fire-fighter, as a pilot etc are considered high risk and accordingly higher premium rates may be applicable. Similarly, hobbies such as bungee jumping, river rafting and adventure sports may attract higher premium.

In case of an early claim (claim within 3 years of policy issuance or policy reinstatement whichever is later), if the insurance company proves that the claim has arisen because of incorrect information in the application form or due to non-disclosure of material facts, then the claim can be rejected.

How this can be avoided: Fill the application form yourself as only you would know all personal and medical information about yourself and your family. Be truthful and transparent in providing details. Even if the agent has filled the form for you, it is in your own (rather family’s) interest to check thoroughly that all questions are answered accurately before signing the form. Keep a copy of the form with you. On receiving the policy documents, verify the details printed in the policy document with the copy of the application form. In case of any discrepancy, contact the insurance company immediately to rectify it.

2)      Policy Lapsation:

If the premium is not paid on the due date or within the grace period provided by your insurance company, your policy lapses and ceases to be in force. The insurance company is bound to accept claims only if the policy is in force.

How this can be avoided:  Remember to pay within the grace period. Insurance companies send several renewal intimations before and after the due date to remind policyholders to pay. Many convenient premium payment options are available now. Better still, opt for ECS or auto debit through your bank account/credit card to ensure that premiums are paid automatically on the due date enabling your policy to remain active throughout.

3)      Nomination:

If you do not nominate or the nominee is not alive at the time of the claim, the insurer may reject the claim or the claimant may have to follow various legal formalities to get the claim amount.

How this can be avoided: Keep your nomination details updated so that the nominee can claim the benefits without any hassles.

4)      Exclusions in the policy contract:

Every policy has a list of exclusions i.e. events which are not covered under the policy. In case a claim arises due to any of the non-covered events the insurer is not obliged to pay. Some examples are suicide in the first policy year, death caused by sexually transmitted diseases such as AIDS, death due to usage of narcotics etc. Death caused by natural disasters like earthquake, tsunami etc and due to terrorist attacks are usually excluded in most policies.

How this can be avoided: Check with your agent before buying the policy what exclusions are applicable. You should ensure that your policy covers all major risks and has minimal exclusions. Also, once you receive the policy document, go through it as the exclusions are clearly mentioned in the policy documents.

If the above-mentioned tips are followed, you can rest assured that your nominee will receive the claim benefits. After all, it is better to be safe than sorry.