Death is inevitable, but the impact can be minimised through proper planning and awareness. Many people are the sole breadwinners in their family. Their untimely and unforeseen demise becomes detrimental for the people dependant on them. Responsible people opt for a good life insurance policy and lead a peaceful life, assured of a financial cover for their family if anything happens to them. But sometimes the best of the efforts come to a nought. It is not uncommon for insurance companies to reject a false life insurance claim.
An insurance claim may get rejected for a variety of reasons, knowing them could help in avoiding common mistakes.
7 Life Insurance Claim Rejection Reasons
Let us run through seven reasons to why life insurance claims get rejected.
- False Information
The insurance industry works on trust and proper disclosures. Concealing information even though it may seem trivial can lead to rejection of a claim. People often hide their smoking and drinking habits while filling the application, for example, of a term insurance plan. It may reduce the insurance premium but when your family needs the insurance the most, the claim is denied. Even leaving out details like age, height and weight could create issues later. When insurance is bought through intermediaries, agents or bank executives fill the application and may unintentionally enter wrong details without cross-checking. Some people even quote an inflated income to get a higher sum assured benefits. It is very important, to be honest, and alert while filing the application form to save your family from unnecessary hardships.
- Payment of Premiums
Buying a suitable life insurance cover is just the start and the premium is paid regularly should also be ensured. A life insurance policy is active only if premiums are paid on time. If you miss paying a premium the policy may lapse and an insurer can deny a claim of a lapsed policy. Many people unintentionally forget to pay their premium on time, insurers generally inform them through emails and messages. Insurance companies also give a grace period, in most cases 30 days. If a policy lapses, all the paid premiums go to waste and there is no chance of getting it back.
- Nominee Details
The nominee named by the policyholder receives all the benefits of the insurance cover. An insurance company can reject a claim if nominee details have not been filled or have not been updated. People generally buy life insurance when they are young and name their parents as nominees. As they grow old, they fail to update nominee details and if parents are not present when the claim arises, it gets rejected. To avoid rejection, keep nominee details up to date and keep an eye on correspondence from the insurer.
- Contestability Period
While selling life insurance, companies insert a contestability clause in the policy. It means if a death happens shortly after taking a policy, the claim can be rejected. As soon as a policy is bought, the contestability period comes into effect. Insurers have a contestability period ranging from one to two years. If death happens within that period, insurance companies may grow distrustful and launch an investigation. Though death comes without warning, claims get rejected in case of suicides.
- Type of Death
Just like the contestability clause, insurance companies have a standard exclusion list of deaths to reduce losses. Not all types of deaths are covered by life insurance. Life insurance claims get rejected if the policyholder had been a part of hazardous activities or if he/she dies of a pre-existing disease. Insurers very minutely check the cause of death. Deaths due to natural calamities, terrorist attacks or homicides are generally not covered by insurance policies.
Insurance companies give an ample amount of time to file a claim. Claims getting rejected due to delayed filing are rare these days, but it can happen if the delay is too long. The Insurance Regulatory and Development Authority of India has directed insurance companies not to reject claims citing delays. However, family members of policyholders should promptly file the claim. Insurers may not out rightly reject delayed claim but they may dilly-dally in paying.
- Avoiding Medical Tests
Insurance is a risky business and to reduce the risk insurers rely on proper assessment. Insurers verify every medical detail given by an applicant to get a clear idea of the risk. Most companies conduct medical tests, especially in the case of high age or high-risk coverage. If you refuse to take the tests the chances of your claim getting rejected by the insurer citing pre-existing disease is very high. It is always prudent to go for medical tests as if a test is taken all pre-existing diseases are accounted for in the coverage.
How to Avoid Life Insurance Claim Rejection?
The good news is that there are strategies to prevent term plan claim rejection, despite the fact that there may be many causes for it. Want to know how? Review the suggestions below to learn how to avoid having a term insurance claim denied.
- Ensure that your nominees are informed of the whole term insurance claim procedure, including the paperwork needed to submit a claim.
- Whenever purchasing a term insurance plan, always give full, accurate, and honest information. Ensure that all of the information on the proposal form, including your personal and medical data as well as any policy specifics, is complete and precise before submitting it.
- Keep in mind to pay all premiums on the due date with no late fees.
- If your policy has expired, speak with your insurance company to see if there are any options for renewing the coverage.
- If the insurance company requires a medical checkup, be sure to go through the procedure as soon as possible.
- At the time a term plan is purchased, you should always provide the nominee's information. Additionally, be sure to update the nominee's details right away if they need to be updated.
If you strictly adhere to the aforementioned advice, you won't have to be concerned at all about your term insurance claims being denied. If you haven't started taking steps to financially safeguard your family in the event of your departure yet, you need to do so right away.
For further assistance and to know the best life insurance plans for you, feel free to connect with our trusted financial advisor today!