Why Term Insurance claim gets rejected and how we can avoid it?




Why Term Insurance claim gets rejected and how we can avoid itWhy Term Insurance claim gets rejected and how we can avoid it?


The very reason why you buy life insurance is to give you peace of mind that if anything was to happen to you while the policy is active your loved ones will be taken care of from a financial point of view. However, when you set out to buy term insurance you won’t be thinking that your claim could be potentially be rejected, often for a number of often valid but preventable reasons. This article would provide various reasons why a term insurance claim would get rejected and possible ways where one can avoid it.

Also Read: What is the process to claim life insurance in India?

Why Term Insurance claim gets rejected and how we can avoid it?


In order to buy term insurance plan that provides the financial protection, you need your aim should be to ensure that you tick all the right boxes when it comes to the level and accuracy of the information the insurer wants so that they can give you the right coverage options.

#1 – Honesty is always the best policy


It is perfectly understandable that any insurer will want to be in full possession of the facts in order to be able to provide you with an accurate quote for life insurance that reflects the level of risk that you represent.

A classic example would be to declare that you are a non-smoker when that is clearly not the case. The rates quoted would be loaded to acknowledge the fact that your life expectancy level might be lower if you are a smoker and not providing this key data will mean that the insurance company is not in possession of the full facts.

If that is the case it will mean that they could definitely refuse a claim if it comes to light that you have withheld highly relevant information.

Withholding this sort of detail is not a good idea and it is one of the key reasons why a term insurance claim is rejected.

#2 – Full disclosure of insurance policies


Another typical scenario that can lead to your claim being rejected would be when you don’t disclose all of the current and previous insurance policies held in your name.

An insurance company needs to know what level of existing life cover you have and whether you have any lapsed policies, and why they are no longer in force.

You might not think that this is relevant, but if you don’t give full disclosure with regard to all of the salient facts about term insurance policies you hold or held previously, your provider could ultimately suggest that you have withheld information and that would give them an opportunity to reject your claim.

You don’t have to be acted dishonestly to fall foul of this requirement. Even an honest mistake where you forget to tell your insurer everything can have serious consequences, so take the time to ensure that you give them everything they ask for.

3) Your medical history matters


It should go without saying that your medical history is extremely relevant to the terms of insurance that you are offered.

If something about your medical history comes to light at a later date that you have not mentioned previously it will give the insurance company an opportunity to deny you a payout.

Sharing incorrect medical information or not disclosing everything relevant to your application leaves you vulnerable to the prospect of the insurance company finding a reason not to pay your claim.

Any tests or other aspects of your medical history need to be provided to the insurance company so that they have everything they need to be able to make an accurate assessment of your risk as an applicant.

If you have any pre-existing diseases or conditions or family medical history information that you know about it would be far better to tell your insurer and let them decide if it is relevant for themselves rather than leaving it out from your application.

It is also relevant to talk about the impact that the pandemic has had on our health profile and how it might impact your insurance cover.

You may well be asked whether you have been tested when applying for insurance, and it could pay to check when applying for insurance cover as there are a provider who does cover a COVID-19 claim under their Term Plan.

4) Behind with premium payments


Most insurance providers have clear terms of engagement when it comes to collecting your premiums in a timely manner.

If you miss a policy payment for whatever reason it is essential that you pay what is due as soon as possible or it could result in your policy lapsing and your claim becoming invalid.

You will find that there is often a period of grace where you are given a specific amount of time to bring your payments up to date. There is also a potential risk that the terms of your cover might preclude you from making a claim if any, premiums are outstanding, even allowing for the grace period.

The bottom line is that you risk a policy lapse if you don’t make payments for the policy when they are due. Make sure that you set up a payment schedule that makes sure your premiums are paid on time and you don’t risk having a claim rejected because of non or late payment.

Also Read: Best Term Insurance Plans in India

5) A death that is not covered


It should be remembered that even when you sign up for term insurance and provide all the correct details, as well as paying your premiums on time, there is still the chance that your claim could be rejected.

The reason for this would be if you suffered what is termed as an uncovered death.

There is a waiting period once you sign up for life cover and if you are unfortunate enough to die during this period you will not be covered.

Every insurance policy will have a waiting period for a number of valid reasons. For instance, if someone dies in suspicious circumstances shortly after the policy comes into force the insurance company could be otherwise be forced to pay out at a great loss.

This is why you should expect a waiting period of about 2 years before you become eligible to make a claim.

In summary, it is perfectly reasonable to expect the relationship between you and the insurance company to be built on trust and openness.

Provided you go through all the insurance documentation with great care and ensure that you disclose all the information you consider relevant to your application you should be able to enjoy peace of mind that your claim will be paid if you are unfortunate enough to trigger that scenario.

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Team – Myinvestmentideas

Why Term Insurance claim gets rejected and how we can avoid it



Suresh KP

16 comments

  • Ashish Srivastava

    Sir , My question is i am not regular smoker or drinker. like last time i smoke/drink on the occasion of marriage 8 month back and before that around 4 years back. I am 40 and in short i can say i smoke only 4-5 times in life and drink once in year/two year.

    Shall i declare myself in smoker / Drinker category ?

    • Hello Ashish, Your situation is very unique. My view is to go ahead and declare. You can discuss with insurance company also before filling the application form. In some plans, it indicates the frequency too, in such case it would be useful to fill accurately.

  • Anand

    Dear Sir,

    is it true that, Life Insurance company can not deny claim after 3 unclaimed policy years.
    I read somewhere that, as per Supreme court, till 3 years Insurance company can reject claim for hiding any information but after that, they do have ground to deny that.

    Can you please confirm.

  • Sreekesh M

    Sir
    I was gone for ICICI Pru. life insurance with life coverage of 5 lakhs.The payment period is 10 years, Rs.50000 yearly. The policy maturity period is 20 years. In there quotation, they have mentioned guaranteed and non guaranteed returns. And also mentioned the non guaranteed returns are subject to company performance. This is common in all insurance companies. What is they meant by this?Also they have shown illustration with 4% and 8% returns. The scheme is Savings Suraksha.

    • Hello Sreekesh, Earlier insurance companies used to project returns on whatever they like it. After IRDA has given guidelines, they are providing illustration with 4% and 8% returns (lowest and highest). The so called “non guaranteed returns” is what plays a role here. I would personally like to avoid such plans. You can relook at such plans, take a term insurance plan which comes with lower premium and surrender plan (3 step process).

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