Term life insurance is taken to protect your family against an unfortunate event. It essentially provides them with a financial safety net that holds them together in a time of crisis. But what if that safety net has holes that allow them to fall through?
Getting your term insurance claim rejected is one of the most disturbing events. Financial stress is added to the already emotionally draining unfortunate event. The problems turn even more significant if the policyholder was the breadwinner of the family.
There are cases where even after carefully selecting the policy and checking the claim settlement ratio of the insurer, a claim is rejected. Here are a few term insurance claim rejection reasons and ways to avoid them.
An insurance policy is an agreement between the policyholder and the insurance company that is based upon mutual trust. While the policyholder trusts the insurance company to honour their claim in their time of need, the insurance company trusts that all the information submitted about the life insured is correct. Information provided by the insured is taken at face value. However, one might often be tempted to withhold some aspects of their personal information in an attempt to reduce their premium amount.
A term insurance plan is provided based on your age, medical history, lifestyle habits, income and occupation. If any of the information is declared false, incomplete or undisclosed, the insurance company may reject the claim and suspend policy benefits. The best way to circumvent such a situation is to ensure all the data provided is true to the word. Any changes to the information given should also be communicated to the insurer in a reasonable time.
Delay in Premium Payment
One of the most common reasons for the undue lapse of a term policy is the non-payment of premiums. Claims are paid out only for active insurance policies. A lapsed policy cannot fetch you any benefits.
Sometimes, a policyholder can forget to pay the premium unintentionally. The insurance company then gives a reminder through emails, calls and messages to make the necessary payments. A grace period is offered as well that goes up to a maximum of 30 days in some cases. If the policyholder still doesn't respond, the policy is marked as lapsed. All your earlier premium payments also go to waste and no amount can be claimed back.
To ensure your policy stays active, it is advisable to set up an auto-debit or ECS instruction with your bank. Alternatively, creating a payment calendar that you follow diligently also works.
Undisclosed Medical History
Your term insurance coverage and premium are decided based on the company's risk after considering your medical history. Accordingly, ignoring any medical tests or withholding history related to surgeries, illnesses in the family or any other conditions can become a valid cause for rejecting your term insurance claim.
It is compulsory to go through a medical examination when investing in term life insurance. Without adequate tests, the insurer can even assert that a critical illness was pre-existing and deny any claim for your riders.
Make sure you provide all the necessary information regarding your and your family's medical records to the insurer. Double-check the data provided to minimise the risk of claim rejection and confirm that all your pre-existing conditions are accounted for.
A nominee is a person who is entitled to receive all the policy benefits as per the policyholder’s instructions. While it is highly uncommon, an insurance company may reject the claim if no nominee is updated and a legal heir cannot be decided to their satisfaction.
In the absence of a nominee, an insurance company calls for documentation to prove the line of succession. This is a rather complicated procedure and leads to troubles in getting the claim amount cleared. Sometimes, when a term plan is bought at a young age, a person's parents are named the nominees. Failing to update the nomination on their demise can also lead to claim rejection.
A nomination is hence of the utmost importance when buying a term insurance policy. Always keep a check on the details and warrant that they are up to date.
Undisclosed Existing Insurance Policies
Disclosure of your current, as well as previous insurance policies, is essential at the time of purchasing a term plan. Withholding or hiding such information can get your insurance claim rejected. This forms a part of the relevant information required by the policymaker for a complete risk assessment.
No matter how small or what type of life insurance policy you have at hand, a declaration of all the plans before buying your term policy ensures that no additional issues arise at the time of claiming the benefits.
Always pay close attention to the details provided to your insurance company and keep a copy of the same for future reference. So, tomorrow when your family needs that safety net you created, it is strong and secure enough to hold them together.