5 ways to guard against an insurance claim rejection

Jan 13, 2015
Here is how to play it safe and ensure that your beneficiaries are not in for a rude shock.

A crucial factor to look at when narrowing down on an insurance company is its claim settlement ratio. After all, the very purpose of insurance will be defeated if the claim is not provided for when required and the financial security of the family is compromised.

So what does a claim settlement ratio actually tell you? It refers to the total number of death claims settled by an insurance company. The calculation is done by dividing the total number of death claims received by the total number of them settled.

However, there is also a responsibility the policyholder must shoulder. We give you five ways to ensure that your claim is not rejected by the insurance company.

1) Be honest

The policy document is based on facts and information provided by the policyholder.

It is your duty to disclose all the required information to the insurance companies. If you hide facts, your claim could be rejected. Even if you do not reveal all facts, any misstatement or incorrect data provided by the individual at the time of buying the policy could lead to the claim being rejected. For instance, if death takes place due to a pre-existing medical condition that was not reported at the time of purchase of the policy, the claim could get rejected.

The most important part in the proposal form is the details of medical history of the proposer and his family. Based on this information the insurer will arrive at the premium to be charged and whether the policy can be issued or not. Disclose all the relevant facts in this regard as well as habits pertaining to consumption of alcohol and tobacco.

Furnish the correct information regarding your age, height, weight, occupation, income, existing policy details and any other details asked in the form.

Often people do not reveal the details of other policies they hold since it takes time and requires some effort to gather the details of existing insurance policies.

Be honest. It will hold you in good stead.

2) Be aware of exclusions

Listed below are some incidents which, if resulting in the death of a policy holder, put payment to the beneficiary into doubt:

  • Drug overdose
  • Addiction or misuse of non-prescription drugs
  • Death in an accident where the policy holder is found to be intoxicated
  • Suicide
  • If the cause of death mentioned on the death certificate is ‘homicide’, then the insurance company will follow up with the police investigation to ensure that the beneficiary is not a suspect. If yes, then the payout will be held back until the charges are dropped or the beneficiary is acquitted.

Also check for death due to war and terrorist activities.

There are numerous instances where the death of the policy holder will bring into doubt the payment to the beneficiary or may result in just part payment. Be sure you are well aware of what they are.

3) Check the contestability period

If death has occurred right after the policy has been taken, it will be viewed as extremely suspicious by the insurance company. In such an instance, payment will most probably not be made. Even if death occurs within a year or so of taking the policy, the insurance companies tend to be mistrustful.

Worth noting is that life insurance companies have a contestability period which could range from 12 months to 2 years. The clock starts ticking as soon as a policy goes into effect. During this period, the company can cancel the coverage and return the premium if they believe that the policy holder has withheld crucial information or has deliberately lied. When you take out a policy, check whether death occurring during this period will be an issue.

4) Ensure that the policy has not lapsed

You may find it difficult to believe, but this is the biggest threat to claim settlement. Naturally, your claim will get settled only when the policy is in force.

To avoid such a situation, pay your premiums on or before the due date. If, by any chance, you have not paid up and your policy has lapsed, then there is no way the insurance company is obligated to make the payment to your beneficiary. If you miss a premium payment, look out for the grace period. Insurance companies do provide a grace period if we fail to pay the premiums on due date.

The claim will not be paid if the policy is not renewed within the grace period even if the calamity occurred on the very next day after the grace period is over.

If you have missed that, then talk to the company to once again re-instate your policy on making a penalty payment.

To avoid all this, be regular with your premiums and keep an eye open for when the policy expires.

5) Do not forget to update nominations

Unfortunately, most individuals buy life insurance from a tax-saving point of view and are not concerned about nominations. Alternatively, individuals nominate their parents and fail to change the nomination once they get married. It may happen at the time of claim that the nominee is not alive.

It is very important to update the nominee details if there is any change in the nominee or if the nominee had passed away earlier than the life assured.

Do note, here the claim may not get rejected but it will be tedious to follow certain legal formalities to get the claim.

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