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Why Your Term Insurance Claim Is Rejected? Research Team | Posted On Tuesday, September 10,2019, 05:18 PM

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Why Your Term Insurance Claim Is Rejected?



Term insurance is one of the best life insurance plans, which allow you to plan and safeguard the financial future of your family members at an affordable premium. In case of a sudden demise within the term, the nominee gets the death benefit.

Have you ever thought of the consequences if the term insurance claim gets rejected? Your family will have to go through the grief of losing their loved one, as well as the stress of the impending financial burden. A rejected term insurance claim will leave your family without any financial support. To avoid such an unimaginable situation, you must take steps to ensure the claim gets honored.

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Why Your Term Insurance Claim Rejected

Given below are some of the reasons why the insurance claim on your term plan may get rejected:

Non-Disclosure of Facts:

In most cases, the term insurance claims are rejected due to non-disclosure of information when availing term policy. During the purchase of the term insurance plan, the applicant must disclose all important facts like lifestyle habits, smoking habits, age, profession, medical condition and so on.

This information is necessary as the premiums and the risk coverage are decided based on these details. Sometimes, the claims are rejected if the insurance company verifies the details and believes there is non-disclosure of facts.

As a responsible policyholder, you must provide all the necessary details in the insurance proposal form; while purchasing the policy to avoid claim rejection. It is important to check your policy details after the policy purchase to spot any incorrect information or a mismatch in policy documents to avoid rejection of claims.

See Also: Term Insurance For Indians

A Lapse in Policy:

A lapse in policy means the policy is no longer valid as it has not been renewed. Once your policy is lapsed; you can no longer file an insurance claim. The main reason for the policy lapse is the non-payment of premiums on the specified due dates.

The insurance companies also offer the provision of the grace period; which allows the policyholder to make payments; even after the specified due date. The grace period is provided for a maximum of 15 days from the due date. So, if you have opted for the quarterly payment scheme and your premium payment date is on the 2nd of each quarter; then the grace period extends till the 17th of the month. The policy will lapse if you fail to pay your premiums during the grace period.

As per rules, the claims will only be settled if the term policy remains in force and does not lapse due to non-payment or late payment of premiums. A lapsed insurance policy beats the very purpose of availing a term insurance plan. So, to save your family from any financial hassles, make sure to pay your term insurance premiums on time. You can also choose to auto-debit premiums or set an installment reminder, to pay term life premiums in time.

Not Appointing or Updating Nominee Details:

More often than not, insurance plans in India are bought as tax saving products, rather than for risk protection. Sometimes, people buy these products to fulfill obligations like tax savings. People often fail to understand how these policies work and don’t update the nominee details.

At the time of purchase, many young professionals generally appoint parents as nominees of the term life policy. In case the details are not updated after the marriage of the policyholder or after the demise of the existing nominees; the claims will not be honored. If a claim is initiated, there remains a very high possibility that the insurance company will reject the claims as the appointed members no longer exist and the company will not be able to decide to whom to disburse the funds.

See Also: How Much Term Insurance Should I Buy?

The policyholder must keep a track of the term insurance plan; as well as update the nominee details as per the change in circumstances. Having a negligent attitude towards your term life policy, will not help your family in case of an untoward demise. It is prudent that the insured update the nominee details as soon as a change takes place in the existing nominee’s status.

Avoiding Medical Tests:

A medical checkup is conducted by most of the insurers to understand the current health status of the policyholder (This is before availing the plan). The policy premiums and terms/conditions are determined based on the current health status of the insured.

Sometimes, an extra premium is charged if the policyholder has a pre-existing health condition or if he is a smoker. Many people avoid medical tests as there is a misconception that the insurer might reject their proposal; after the medical test. Medical tests are important to enjoy a high sum assured; but some online insurers do offer a high sum assured; without any medical checkup, up to a certain age.

There are several disadvantages of avoiding the medical test on your term life insurance plan. Firstly, you have to pay a premium for a claim which might never be settled. (The insurer might not settle a claim for a pre-existing condition which was not disclosed).  

It is always wise to opt for the medical test; so that you are aware of your current health status. The insurance company will bear the cost of the medical test. In the long-term, this reduces any chances of claim rejection with term life plan.

See Also: Benefits of Buying Term Insurance Online

Exclusions and Omissions

The terms of the term life insurance plan state that the insurer is liable to pay a death benefit to the nominee in case the policyholder passes away within the term. However, there are exclusions and omissions stated by insurers and they cannot be held liable if terms and conditions are not met. Listed-below are the exclusions and omissions stated by most of the insurance companies:

  • Suicidal death is covered only after the first year of availing the plan.
  • Death due to self-inflicted injuries, sexually transmitted diseases or death resulting from natural calamities are excluded by most of the insurers.
  • Death in a war, death in a terror attack or death by participating in adventure sports are also excluded from term insurance plans.
  • If the insured is murdered and if the nominee is found guilty in the court of law; then the insurer won’t settle the claim.

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