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A good Life Insurance policy should give you complete peace of mind from life uncertainties. It should provide financial stability to your family members in case anything unfortunate happens to you. However, have you considered how your family will manage if your Life Insurance claim gets rejected? It could be quite challenging for your loved ones.While insurance companies settle plenty of Life Insurance claims without any issues, some people might have to face the other side of the coin, i.e., claim rejection. And a denied claim can leave your family financially vulnerable. So, to protect your loved ones from such an adverse situation, you should know why Life Insurance plans can fail and what could go wrong when filing a claim.
Why do Life Insurance policies fail?
Life Insurance plans, especially term plans , are designed to secure your family's financial future. The insurance company provides a large protective sum to your loved ones upon your demise. However, the company can also reject the claim if certain conditions are unmet. This can happen either due to an oversight on your part or by your family while filing the claim.So, let's find out some common reasons why Life Insurance policies fail. Also read: Life Insurance After Retirement: Yes or No?
Not knowing everything about the policy
If you are the one who makes hasty decisions in life, your callous attitude might become a significant reason for Life Insurance claim rejection in the future.Not knowing the policy's features, inclusions, exclusions, add-ons, terms and conditions, coverage amount, premium, or tenure can lead to trouble. You should know that each Life Insurance policy specifies certain conditions and exclusions under which an insurer can deny your claim.For instance, accidents due to rash driving are not covered by many Life Insurance plans. It can be rejected if you are unaware of it and apply for the claim. Therefore, understand the policy and compare it with multiple plans before deciding. Knowing the inclusions and exclusions can help you reap the maximum benefit of a Life Insurance plan. Also read: Choosing The Right Life Insurance Policy In India: 3 Important Points To Consider
Non-disclosure or disclosing incorrect information
Providing inaccurate or no information is among the most common reasons for rejecting your Life Insurance claim. You should know that a Life Insurance policy is a legal contract wherein no insurer takes inadequate information disclosure or misrepresentation lightly. They honour only authentic insurance declarations.Every insurance company determines the policy's premium and risk coverage after knowing your details like age, gender, income, medical history, health condition, etc. If the insurer finds any details missing or believes there is any misrepresentation, your claim will be rejected immediately.So, as a responsible buyer, you must provide all required details, including any pre-existing medical conditions, if you do not wish to leave your family in the lurch.
Avoiding medical tests
If you want more coverage, the insurance company may ask you to undergo specific medical tests to determine the risk. Trying to avoid such medical tests by providing wrong details can prove dangerous later.It's always wise to provide all your medical details and go for medical tests suggested by the insurance company. Medical examination will help you spot your pre-existing illnesses and secure insurance coverage for the identified health conditions. Additionally, it will reduce the likelihood of claim denial.
Lapse in policy
Discontinuing your premium payment towards your Life Insurance policy or taking a break during the policy term can change your policy status into a lapsed one. It doesn't matter if you unintentionally discontinued the premium payments or because of insufficient funds.Your policy will lapse if you don't pay premium payments within the grace period. And if the policyholder meets with his/her demise, the insurer is not obliged to provide any death benefit payout to the policy's nominee, and thus, the claim is rejected. Also read: How To Compare Life Insurance Quotes Online?
Not appointing or updating the right nominee information
Life Insurance plans are designed to provide the death benefit to your nominees in the event of your unfortunate demise. And if you fail to name a nominee in your policy, the death benefit goes to the legal heir. But what if there is no clarity on your legal heir? In such situations, anyone who is declared as the legal claimant by the court needs to submit several documents to prove his relationship with you. It can be a lengthy, time-consuming process and, thus, one of the reasons for claim denial.You must appoint a nominee or update the beneficiary details to ensure all the premiums you pay do not go to waste.
Hiding other insurance policies
Insurance companies can ask many questions, including if you already have Life Insurance coverage. And if the answer is yes, it can impact the sum assured you are eligible for. This depends on your current HLV (human life value).Suppose you are a 25-year-old with annual earnings of ₹10 lakhs. Also, you have an existing Life Insurance worth ₹1 crore. As per the human life value calculator, you can invest in a ₹1.5 crores Life Insurance policy. If you were considering purchasing Life Insurance worth ₹2 crores, you could only buy a policy of at most ₹1.5 crores life cover.Disclosing all types of active Life Insurance plans while buying a new policy can reduce the chance of claim rejection. Also read: File Insurance Claim in 3 Simple Steps: Find Out
Key Takeaway
- Life Insurance is a great tool to provide financial assistance to your family in your absence.
- However, there are some instances when your claim can get rejected, leaving your family in a difficult situation.
- You must know why a Life Insurance plan can fail if you wish to prevent your family from facing claim rejection.
- Not understanding the policy well, non-disclosure or misrepresentation of facts, refraining from medical tests, policy lapse due to missed premium payment, not appointing or updating nominees, and hiding other policies are some reasons for claim rejection.
FAQS - FREQUENTLY ASKED QUESTIONS
Why do many people ignore Life Insurance ?
There are four main reasons why many people ignore buying Life Insurance. They believe:
They are too young to buy Life Insurance.
They are healthy enough and do not need Life Insurance.
Life Insurance policies are expensive and out of budget.
There are better investment bets that can give good returns.
What happens when a Life Insurance policy expires ?
When a Life Insurance policy expires, the coverage under it also ends. Therefore, the policyholder is not entitled to death benefits under the expired policy.
Are there any regulatory bodies overseeing Life Insurance policies in India ?
Yes, India's Insurance Regulatory and Development Authority (IRDAI) is the regulatory body overseeing the insurance sector, including Life Insurance, in India. The IRDAI ensures compliance with regulations, sets guidelines for insurance companies, and protects the interests of policyholders.
What can policyholders do if their Life Insurance claims are denied ?
If a Life Insurance claim is denied, policyholders have the option to challenge the decision through a grievance redressal process.
What are the risks of not having Life Insurance ?
The following are the risks of not having Life Insurance:
Your family might have to bear a terrible financial crisis in your absence.
You might leave your loved ones in debt.
Your children might not have financial backing for significant expenses such as education or marriage.
You might have to depend on others after retiring.
You might not be able to reap tax advantages.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
