We all have responsibilities in life; that is a certainty. To fulfil these responsibilities, we need to be financially secure; that is also a certainty. Life is full of certainties and life insurance is one of the best instruments to plan for them, as it provides protection against risks of morbidity, mortality, and market volatility.
Today, insurance has evolved to offer multiple benefits that can fulfil every future financial need. It’s also much easier to get a policy, provided your details and documents are correct and updated and the information shared is honest.
The importance of honest and complete information is extremely relevant given the principle of Uberrimae Fidei that is the foundation for all insurance contracts. Life insurance policies are contracts based on the principle of Uberrimae Fidei, i.e. ‘utmost good faith’. Insurance companies enter the contract trusting that the information provided by you is true.
Thus, it mandates complete disclosure of facts at the time of signing – and any medical conditions, circumstances, or risks that may be already existing, to be highlighted even before the policy is issued. If you intentionally withhold information or provide misleading or misrepresented information, there is no contract, because the contract is based on information provided by you with an assumption that the information is accurate!
1. Understand Your Insurance Claims
Insurance claims are of two types:
- Death/Critical Illness/Accident Claims: Based on the type of policy taken, and the additional features added (called Riders in life insurance parlance), you are covered against multiple risks. In case this risk gets involved, the insurance policy gives the payout and delivers on its promise to be a risk management tool, providing the payout to manage the certainties of life.
- Payout at End of the Policy Term: These payouts are the payouts that have been planned for and for which the policy was taken – be it for education, retirement, long term savings or any other need.
Under both these circumstances, it is extremely critical that all your contact details and bank details are constantly updated, all the due premiums have been paid, and there are no discrepancies in the information provided. In some of the policies, you also have a choice to defer receiving the benefit if your requirement for which the policy was taken is delayed and you want to continue the investment.
2. Honesty is the Best Policy
The main purpose of buying a policy is to get the payout. It is actually simple, provided you have been honest with your information and given clear documentation at the time of application. These two factors are extremely important to ensure you/your family receives the much-needed pay-out when the policy completes its term or post-death of the policy holder. The ease of settlement of the claim is directly correlated to the honest disclosures made at the time of buying the policy.
The reason is that the policy was issued based on the information provided. The value of the life insured is based on the current and future earning capacity of the individual. For e.g., if a person has an income of 20 lakh per annum and have taken a policy of INR 3 crore (15 times of INR 20 lakh as a thumb rule), and at the time of a death claim payout, it is discovered that the income was only 2 lakh, then the claims will not be paid because the value of the life has been intentionally overstated.
This adheres to the second principle of insurance “No person can be worth more when dead, than alive”.
3. Health is Wealth
Your medical history determines how much risk the insurance provider will take. Medical records, lifestyle habits, hobbies, nature of your profession – all these factors provide valuable nuggets of information about your health quotient.
Not all medical conditions are covered and if you suffer from any of these, it is best to disclose this at the beginning. If you withhold this piece of valuable information, and it unceremoniously pops up at the time of filing a claim, your claim could be rejected, and you could lose out on the payout.
But if you share the data when applying for the policy, yes, there is a chance that the policy may be denied, or the insurer may charge an extra premium to factor in the higher risk and issue the policy and you can be confident that the claims will be paid in case the risk materializes.
4. Information is Everything
Whether it’s intentional or an honest mistake, your information is the difference between your claim acceptance or rejection. Here are some reasons why claims are rejected.
- Intentional Withholding of Information: If you’ve not revealed any health risk when applying for a policy, and if this comes to light when filing the claim, it can be the reason for rejection. In some cases, this can also amount to fraud. Legally, it gives the insurer the right to refuse or even nullify the policy or refuse to settle claims later when it is disclosed.
- Misleading or Misrepresenting Information: This concerns information pertaining to medical history, risky hobbies or behaviors, dangerous professions, or if the cause of death is suicide. If you hold back relevant information, the insurance company can rightfully refuse the payout.
- Non-Disclosure of Existing Life Cover: If you have an existing life cover or if your life cover exceeds the Human Life Value (HLV), your claim can be rejected. The HLV is calculated with various parameters – age /working years left and potential to earn / save in future, and it is a limited number.
Since HLV cannot be unlimited, it is not smart to over-insure one’s family, fearing the worst. Under the circumstances, the whole claim can be rejected in case of death if the applied cover and existing cover exceed the overall insurability of an individual, and that will put the family in real trouble.
- Lapse in Policy: If the policy has lapsed due to non-payment of premiums on due date, the insurers usually provide a grace period. But if the payment is not made even after the grace period, the policy will lapse. Claims for death or maturity cannot be made after this. Hence, it is important that you do not miss any premium payment.
- Incorrect or old Nominee details: In most cases, in case of marriage or death of parents, people forget to update the nomination details. If a claim is filed for death or maturity, and the nominee is not available anymore or the details are incorrect, your claim can be rejected.
5. Correct Nominee Details
It is important that the nominee details are correct and updated, to ensure that the insurer knows to whom the payout is to be made. The name and date of birth should exactly match with official documents like the Aadhaar card or PAN card.
This is required to ensure that the payment is made to the correct person and there is no failure on the part of the insurance company to make the payout to the correct beneficiary. In case of changes in the nominated person or any nomination details, inform the insurance company immediately.
Similarly, if bank accounts are changed, all valid bank details must be updated, to facilitate and enable the insurer to transfer the payout to the intended beneficiary. I am sure you appreciate that these details have to be provided by you, as a customer, and there is no way for the insurance company to figure out the changes. Sharing the correct information is critical to the insurance company to smoothen the claims process.
Yes, insurance companies do ask a lot of questions and proof of identity and the purpose is simply to ensure that No fraudster walks away with the benefit that accrues to the policy holder.. The claim needs to be supported with some basic set of documents, such as Claim Intimation Form, Death Certificate, KYC Documents, Bank Details of Nominee, etc..; and if they are submitted in time, the claim proceedings just get that much simpler and faster.
6. The Fine Print Has the Details
Nobody likes fine print, but it is important to understand the policy terms and conditions and be aware of the things included and excluded. This will prevent you from getting rude shocks when you need the money the most. It is best that the nominee files the claim at the earliest possible.
In case of death claims, it is good to submit the death certificate and other mandatory documents and all genuine claims can get settled within 24 to 48 hours after submission of all documents. The regulator prescribes a maximum time limit of 30 days within which the claims need to be settled. If any investigation is required, it could take up to six months, within which the insurer must resolve the issue.
If the nominee or policy holder is not able to provide the required details, the insurer will not be able to settle the amount on time. If the amount remains unpaid for more than 6 months, the money gets parked in specified “Unclaimed Funds”, where it earns a specified interest till it gets paid to the customer.
7. There Is Good News Too
To ensure customers do not lose out on their claim, insurers are now asking alternate contact numbers, mailing and permanent address at the time of buying policy or at the time of claim intimation. Companies are also regularly advising policyholders to update their contact number and address, as and when there is change.
The payouts at the end of the policy period get paid out to the bank account details specified in the policy (post verification) and are normally paid out on the date of completion of policy. In case of delayed settlement, the insurance company pays interest, which is 2% higher than the bank rates declared by the Reserve Bank of India on April 1 of every financial year.
With honest data sharing pertaining to the financial and medical state, an insurance policy remains one of the best security covers for any family. Digitization of processes is also enabling insurance companies to make claims process fast and seamless, with some companies shortening the claims process to one day, from the date of submission of all mandatory documents. In future, data sharing across industries will also allow for more transparency and less human error.
