This article has been written by K. Ramalingam, chief financial planner at Holistic Investment, a financial planning and wealth management company.
An insurance policy is the financial security for the family if the bread winner of the family has passed away. But this security ensured only if the claim is settled by the insurance company in a hassle-free manner. If the claim is rejected, the policy holder’s family will be in deep trouble.
So why do insurance companies reject claims?
Insurance policies are issued based on the facts and information provided by the policy holder in the proposal form while taking the policy. If s/he has not provided adequate information or has withheld information in the proposal form, it poses a situation for a claim rejection.
Here are 6 precautions to take to ensure that the claim is not rejected and the financial security of the family is not compromised.
Precaution I: Do not trust your insurance agent mindlessly
We are always in a hurry and want things to happen in a jiffy. We never read the proposal form completely and fill the details required in the form. We just sign the form and ask the insurance agent/ adviser to fill the details required and issue the cheque. This is an absolutely wrong practice. The agent is unaware of all the details regarding the medical history of yourself and your family. He may fill some incorrect information and submit the form to meet his sales targets. Also don’t think that the agent is doing you a favour by overlooking your health problems .
Always fill the form by yourself and keep a copy of the form. Verify the details printed in the policy document with the copy of the details filled. If you found any discrepancy inform the insurance company immediately to rectify it.
Buying insurance needs the same amount of time and interest as we give to other investments and purchases such as real estate, mobile phones or cars. You would never allow a person in the showroom to choose a mobile phone for you. Likewise, don’t allow an insurance agent to fill the forms for you.
Precaution II: Do not give incorrect information in the application
It is our duty to disclose all the required information to the insurance companies. If you hide facts and do not maintain transparency, your claim could be rejected. Always 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.
Precaution III: Do not hide facts about your medical history
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 regarding the medical history of you and your family. It is also important to disclose the habits pertaining to consumption of alcohol and tobacco. Be honest in declaring these details to avoid the possibility of a claim rejection.
Precaution IV: Do not evade medical tests
Based on the information provided in the proposal form, the underwriter will assess the risk and the policy will be issued. Sometimes, when the sum assured is very high, the insurance company insists on a medical test. Don’t avoid such medical tests. This will reduce the chances of a claim being rejected on the basis of pre-existing diseases.
Precaution V: 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.
Precaution VI: Keep an eye on the payment of premiums
Ironically, this is the biggest threat to claim settlement. 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. Insurance companies 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.