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Reasons Why Term Insurance Claims Get Rejected

Term insurance claims may get rejected due to non-disclosure of vital information or policy lapses from missed premium payments, highlighting the importance of full transparency.

  • 8,213 Views | Updated on: May 21, 2024

A term insurance plan is a cover that offers financial security to your loved ones in case something unfortunate happens to you. It provides guaranteed financial security to your family during your absence. A term plan is an ideal addition to your portfolio and is a must-have for every adult.

It is allocated after the insurance provider validates the viability of investment for an eligible individual. This means that individuals in a high-risk category will have strict terms and conditions. This could have an impact on the claims made by a high-risk policyholder. Explained ahead are instances when a term insurance claim is denied by the insurance company.

Key takeaways

  • Non-disclosure of material information during application can lead to claim rejection.
  • Misrepresentation or fraud by the policyholder can result in denied claims.
  • Policy lapses due to missed premium payments may lead to loss of coverage.
  • Exclusions and specific policy conditions may limit coverage in certain situations.
  • Deaths during the contestability period may prompt thorough investigations, potentially resulting in claim denial.

What Is Term Insurance?

Term insurance is a type of life insurance policy that provides coverage for a specific period, known as the term of the policy. Unlike other types of life insurance, such as whole life or universal life insurance, term insurance offers pure protection without any investment or savings component. It is designed to provide financial security and protection to the policyholder’s beneficiaries in the event of the policyholder’s death during the term of the policy.

Term Insurance Claim Rejects Reasons

Listed below are a few probable reasons that lead to the rejection of a term insurance claim.

Withholding of Information

This is one of the most common term insurance claim rejection reasons. When you purchase a policy, it is important to declare all the information clearly and honestly. If there is any mistake or a deliberate effort to withhold any information, it could have serious repercussions in the future resulting in the rejection of your term insurance claim.

Hiding Information About the Previous Insurance Policies

It is important to disclose information about your current, as well, previous insurance policies. If you do not disclose this information to the insurance company, there are chances of your claim being rejected. The disclosure of information does not depend on the sum assured. When you purchase a policy, you need to disclose all the relevant information.

Providing Wrong Information About Employment

Insurance companies declare a list of jobs in their policy terms that fall under certain professions, which are considered as high-risk. This includes employment or jobs linked to a hazardous environment. If you are engaged in one of the jobs mentioned in their portfolio, you need to disclose about the same. If you do not disclose correct information, your claim might be rejected in the future.

Sharing Incorrect Information About Medical History

If you default in your medical test or submit incorrect medical information, your term insurance claim might be rejected at a later stage. It is very important that all the tests are done and correct reports about the medical condition are presented to the insurance company. You need to disclose all the information about your medical history and submit the necessary reports.

Exclusions of Policy

it’s essential to understand that every insurance policy comes with certain exclusions, which are specific situations or circumstances in which the insurer may not provide coverage. These exclusions are outlined in the policy document and vary depending on the type of insurance and the insurer’s terms and conditions. Let’s explore two common exclusions found in insurance policies:

Hiding Other Insurance Policies

One of the key exclusions found in insurance policies is the failure to disclose existing insurance policies held by the policyholder. Insurance companies require full disclosure of all existing insurance policies to accurately assess the risk and determine the premium rates. Failure to disclose other insurance policies may lead to the denial of claims or cancellation of the policy. Policyholders are obligated to provide truthful and complete information to the insurer during the application process to avoid any complications or disputes later on.

Delay in Claiming of Insurance

Another common exclusion found in insurance policies is the delay in claiming insurance benefits beyond the stipulated timeframe. Insurance policies typically have a specified timeframe within which policyholders must file a claim after the occurrence of an insured event. This timeframe varies depending on the type of insurance and the insurer’s policy terms. Failure to file a claim within the specified timeframe may result in the denial of the claim or forfeiture of benefits. It’s essential for policyholders to familiarize themselves with the claims process and adhere to the deadlines outlined in the policy to ensure timely processing and settlement of claims.

Things to Consider in Order to Avoid Term Insurance Claims

While obtaining term insurance coverage is an essential step towards ensuring financial security, it’s equally important for policyholders to understand how to avoid potential claim denials or complications. Here are some key considerations to keep in mind to avoid term insurance claim issues:

Fully Disclose Details

One of the most critical factors in avoiding term insurance claim issues is full disclosure of all relevant details during the application process. Policyholders must provide accurate and complete information to the insurer, including personal details, medical history, lifestyle habits, and any other relevant information. Failure to disclose essential information may lead to claim denials or policy cancellations in the event of a claim.

Timely Payments of Premium

Maintaining timely payments of premium is essential to keep the term insurance policy in force and avoid lapses in coverage. Policyholders should ensure that premiums are paid on time as per the terms of the policy. Late or missed premium payments can result in the policy being terminated, leading to the loss of coverage and potential claim denials.

Update Nominees

Policyholders should regularly review and update the nominees designated in their term insurance policies to ensure that the benefits are directed to the intended beneficiaries in the event of the policyholder’s death. Changes in personal circumstances, such as marriage, divorce, or the birth of children, may warrant updates to the policy’s nominee details to reflect the policyholder’s current wishes.

Understanding Exclusions

It’s essential for policyholders to thoroughly understand the exclusions listed in their term insurance policies. Exclusions are specific situations or circumstances in which the insurer may not provide coverage. Policyholders should review the policy document carefully and seek clarification from the insurer or insurance advisor regarding any exclusions to avoid claim denials due to non-compliance with policy terms.

Review Policy Accurately

Regularly reviewing the term insurance policy document is crucial for policyholders to stay informed about the coverage details, terms, and conditions. Policyholders should pay close attention to any changes or updates to the policy and seek clarification from the insurer or insurance advisor if needed. Staying informed about the policy’s provisions helps policyholders make informed decisions and avoid potential claim issues.

Conclusion

Term insurance claim rejections can be distressing for beneficiaries and highlight the importance of understanding the reasons behind them. By ensuring full disclosure of material information during the application process, avoiding misrepresentation or fraud, maintaining timely premium payments, adhering to policy conditions, and staying informed about the policy’s terms and conditions, policyholders can minimize the risk of claim rejections. It’s essential for policyholders to take responsibility for their term insurance coverage and prioritize transparency and compliance to ensure that their loved ones receive the intended financial protection in the event of their death.

FAQs on Term Insurance Claim Rejection Reasons


1

Which death is not covered in term insurance?

Term insurance typically does not cover deaths resulting from suicide within the first year of policy inception. However, this exclusion period may vary depending on the insurer and the policy terms.



2

What are the conditions to claim term insurance?

To claim term insurance, beneficiaries must provide the death certificate of the policyholder, along with any additional documents required by the insurer. The claim must be filed within the specified time frame and comply with the policy’s terms and conditions.



3

What is the minimum time to claim term insurance?

The minimum time to claim term insurance varies depending on the insurer and the policy terms. Generally, beneficiaries are required to file the claim within a specific time frame, typically within 30 to 90 days from the date of death of the policyholder.



4

Why is full disclosure important when applying for Life Insurance?

Full disclosure is essential when applying for life insurance to ensure transparency and accuracy of information provided to the insurer. Failure to disclose relevant details, such as medical history or lifestyle habits, may lead to claim denials or policy cancellations if discovered later.



5

What Are Policy Exclusions and why should I understand Them?

Policy exclusions are specific situations or circumstances in which the insurer may not provide coverage under the policy. It’s crucial to understand policy exclusions to avoid claim rejections and ensure compliance with the policy’s terms and conditions. Understanding exclusions helps policyholders make informed decisions and mitigate risks associated with their insurance coverage.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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