Common reasons why Term Insurance claims are rejected

Even though the CSR (Claim Settlement Ratios) of Indian insurance companies is one of the highest in the world (term life insurance), there are various circumstances when a claim might be rejected.

We have shortlisted the most common factors why your term insurance claim might be rejected by the insurance company:

False information

Providing false or inaccurate information to the insurance company is one of the major reasons for claim rejections. Policyholders generally provide false information like age, profession, income, etc., which disqualifies their nominees from claiming the benefits in case of their deaths. Remember that lying or concealing on an insurance policy will always backfire.

How to avoid it?

The best way to ensure that your policy is not rejected due to false or inaccurate information is to provide only factually correct information to the best of your knowledge. If any information surfaces after you have purchased your policy, you can contact your insurance provider and make necessary adjustments to your policy.

Policy lapse

The premium in a term insurance policy can be paid in a single pay or regular instalments over the term or even in limited pay, where the premium is paid over a shorter period than the full policy term. Many individuals opt for regular instalments or shorter payment periods for financial ease but end up missing the instalment.

However, missed payments due to oversight or financial strain can cause the policy to lapse, ultimately leading to claim rejection when needed most.

How to avoid it?

To avoid policy lapse, set up automatic premium payments or reminders to ensure timely payments. Choose a payment mode—single pay, regular, or limited—that aligns with your financial stability. Regularly review finances to avoid strain during premium periods. Communicate with the insurer if financial difficulties arise, as some offer grace periods or options to reinstate lapsed policies. Consistent payments ensure uninterrupted coverage and prevent claim rejection.

Hidden medical history

Term insurance benefits and premiums depend highly on the holder's personal and medical history. A person with no medical history will get better benefits at lower premiums than a person with a family medical history or a life-threatening medical condition. Motivated by this, several people lie about their medical, eventually resulting in claim rejections.

How to avoid it?

To avoid claim rejection, always disclose accurate and complete details about personal and family medical conditions when purchasing the policy. Undergo medical tests if required and ensure transparency during the underwriting process. Opt for policies with minimal exclusions and clarify any doubts with the insurer. You can also include add-on riders to your policy to facilitate your medical conditions.

Inaccurate nominee details

While it might sound impossible, inaccurate or incomplete, nominee details are one of the leading reasons for claim rejections in term insurance policy. It includes not giving clear information about the nominee, failing to update any changes in the nomination, or both. However, irrespective of the reasons, if the nomination is unclear, the insurance company will not process the claim, eventually leading to its rejection.

How to avoid it?

You can avoid claim rejection due to inaccurate nominee details by providing complete and precise information about the nominee, including their full name, relationship, and contact details. Regularly review and update nominee information in case of significant life changes, such as marriage, divorce, or the nominee's demise.

High-risk activities

High-risk activities like skydiving, if not disclosed or accounted for in the policy, can also jeopardise claims. Policies are underwritten based on disclosed risks at the time of purchase, and new life-threatening hobbies might not align with the original terms, potentially affecting coverage.

How to avoid it?

Insurers often investigate claims in case of unnatural deaths. They may question the payout if they find evidence of risky behaviour or activities that were not disclosed. It's always better to check with your insurer about adding a rider for adventure sports or high-risk activities to ensure your family's financial safety.

Here is a summary of the most common reasons for claim rejection and how you can avoid such mistakes:

Common Reasons for Claim Rejection and How to Avoid Them

Conclusion

To ensure that your claim is not rejected, you must ensure everything is right—no false information, policy lapse, hidden medical history, or missed premium payments—factors commonly associated with claim rejection.

However, it is equally crucial to remember that term insurance rejections are not limited to these basics. A term insurance claim can be rejected if you engage in high-risk activities without prior disclosure, especially if your policy doesn't account for such risks. Remember, honesty at the outset safeguards the policy's validity and ensures your claim won't face unnecessary hurdles.

FAQs

What are common reasons for term insurance claim rejections?

Common reasons include providing false information, policy lapse, hidden medical history, inaccurate nominee details, and undisclosed high-risk activities.

How can I prevent my term insurance policy from lapsing?

Set up automatic premium payments or reminders to ensure timely payments and avoid policy lapses.

Why is it important to disclose medical history for term insurance?

Disclosing your medical history is crucial to prevent claim rejection and ensure that the policy terms accurately reflect your health risks.

What should I do if I start a high-risk activity after purchasing term insurance?

Inform your insurer and update your policy or add specific riders to cover the high-risk activity.