Why rejection rates of term insurance is so low

When you invest in term insurance, you are investing with the belief that a policy helps your loved ones financially in your absence. The financial assistance is provided in the form of a death benefit payout. This money will help your family take care of major and necessary expenses without facing economic uncertainty.

However, the death benefit is given to the policyholder’s family only in the event of their demise. Your nominee needs to file a claim to gain compensation. However, there are chances that the claim could get rejected. Read on to know more about why claims could get rejected and what you should be aware of regarding the claim procedure for your term plan.

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What is term insurance?

A term plan is a type of life insurance policy. When you invest in this policy, your insurer will compensate your family with a sum assured. This amount is paid if the policyholder passes away during the policy term. If they survive the time of the policy, there will not be any sum assured nor any maturity benefits. There are different types of term plans providing additional benefits to the policyholder.

What is a claim?

To get access to one of the term insurance benefits, which is the payout, you need to file a claim against your policy. The claim is a formal note to the insurer informing them about the policyholder’s demise. The person filing the lawsuit, usually the nominee, must disclose all the details related to passing away for the claim to be accepted. Once all the requirements are met, the insurer will compensate the nominee of the policyholder.

What are the reasons behind claim rejection?

Listed below are a few reasons why your claim could get rejected:

1. Giving false information

When you invest in a term plan, your insurer expects you to disclose all the information without hiding anything. If you hide or provide false information to your insurer, chances are that your claim could get rejected if the information is found to be unverified. This could be related to your health, financial condition, or other factors.

2. Absence of nominee

One of the important details when investing in a term plan is the addition of a nominee. A nominee is a person who is related to the policyholder. If the policyholder passes away suddenly, the task of completing all the formalities related to the plan falls on to the nominee. However, if the policyholder has not nominated anyone or fails to update information related to the nominee, the insurer might instantly reject the claim.

3. Policy getting lapsed

To continue enjoying term insurance benefits, you need to continue with the premium paid towards the plan. This ensures that your project remains operational. However, if you default on the costs, your project will lapse and become void after a point. The insurer will reject the claim if the nominee files a lawsuit against a lapsed policy.

What are the exclusions of term insurance?

Insurers exclude the following situations from the coverage of the term plan:

  1. Death of the policyholder due to suicide
  2. Death due to undisclosed health conditions or pre-existing health conditions
  3. Death due to alcohol or drug abuse
  4. Death due to participation in adventure sports

What should you remember when filing a claim?

There are a few basic things that you can do to make your claim process easier. Disclosing all pre-existing medical conditions, paying premiums on time, and getting the nominee registered are just a few things that can be helpful for you. This will ensure that your claim does not get rejected.

What are the updates related to the claim filing process?

Recent changes in rules have made the rejection of claims based on non-disclosure of information a bit difficult. If the policy is over three years old, the insurer cannot reject the claim. Also, the time required for documentation has been reduced to 15 days, and the investigation related to the claim has to be completed within 90 days of filing a claim. If there is any delay in compensating the nominee, the insurer must pay a certain amount of interest.

These are related to the claim rejection process and all the changes made in regulation. If you want to know the term plan’s benefits, contact your insurance advisor.