Honesty is the best policy

The insurance company refused to pay my claim,” says a distressed Shefali Mehta. That was the last thing she wanted to hear after the loss of her husband two months ago. What was the reason? He got a heart attack at a young age of 35 years, few years after taking the life cover. The insurance company refused the claim since the medical history acquired from the hospital authorities showed that Mr Mehta had a long history of heart problem. More importantly, even before the life policy was taken. The insurance company rejected the claim since the health problem was not disclosed at the time of buying the policy.

Hidden truths

Before you take a policy, every insurance company makes you sign you a declaration form, which states the true condition of your health. On application, you provide all your medical details to give the insurer a full picture of your health so that they can calculate the right premium for you. On making a claim, the insurer will recheck all that information and verify with your doctor to ensure that you did not omit anything. And any discrepancy and the claim process could be in jeopardy. The most common reason cited by insurance companies for refusing the life insurance claims is suppression of facts in the application form and breach of good faith.

Explains Kalpana Sampat, SVP & head of underwriting, claims and group operations, ICICI Prudential Life : “If an individual does not disclose about tonsil or an appendix problem he/she had in the past, it does not matter. That’s just an infection and has no permanent impact. On the other hand, if the individual has hidden some crucial medical facts, which would have impacted the company’s decision to offer the policy, then the claim will be turned down.”

Usually, insurance companies undertake thorough medical tests before approving a policy. However, the entire insurance business is based on good faith and to what extent customers disclose the essential material facts, she pointed. There have been occasions when the customer does not reveal some vital information.

For example, an individual may not mention in the form that there has been a history of diabetes in his family. He may conceal this information at the time of filling the declaration form, thinking it isn’t vital as he is not a diabetic patient. Another vested interest could be that the policy-holder could save some money out of his/her premium outgo if he/she doesn’t disclose this information. But what a customer fails to understand is that this hidden information could cost him/her the policy.

Now if this individual files for a claim and if the insurance company finds out that he/she has not disclosed the necessary medical facts, it can reject the claims. Hence, disclose all the concerned medical facts when you fill the declaration form. It doesn’t matter even if you pay a tad higher premium than the rest. There shouldn’t be a big question mark on your policy just because you try to save a few thousands from your premium out go.

Cross-check agents

Insurers will not pay out unless they are absolutely 100% sure that the claimant has not made any omissions on the application form. Industry experts point out that insurance companies reject several life insurance claims because customers just sign the application form and leave the blank spaces to be filled by agents to save on time. Now how does a customer tackle such a problem? Should you trust your agent? The official responds, “If you suspect that your agent is making false promises or imparting incorrect information, just ask him to give everything in writing. He will refuse to do so and that will help you identify the right facts.”

Check the policy exclusions

There are certain exclusions in your life insurance policy. Firstly, it does not cover life loss caused due to suicides especially for the first year from the date when the policy comes into effect.

Explains The LIC official explains, “Whenever we approach a client for an insurance policy, we always check the financial condition of the family. Often financially-distressed families are vulnerable to self-destruction and suicides. We also check the employment status of the individual before we sanction life covers of huge amounts of, say over Rs 25 lakhs.”


Late payments

Sometimes consistent delays in premium payments can cost you your insurance policy. Most companies insist you make the premium payments by the due date. In case you skip the due date, the insurance company may give a grace period of around 15 days or more depending upon the type of the policy, the amount of the policy cover and your premium payment history. However, if the insured individual loses his life in the grace period, the insurance company reserves the right to decline the death benefits to the dependents of the concerned individuals’ family. In some exceptional cases, the insurance company extends the death benefits to the deceased family after deducting the final premium amount.

Avoid claim-related issues?

You have to spend 10-15 minutes with the application form. In fact, the Insurance Regulatory and Development Authority has mandated the insurance companies to send the policy document along with the photocopy of the application form of the insured individual. “Even then the customer should take out time to compare the policy document along with the photocopy of the application, submitted to the company. If an individual finds any discrepancy, he/she can return the policy document to the company within 15 days from the time the policy comes into force. The customer will get the refund,” said Ms Sampat.
In the end, taking a life policy is not about the interest of the policy-taker but of his dependents. So make sure there aren’t any loopholes that could put you in a situation like that of Ms Mehta.