Term insurance is designed to protect your loved ones financially if something happens to you. You pay premiums, and in return, the insurance company promises to provide a lump sum to your family upon your death. However, sometimes these claims are rejected, leaving families in distress. Let’s understand why this happens and how you can prevent it.

The Good News: Section 45 Protects You

Before diving into the reasons for rejection, it’s important to know about Section 45 of the Insurance Act. This section is your friend! It states that an insurance company cannot reject a claim after three years from the date of issuance of policy, provided you have paid all premiums regularly. This means that if the insurance company hasn’t raised any concerns in the first three years, they can’t reject your claim later.

However, the first three years are crucial. Here’s where rejections often happen:

1. Misrepresentation or Non-Disclosure: The Biggest Culprit

This means not telling the truth or leaving out important information when you buy the policy. It’s like building a house on a shaky foundation – the whole thing can crumble.

a) Medical History:

• • What it is: Not disclosing pre-existing health conditions like diabetes, heart problems, asthma, or even past surgeries.

• • Example: Ravi had diabetes for years but didn’t mention it when buying his term insurance. He thought it was well-controlled. Later, he passed away due to a heart attack. The insurance company discovered his diabetes in his medical records and rejected the claim because he hadn’t disclosed it initially.

• • Why it matters: Insurance companies assess risk based on your health. Hidden health issues affect this assessment.

b) Lifestyle Habits:

• • What it is: Failing to disclose smoking, alcohol consumption, or drug use.

• • Example: Priya smoked heavily for years but didn’t mention it on her insurance form. She later died of lung cancer. The insurance company found evidence of her smoking and rejected the claim because she wasn’t honest about her lifestyle.

• • Why it matters: These habits significantly impact your health and mortality risk.

c) Occupation:

• • What it is: Providing an inaccurate or misleading job description, especially if it involves higher risk.

• • Example: Ashok worked as a construction worker but told the insurance company he was an office clerk to get a lower premium. He died in a construction accident. The insurance company investigated his actual job and rejected the claim due to misrepresentation.

• • Why it matters: Some jobs are inherently riskier than others, and this impacts the premium.

d) Previous Policies:

• • What it is: Not disclosing existing or past insurance policies.

• • Example: Meena already had two term insurance policies but didn’t mention them when buying a third one. When she passed away, the insurance company discovered the other policies and felt she was over-insured, raising suspicion. They rejected the claim after further investigation.

• • Why it matters: Too much insurance coverage can raise red flags and lead to scrutiny.

2. Policy Lapse: Losing Your Coverage

• What it is: Failing to pay your premiums on time, causing the policy to lapse (become inactive).
• Example: Mr. Sharma had a term insurance policy for ten years but missed a premium payment due to a financial crunch. He intended to pay it later but passed away before he could. The insurance company rejected the claim because the policy had lapsed.
• Why it matters: An active policy is essential for coverage.

3. Exclusions: What’s Not Covered

Term insurance policies have clauses that exclude certain causes of death.

a) Suicide Clause:

• • What it is: Most policies exclude suicide within the first year of the policy.

• • Example: Rahul bought a term insurance policy and, tragically, committed suicide within six months. The insurance company rejected the claim due to the suicide clause.

• • Why it matters: This clause is in place to prevent people from buying insurance with the intention of committing suicide.

b) Dangerous Activities:

• • What it is: Death resulting from participation in hazardous activities like extreme sports or illegal activities, if not disclosed.

• • Example: Seema enjoyed base jumping but didn’t mention it when buying her term insurance. She died during a base jumping accident. The insurance company rejected the claim because the activity was high-risk and undisclosed.

• • Why it matters: These activities significantly increase the risk of death.

4. Documentation: Getting the Paperwork Right

• What it is: Incomplete or incorrect documentation submitted during the claim process.
• Example: The nominee submitted a claim without a proper death certificate or identification proof. The insurance company asked for the missing documents, but the nominee couldn’t provide them. The claim was delayed and eventually rejected.
• Why it matters: Proper documentation is essential for verifying the claim.

5. Policy Terms: Understand the Fine Print

• What it is: Not understanding the terms and conditions of the policy, leading to unrealistic expectations.
• Example: The policy had a clause stating that death due to non-disclosure of material facts at the time of purchase can lead to claim rejection. The nominee was unaware of this clause and was surprised when the claim was rejected.
• Why it matters: Knowing what’s covered and what’s not is crucial.

6. Fraudulent Claims: Attempting Deception

• What it is: Submitting false information or forged documents to make a claim.
• Example: Someone faked their death to claim the insurance money. The insurance company investigated and uncovered the fraud. The claim was rejected, and legal action was taken against the individual.
• Why it matters: Insurance fraud is a serious crime.

7. Nomination: Who Gets the Money?

• What it is: Issues related to the nominee details, such as incorrect name, relationship, or lack of clarity.
• Example: Mr. Verma nominated his “wife and parents” but didn’t specify the percentage amount. When he passed away, this lead to confusion and legal complications. The claim was delayed while the issue was resolved.
• Why it matters: A clear and accurate nomination ensures the money goes to the intended beneficiary smoothly.

Precautionary Steps to Avoid Claim Rejection:

1. Be Honest and Transparent: Disclose all relevant information accurately, including medical history, lifestyle habits, and occupation. Don’t hide anything, even if you think it’s minor.
2. Read the Policy Carefully: Understand the terms and conditions, exclusions, and claim process.
3. Pay Premiums on Time: Ensure your policy remains active by paying premiums before the due date.
4. Keep Records: Maintain copies of your policy documents, premium receipts, and any correspondence with the insurance company.
5. Update Nominee Details: Ensure your nominee details are accurate and up-to-date.
6. Seek Clarification: If you’re unsure about anything, ask the insurance company for clarification.
7. Review Your Policy Regularly: Revisit your policy periodically to ensure it still meets your needs and that all information is accurate.

By following these steps, you can significantly reduce the risk of claim rejection and ensure that your term insurance policy provides the financial security your family deserves. Remember, honesty and diligence are key!