What are the Reasons for Term Insurance Claim Rejection and Ways to Avoid it?
A term insurance policy provides financial protection to your family members if anything happens to you. While buying the policy, you will have to fill out a form and follow certain conditions, or else the insurance claim will be rejected. In case of your unfortunate demise, such rejection can be a severe financial stress for your family.
Keep reading to learn about the term insurance claim rejection reasons and how to avoid this from happening.
What is Claim Rejection?
Claim rejections are mainly caused due to incorrect data and information. Insurance providers set some conditions under which a claim gets rejected. These errors make them unable to compensate for your bill, and they reject such claims. This rejected claim will be returned to the biller for rectification.
In general, a rejected claim may be caused by a mismatched process and ICD code(s) or by a clerical error. These types of errors can be simple, like a transposed digit from the insurance ID or a misspelt name. As soon as the errors are rectified, this rejected claim can be resubmitted. However, beyond that, there can be different reasons that can cause the rejection of your claim.
Top 6 Reasons for Term Insurance Claim Rejection
1. False Information
An insurance plan is an agreement between a policyholder and an insurance company on complete trust and disclosures. While policyholders hope that the insurance company will compensate their claim whenever needed, the insurance company equally trusts that all information provided about the insured person is truthful. However, in some cases, one may hide some of their personal information in order to lessen their premium amount.
In a term insurance policy and premium depends on your age, lifestyle, medical background, earnings and occupation. If there is any hidden, incomplete or false information, the insurance company can reject your claim and disallow you from getting the policy benefits.
2. Payment of Premiums
One of the leading term insurance rejection reasons due to which an insurance policy lapses and your claim can be rejected is the non-payment or late payment of premiums. When you buy an insurance plan, you must clear all premiums within the stipulated time so that the policy remains active.
If you fail to pay a premium by mistake, the insurance company will inform you via call, send you notifications, SMS, etc., and you will be given a grace period of 30 days to pay the amount. If you fail to respond within that period, your insurance policy will lapse, and subsequent claims on that policy will be rejected.
3. Nominee Information
The nominee or beneficiary is an important part of a term life insurance policy. The nominee, as stated in the policy, will get the benefit of insurance coverage in the event of death of insured person. Thus, if an insurance company finds any false information about the nominee or the details are not filled or updated correctly, they can reject those claims.
Suppose a person buys a term plan at a young age, and that person's parents are mentioned as nominees. Now in case of the former’s sudden demise, the insurance company will reject the claim if nomination information is not updated.
4. Contestability Period
At the time of offering a life insurance policy, insurance companies set a contestability clause in the plan. It signifies that if the insured person dies shortly after availing the plan, the claim may be rejected. This contestability period begins just after buying the policy and it continues for one to two years, depending on the insurer.5. Type of Death
Insurers provide a certain exclusion list of deaths similar to their contestability clause in order to reduce losses. In other words, life insurance does not cover every type of death. For instance, if an insured person dies due to a pre-existing illness, the insurance claim will be rejected.
After an insured person’s demise, the insurance providers will conduct a thorough investigation to check the reason for death. If the deaths are caused due to terrorist attacks, natural calamities, etc., insurance plans will not cover them.
6. Delay
Insurance companies provide sufficient time for filing a claim. Even though rejection of claims due to late filing rarely occurs these days, it can still arise if the delay continues for a longer period. Therefore, the policyholder’s family members should ensure they file the claim on time.Tips to Follow to Prevent Claim Rejection
Be Honest in Disclosure of Information
‘Concealment of information’ is a major reason resulting in claim rejection. If you have any pre-existing health condition or disease, make sure to disclose the same in your application form. Similarly, if you have any unhealthy habits like drinking or smoking, and are involved in high-risk jobs like fire-fighting, disaster mitigation, mining, etc., be honest in mentioning the same while applying for a term insurance.
If any information relevant information regarding the extent of risk is found to have been hidden, the insurer will deny compensating your beneficiary. In such cases, an insurer investigates the reason behind it. Consequently, the claim will be rejected if you have concealed vital information that determines the risk related to your life. So, be honest in disclosing everything.
Pay Premiums on Time
Never forget to pay the premiums in a timely manner to stay away from expiration of your cover related to death benefits. Typically, insurance companies allow a grace period enabling you to pay your premium in case it is missed. For this, you may have to pay an extra premium as a penalty. However, it is always the best choice to stop taking advantage of the grace period and be serious about sticking to the schedule.Update Nominee Information
A nominee is a beneficiary who becomes entitled to get the death benefit of your term insurance. When you are single, you will ideally nominate your parents as it is a normal practice. However, after you get married, your spouse or children need to be nominated. So, update your nominee information, considering who depends on your income.File Insurance Claims as Early as Possible
All insurance policies come with general guidelines for making claims in the event of the death of an insured person. So, as a nominee, you must ensure to file your claim within the stipulated timeline. Even if it could be a mourning situation for you, considering the future days, you need to file for the claim without delay.Fill out the Form Yourself
Do not depend on anyone to fill in the application form. Remember, providing accurate information on the form is vital to get the claim passed in your absence. Based on your information, the insurer will determine the premium amount depending on the overall cover, age, underlying risk factors, etc.
Simply informing the insurance agent or a third person about your medical history and depending on them can be a major blunder. If they make a mistake in entering the correct information, claims on that policy will be rejected. So, fill up your form yourself.
So now that you have gone through the term insurance claim rejection reasons and the precautionary measures, you can prevent rejection of claims on your policy. Also, before opting for a term life insurance policy, remember that insurance terms and conditions vary between insurers. So, conduct thorough research on the insurance companies before buying a policy.
FAQs about Term Insurance Claim Rejection
Do term insurance policies cover the “Act of God”?
What is a claim rejection ratio of term insurance?
What are the types of term insurance plans?
Mentioned below are the types of term insurance plans available:
- Level Term Policy
- Convertible Term
- Decreasing Term
- Adjustable Premium Term
- Credit Term
- Return of Premium Term
- Renewable Term
Other Important Term Insurance Guides
Other Important Articles Related to Term Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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