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LIFE INSURANCE

How some life insurance policies fail and leave families to struggle?

Janhavi Shinde Janhavi Shinde 28 January 2019
5.0 (2 votes)

There may be multiple reasons that can make a life insurance policy not work and leave your loved ones in a bereaved state. This article will run you through the reasons that would help you to avoid your insurance claim getting rejected.

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Have you ever wondered what would happen to your loved one if your term insurance claim gets rejected?

Won't it be the scariest ever situation for your family, specifically when you are not around? This would leave your family financially vulnerable in already grief situation.

Aren't the Life insurance policies designed to provide protection and give much needed financial stability to your family in case of an unfortunate event? Yes. It is!

That is the sole reason why you had purchased it. Let me tell you, there are plenty of life insurance claims that gets settled every day without any issue. Unfortunately, you have to face the other side of the coin that is claim denial.

If you do not want your family to struggle while getting the insurance claim settled, it's important to find an answer to these questions – How life insurance policies fail? What could probably go wrong at the time of claim?

Let's find out!

Why life insurance policies fail?

Life insurance specifically term life insurance policies play its role only when the unfortunate situation occurs. In an already stressful situation, failing to get the claim settlement can put your family under financially horrific scenario. Here are few obvious reasons for a life insurance policy to fail.

Not knowing the policy well

Do you often make a hasty decision?

If yes, then callous attitude may become one of the reason for your family to face the claim denial in future.

Not being aware of the policy features, exclusions, terms and conditions of the policy can lead to trouble. Every insurance plan comes with certain conditions and exclusions under which the life insurance claims can get rejected.

Let's say, suicide and drug overdose are not covered under the particular life insurance policy bought. Not being aware of these exclusions can result in claim rejections.

Understanding the policy and comparing it with the peer plans is an ideal way to take the logical decision. Remember, it's important to be aware of what your policy covers and what it does not cover can help to get the maximum benefit out of the plan.

Disclosure of incorrect information

Unfortunately, one of my friend who lost his father recently had placed an insurance claim. He was shocked to hear from the insurance company that the life insurance claim is denied.

Insurance company had also sent her a detailed intimation letter mentioning the reason for denial as ‘incomplete disclosure of material fact'. Always remember that life insurance policy is a legal contract and no insurance company takes misrepresentation and inadequate disclosure of facts lightly. Authenticity of your insurance declarations are the key elements for honouring your life insurance claims. When you are filling up insurance application, do not make any guesses. Guessing can be dangerous. If you are not sure about the question, take your time and get the clarification. It's all about being as truthful as possible.

Also, intentionally suppressing the facts can later lead to rejection of claims. Even if your family claims that certain facts are misstated, insurance companies may not be able to help. Risk evaluation is done by the insurance company based on the details provide by you in the application form.

Provide the correct details regarding your annual turnover or income, nature of occupation, qualification, personal health and family health history. Provide all the details of your existing life insurance policies also. It's important to note that policy claims can get rejected on the grounds of material non-disclosure.

Refraining from medical tests

Remember when you ask for higher amount of coverage you are asked to go through certain medical tests to assess the risk. If you ignore such medical tests, there are high chances of facing claim denials in future. In some of the policies it's compulsory to go through medical tests.

Discontinuation of policy premium payment

Let's say you discontinue your premium payment towards life insurance policy in the middle of the policy term or you take a break in mid-way, the policy can go into a lapsed status. If something unfortunate happens, life insurance benefits can be claimed by your family only if the particular policy is in ‘in-force' status.

Lapsed policies do not pay out any benefits to your family members. Hence, it's important to pay the premiums on time. Insurance companies do send out multiple notifications via SMS, emails and calls. To keep your family out of all the claim settlement struggles, it's important to pay attention to premium notices and keep the policy active by paying the premiums regularly. Remember policy lapse can be a great threat to claim settlement.

Not updating the right nominee information

A person nominated by you as mentioned in the proposal form is the one who will be receiving the death benefits in an unfortunate event. If you have already purchased a life insurance plan or plan to buy, make sure you make the right person as nominee to your policy with all the information rightly updated.

Make your spouse, children or parents (if you are unmarried) as nominee so that the benefits go into the right hands. Improper updation of nominee can be a biggest threat to claim settlement. Don't make your family struggle because of your ignorance.

Not informing your family about policy's existence

Delayed life insurance claims can also be one of the reason for rejection. Not having the accurate information of your life insurance can be a major reason for delayed claim from your family. As having an adequate protection is important, keeping the family informed about your life insurance plans is also equally important...

In short, insurance claim rejection is the most horrific thing that could happen to your loved ones, when you are not around. Hence, be wise while buying the life insurance policies to avoid such scenarios for your family in future. Compare plans, know your policy features, exclusions and terms and conditions well and then buy the suitable life insurance plan to make your family live a comfortable life even when you are not around. Your wrong declarations and wrong choices can put your family in a struggle situation later.

So, be smart and don't fall prey to any mis-selling techniques. Make a rational choice and stay adequately insured.

Recommended Read: 5 Possible Reasons for Your Life Insurance Claim Rejection

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Janhavi Shinde
Written by Janhavi Shinde
Right from being a Flight Attendant to a Banker and now to a Content Writer, she has tasted success in all the fields. The kinda girl who loves pets and knows how to manage difficult people and events.