Home >Opinion >Columns >Why rejection rate of insurance death claims is very low

One key reason why people hesitate to buy life insurance in India is, some say, because of the low death claim payments in the sector. Nothing could be farther from the truth. Claims payment in life insurance is extremely high and several regulatory provisions ensure this.

In 2019-20, over 1.8 million death claims were paid in India. Fewer than 14,000 claims—a fraction of those paid—were rejected. Life insurance can have no exclusions, except suicide, in the first year of purchase. This was not always the case. About 15 years ago, it was routine for life insurance companies to exclude death due to certain reasons and in the initial insurance period. This clause has now been scrapped in all products. The only thing that buyers must be careful about is the difference between life and personal accident insurance. Both pay an amount on death; whereas in a life insurance, death can be by any cause, a personal accident insurance covers only accident-related death. The personal accident insurance has various exclusions such as death due to risky activities or by substance abuse. These exclusions, however, are not allowed in life insurance.

In a life insurance claim, you just need to establish that the insured person has died, and a death certificate is the primary document for that.

Claims can be rejected only if a buyer hides information when filling the proposal form. This is not uncommon and, typically, the information hidden relates to poor health and other insurances that a person has already bought. Both these bits of information are necessary for insurers to properly underwrite the insurance. Adverse health indicates less longevity and an excessive amount of insurance is a red flag for insurers to look into. Recent court judgements, including in the Supreme Court, have clarified that non-disclosure of material information when buying insurance is ground for declining a claim.

However, rejections on grounds of non-disclosure are going to become even more difficult because of a relatively new provision in law that a life insurance claim cannot be rejected after three years of the policy coming into force. The rationale is that a deliberate non-disclosure will result in death within three years which can be investigated. These regulations ensure life insurance death claims get paid. This 3-year stipulation is a strong incentive to buy life insurance early because claim rejections become so much harder with time.

Not only do claims get paid, there are regulations to ensure they get paid fast. The Protection of Policyholder Interest 2017 regulations require that in death claims, all documentation requirements be raised simultaneously rather than piecemeal, within 15 days of intimation. Also, a claims decision, even if investigation is needed, must be made within 90 days of intimation. Payments then have to be made within 30 days of the decision. In case of delays, insurers must pay an interest of 2% over the current bank rate. This would be about 7% today. The interest paid on account of settlement delays as well as claim settlement periods are reported and actively discussed by insurers in their boards and policyholder protection committees. About 99% of the claims pending on 31 March 2020 were pending for less than 6 months. And the reason for delay in most cases is that claimants have not sent all the details that were asked for.

Once you have bought life insurance, the insurer must renew it each year for the term you selected even if your health worsens. There is a grace period of 30 days after the renewal date to make your payment, except in monthly payments where the grace period is 15 days. If you do not renew in time, your insurance lapses. In the first six months after a lapse, insurers will generally reinstate your insurance at your request with just a declaration of good health. However, after six months, they can refuse to renew, or charge you more.

The essence is that you must buy term insurance as early as possible, ideally when you start working, without worrying about claim settlement. And then renew your insurance punctually each year.

Kapil Mehta is co-founder and chief executive officer of SecureNow Insurance Broker Pvt. Ltd.

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