Imagine that you have just suffered from a serious ailment. You are looking at spending lakhs on your hospitalisation and treatment. At the hospital, you make the application for the cashless claim. To your dismay, your claim application is rejected. Now you are stranded and are wondering how to arrange for the hospitalisation. Claim rejection is heart-breaking, however big or small. The primary reason for buying an insurance policy is to meet your financial needs in case of any unfortunate event. If the claim is rejected, the entire purpose is defeated and you are left without resources. In case you do not have adequate financial resources, there is a huge question mark on how you will handle the situation. You are left wondering the reason for claim rejection. Rejecting a claim without strong reasons or ground is rare in India. The insurance regulator keeps a proper track of the claim settlement ratio which is indicative of the ratio of claims accepted /settled against the claims made to the insurers. Competition has also forced insurers to keep the ratio higher than the competition. Just to give you an idea, the life insurance industry’s settlement ratio was 98.39% and the repudiation/rejection ratio was 1.14% in 2020-21. Despite such high numbers, claim rejection is not uncommon.
Some common reasons for claim rejections are as follows:
Lack of Transparency – Incorrect or incomplete information Whenever you are entering into an insurance policy, you are required to share complete and accurate details as required by the insurers. Your claim is likely to get rejected if the insurer has reasons to believe that you did not disclose full material information and this information is related to the cause of the claim.
An insurance policy is based on the principle of utmost good faith and the insurer relies on the information shared by you. Information related to age, occupation, income, medical history, lifestyle habits, smoking & drinking is primarily required to be disclosed. It is also important that you disclose existing insurance policies taken for similar cover. People often are tempted to disclose false information or hide a few facts so that the premium is lowered or there is no issue in policy issuance. This is a dangerous gamble and can come back to haunt you at your worst moment. The best way to avoid this situation is to disclose all information and ensure that the data is true to the word.
Lapse in Policy / Delay in Premium Payment: If you have not renewed your policies timely or the premiums are not paid on time, the policy runs the risk of lapsing. Most insurance companies provide a grace period to policyholders to pay the premium amount in the specified time frame due to any reason. The policy will stand lapse if the policyholders fail to pay the premium even after the grace period. Premium payment before the due date is the best way to ensure that we do not run the risk of an event happening post due date and then the claim getting rejected. Claims are paid out only for active insurance policies. Although companies remind policyholders to pay premiums regularly via messages & texts, it is always a good practice to set personal reminders for premium payment & continuation of policy.
Exclusions & Omissions: There is a finerprint to every insurance policy. The policy document covers the terms of insurance in detail wherein you can find information like the insurance person/asset, policy limits, responsibilities of the parties, risks covered, along with exclusions & risks not covered. Insurance companies also apply the principle of proximate cause to find out the closest reason or cause for the event, in case of multiple causes, and check if this was covered under the policy. Every insurance provider states certain conditions under which claims get rejected. An example is term insurance, where death due to suicide, drug overdose, and so on are generally not included in the policy coverage and are bound to be rejected by the company. Similarly, several diseases are capped or not included in the policy coverage of most health plans. Most policies also have a waiting period for certain risks to be covered. To ensure that you have maximum coverage of risks, including those specifically excluded in your base policy, you may explore adding riders to the base policy for that extra peace of mind.
Delay in filing Claims: The insurance companies give a reasonable time to file a claim. Claims getting rejected due to delayed filing are rare these days, but it can happen if the delay is beyond the specified period. Although, IRDAI has directed insurance companies not to reject claims citing delays with genuine reasons. However, it is better to not take chances.
Not taking reasonable care: As is expected, one is required to take reasonable care and take steps to minimise the chances of any event happening. One cannot be irresponsible or negligent just because you have insured the subject matter. A claim might be rejected if the insurer feels that you did not take due care and acted irresponsibly ultimately leading to the loss /happening of the event. An example is you leaving valuables on display in your car or your mobile phone on the bus, your insurer might see this as a reason to contest your claim.
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Insurance is a contract that is based on certain principles which have to be upheld for the proper functioning of the contract. Claims are often rejected if any of these principles are compromised. Hence, it would be our own responsibility to make sure that we are well aware of the risks covered and not covered in the policy and that we disclose all material information asked in the proposal form. Ideally, the proposal form must never be filled by the insurance agent as he/she may not be aware of the information asked. Take your time and do not rush through things to avoid nasty surprises later. At an industry level, IRDAI requires that the insurance providers share detailed information related to claim rejections and specify the reason for rejection. Insurers are required to establish clear-cut procedures to let policyholders get clear and transparent communication at various stages of claim processing. Today, claim processes of insurers are more efficient than ever and insurers are also taking reasonable care that fake and fraudulent claims are rejected. Genuine claims only make policies cheaper for everyone.
Thankfully, claim rejections are rare these days. There are multiple reasons behind this like regulatory oversight, growing awareness, competition, improvement in quality of insurance agents and simplification & streamlining of claim processes. The high claim settlement ratios of insurance companies are evidence that insurance companies do not wish to reject genuine claims unless you give them the reason to. If you have deliberately done something wrong in the past for an existing policy, we would suggest that you have a word with your insurance advisor.
Claim process is simple but often not easy. If you are new to all this, till the time you get experienced and knowledgeable, a lot of precious time would have gone to waste. However, irrespective of your knowledge /experience level today and if you are short on time, inclination or do not wish to put in the required efforts, we suggest having an expert to help you out. Having an expert guiding you would not only save you time but would help you make smart financial decisions and avoid costly mistakes, both necessary for your financial future. Wondering how to start, reach us at chandrakant@ghanchiinvest.com or call at +9820926446 / +91 7977061717. For other financial and Investment planning check our section here
