Buying a term insurance policy is one of the first things to do in money management if you have dependents or if you wish to leave your networth to a person or organisation. Insurance purchase is a leap of faith resulting in a contract between the insurer and buyer based on trust. However, there is no guarantee that our death claim will be processed hassle-free for our nominees. Here are some steps we can take to increase the probability of claim acceptance.
No insurer, including the behemoth, referred to fondly as “the corporation”, is here to offer our claim settlement on a silver platter to our nominees. When we wish to buy a policy, a red carpet is laid out – not for us, but for our premiums. Once the premiums start flowing, their next concern is to limit payout. So we must do our best to lower any doubt in their minds about our policy/claim. Always look at the matter from the perspective of the insurer.
1. Maintain a health record! Some take a term insurance policy with chronic illnesses. Some find out that they have a chronic illness (or are predisposed to one) when they take medical tests as part of the term policy application. Some develop it after the policy is issued.
No matter what, maintain a clean medical record. Collect all doctor prescriptions. If you develop diabetes or heart problems a couple of years later, you must have clear documentation about the date of onset of the disease.
It would be best to attach such documentation with the policy document. The nominee should be made aware of this.
Why? Because insurers will depute detectives to verify claims (guess who is featured in this article! :)) Detectives will come to know of your doctor and could go ask the doctor’s receptionist questions like, “how long had this person been coming here?” and the like. Even vague responses like “for a long time” can be twisted against you. The insurer can/will claim that you had the disease before the policy was issued and reject the claim.
Don’t think such things are possible? Read the games life insurers play!
Yes, there is an ombudsman you can appeal to, and in all likelihood, they will overturn the insurer’s conclusion and direct them to pay up. However, it will take time, money and effort, which you will not be around to share!
I have a 60 Lakhs term policy from LIC (at a whopping ~ Rs. 100 per day!). The premium was loaded for obesity (I was obese!) and hypertension (I still have it). Three years later, I was diagnosed with Myasthenia Gravis. Since this is a potentially life-threatening disease, I can neither switch insurers nor get additional insurance. I have clear documentation about the onset of the disease and surgery, which I have stored with my policy document.
2. Stay healthy! Stay safe! Stay sharp! Obviously, one should do not dumb things like start smoking after the issue of the policy. Although you are not obligated to inform the insurer about your smoking habit, it can be easily used against you. The insurer can claim that you lied while applying for the policy if they get to know you were smoking at the time of death.
Unfortunately, the same is true if you start participating in adventure sports after taking the policy. What about starting to run marathons and trekking after the issue of the policy? People have died from both! Grey areas! The point is to be aware of your actions. Be very aware!
There are a lot of grey areas about death claims. People die in a variety of circumstances. People die in a variety of ways.
Please do not comfort yourself using Section 45 of the insurance act.
No policy of life insurance shall be called in question on any ground whatsoever after the expiry of three years from the date of the policy, i.e. from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later.
No matter how old the policy is, if the insurers suspect fraud, they will do their best to at least delay, if not deny, the payment. So it is essential to be truthful at the time of application and maintain proper health records afterwards.
Also, all analysis of the claim settlement ratio is pretty much psychobabble! No ratio will matter when your nominee reaches out for the policy document!
3. Increase your net worth! Term insurance is just the first step toward holistic financial planning. A few years after you buy it, inflation will render the policy inadequate (assuming it was adequate when you got it!).
So ensure you start investing as much as possible for all your long term financial goals, including retirement, as soon as possible.
Unless your net worth increases at a decent pace, the sum insured will fall short of your family’s needs if you die 10-15 years later.
When your net worth becomes much higher than the term insurance cover, there is no need for the insurance anymore. However, at this point in time, the premium paid will be minuscule (even if loaded), and there is no harm in continuing it.
4. Recognise Risk Not buying term insurance is a risk. Buying one is also a risk! Despite all talk and analysis about claim settlement ratios, you have to pick an insurer you are comfortable with at the end of the day. Whether you have used logic or emotion to make a choice, the risk of claim rejection is always there.
The only comfort is that the ‘claim rejection risk’ is much lower in magnitude than the ‘no insurance risk’.
Without a thorough investigation, no insurer will be ready to hand over the insured sum. Despite all regulations and rules, there is absolutely no guarantee that the claim will be honoured and honoured without delay.
5. Anticipate delays in claim settlement and ensure your near and dear ones have access to cash (or instruments with high liquidity) for 6-12 months at all times.
6. Create a continuity kit: Ensure all relevant documents (incl insurance papers) and investment details are readily accessible by your nominees. See: How to help our life partner manage money in our absence.
7. Add the contact details of a fee-only SEBI registered investment advisor or a trusted and financially literate in tune with your aspirations with your life and health insurance policy document. This will ensure the claim amount will be utilized properly.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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