Very prudent life insurance company manages its funds in a manner that genuine claims are paid and sound profits are distributed as bonus to the surviving policyholders (on maturity). This is ensured through appropriate selection of lives at the proposal stage and investigation of early/suspicious claims.
Non-disclosure of Facts
Whenever a claim is repudiated or refused by the insurance company, the claimant assumes that the company has not honoured its contract and promise. This issue is faced when the claim arises during early stages of the contract or immediately after revival of the policy. The primary reason why claims are repudiated is nondisclosure of material facts at the time of the contract itself.
To understand this issue, let's look at the legal provision. Insurance contract falls under the category of a special contract i.e, a contract wherein, in addition to the provision of the Contract Act, 1872, some additional conditions will apply for establishing the validity of the contract. The additional conditions include the presence of an insurable interest and the duty of utmost good faith. While entering into an insurance contract, the policyholder or the life to be assured is expected to act with utmost good faith. This places a responsibility on the life to be assured to declare in utmost good faith, all material facts that will affect the risk under the insurance policy. For example, if an individual is suffering from elevated blood sugar and he is purchasing an insurance policy, he is legally bound to declare this fact to the insurer at the time of taking the insurance policy. In case, he purchases a policy without mentioning this fact, he may be granted the cover, however in case of an early death, the insurer is within its rights to repudiate the claim as he did not disclose material facts at the time of entering the contract.
On the face of it, it appears that the insurer is unfair in repudiating the claim on the basis of the non-disclosure. However, the insurer's responsibility is to ensure that non-genuine claims are rejected. Unfortunately the claimant is not in a position to correct the contract and suffers due to the omissions and commissions of the life assured at the time of the contract. To avoid this issue, policyholders should keep in mind that:
>> Insured are bound to disclose all material facts
>> Proposal form should be correctly answered in own hand writing
>> Terms and conditions must be understood thoroughly
All insurers send a copy of the proposal form along with the policy document. The answers given in the proposal form need to be checked and in case of any wrong information, the policyholder should bring the same to the notice of the insurer and get the record corrected.
Establishing to the insurer that one is the rightful person to receive the policy money is another issue faced by a claimant. Insurance law has a provision of nomination. The insurance company is discharged of its liability once it pays the money to the nominee. A nominee can be changed at any time during the term of the contract and it is important that the name of the nominee is reviewed from time to time. A claim under a policy that does not have a nomination cannot be settled as the insurer will insist on a succession certificate or indemnity to pay the claim. The legal process involved leads to unnecessary hassle for the claimant and that arises only because the life assured did not exercise due prudence and ensured that a valid nomination was made prior to his death.
Submission of Documents
Submission of documents to claim the policy money is another issue that the claimants should be aware of. The documents under any life insurance claim fall under the following three broad categories:
>> Prove that the insured event happened.
>> Documents to prove that the event that happened is specifically not excluded under the policy contract.
>> Documents to prove the identity and the fact that the claimant is the rightful person to receive the policy money.
Documentary evidence of the above takes time and the insurer cannot settle the claim till all documents are in place. The claimant must also ensure that all claim-related information including medical/police records are provided to the insurer at the time of claim. If original documents cannot be produced, there is a process to get the documents certified and the claimant can follow the process of certification of copies of all documents. The role of the financial consultant/agent in helping the claimant in claiming the policy money is also of utmost importance. IRDA mandates that all claim processes are communicated to the policyholder via the policy document and on the company website. The lives assured and the possible claimants will do well to read the processes.
(The author is MD & CEO, HDFC Life)