What are the Reasons for Term Insurance Claim Rejection and Ways to Avoid it?

Source: www.thebuyt.com

A term insurance policy provides financial protection to your family members if anything happens to you. While buying the policy, you will have to fill out a form and follow certain conditions, or else the insurance claim will be rejected. In case of your unfortunate demise, such rejection can be a severe financial stress for your family.

Keep reading to learn about the term insurance claim rejection reasons and how to avoid this from happening.

Claim rejections are mainly caused due to incorrect data and information. Insurance providers set some conditions under which a claim gets rejected. These errors make them unable to compensate for your bill, and they reject such claims. This rejected claim will be returned to the biller for rectification. 

In general, a rejected claim may be caused by a mismatched process and ICD code(s) or by a clerical error. These types of errors can be simple, like a transposed digit from the insurance ID or a misspelt name. As soon as the errors are rectified, this rejected claim can be resubmitted. However, beyond that, there can be different reasons that can cause the rejection of your claim.

1. False Information

An insurance plan is an agreement between a policyholder and an insurance company on complete trust and disclosures. While policyholders hope that the insurance company will compensate their claim whenever needed, the insurance company equally trusts that all information provided about the insured person is truthful. However, in some cases, one may hide some of their personal information in order to lessen their premium amount.

In a term insurance policy and premium depends on your age, lifestyle, medical background, earnings and occupation. If there is any hidden, incomplete or false information, the insurance company can reject your claim and disallow you from getting the policy benefits.

2. Payment of Premiums

One of the leading term insurance rejection reasons due to which an insurance policy lapses and your claim can be rejected is the non-payment or late payment of premiums. When you buy an insurance plan, you must clear all premiums within the stipulated time so that the policy remains active. 

If you fail to pay a premium by mistake, the insurance company will inform you via call, send you notifications, SMS, etc., and you will be given a grace period of 30 days to pay the amount. If you fail to respond within that period, your insurance policy will lapse, and subsequent claims on that policy will be rejected.

3. Nominee Information

The nominee or beneficiary is an important part of a term life insurance policy. The nominee, as stated in the policy, will get the benefit of insurance coverage in the event of death of insured person. Thus, if an insurance company finds any false information about the nominee or the details are not filled or updated correctly, they can reject those claims. 

Suppose a person buys a term plan at a young age, and that person's parents are mentioned as nominees. Now in case of the former’s sudden demise, the insurance company will reject the claim if nomination information is not updated.

4. Contestability Period

5. Type of Death

Insurers provide a certain exclusion list of deaths similar to their contestability clause in order to reduce losses. In other words, life insurance does not cover every type of death. For instance, if an insured person dies due to a pre-existing illness, the insurance claim will be rejected. 

After an insured person’s demise, the insurance providers will conduct a thorough investigation to check the reason for death. If the deaths are caused due to terrorist attacks, natural calamities, etc., insurance plans will not cover them.

6. Delay

Be Honest in Disclosure of Information

‘Concealment of information’ is a major reason resulting in claim rejection. If you have any pre-existing health condition or disease, make sure to disclose the same in your application form. Similarly, if you have any unhealthy habits like drinking or smoking, and are involved in high-risk jobs like fire-fighting, disaster mitigation, mining, etc., be honest in mentioning the same while applying for a term insurance. 

If any information relevant information regarding the extent of risk is found to have been hidden, the insurer will deny compensating your beneficiary. In such cases, an insurer investigates the reason behind it. Consequently, the claim will be rejected if you have concealed vital information that determines the risk related to your life. So, be honest in disclosing everything.

Pay Premiums on Time

Update Nominee Information

File Insurance Claims as Early as Possible

Fill out the Form Yourself

Do not depend on anyone to fill in the application form. Remember, providing accurate information on the form is vital to get the claim passed in your absence. Based on your information, the insurer will determine the premium amount depending on the overall cover, age, underlying risk factors, etc. 

Simply informing the insurance agent or a third person about your medical history and depending on them can be a major blunder. If they make a mistake in entering the correct information, claims on that policy will be rejected. So, fill up your form yourself.  

So now that you have gone through the term insurance claim rejection reasons and the precautionary measures, you can prevent rejection of claims on your policy. Also, before opting for a term life insurance policy, remember that insurance terms and conditions vary between insurers. So, conduct thorough research on the insurance companies before buying a policy.