You purchase insurance to ensure that you and your family can tide over any financial hardship due to hospitalization, prolonged medical treatment or unfortunate demise.
What if the insurance company rejects your claim? Everything will go for a toss. You were banking on the insurance company to support you/your family but they have politely declined to pay anything.
You cannot expect the insurance company to hand over the claim amount on a platter.
In this post, let’s look at some of the reasons why an insurance claim can get rejected. And the insurance company is not always at fault. Many a times, policy holders are at fault too.
1. Not understanding terms and conditions properly
What you have purchased is different from what you thought you have purchased.
This happens very frequently with health insurance plans. There are terms and conditions in an insurance contract and you cannot expect insurance company to honor anything which is not covered under the contract.
For instance, if the insurance policy specifies a cap on cataract treatment at Rs 25,000, it does not matter if you incurred Rs 1 lac on treatment in a 5-star hospital. Insurance company will not pay more than Rs 25,000. And the insurance company is right. You should have understood policy features and coverage before taking the treatment.
Many insurance plans put a cap on room rent (room-rent sublimit). For instance, your insurance cap the room rent at Rs 3,000 per day and you get admitted in a Rs 6,000 per day room. Don’t expect insurance company to settle the entire bill. The insurance company will only settle a proportionate amount.
It is your duty to go through policy wordings before purchasing an insurance plan. Understand coverage, exclusions, waiting periods and sub-limits properly.
With health insurance plans, there are so many terms and conditions. It may not be possible for an insurance agent to explain each and every term in detail. It is your responsibility.
The onus is on you.
2. The policy terms can be very subjective or difficult to understand
Many a times, the policy wordings can be so complex that those can be understood only by a medical practitioner. This can happen in case of critical illness and personal accident covers. With every illness, there is a severity attached. So, you might think you had a heart attack. However, as per insurance company, you may not have had a heart attack.
I will not fault insurance companies for this because they need to define severity to avoid unnecessary claims. Under personal accident covers, Accident must be caused by a sudden, external and violent force. This is IRDA definition by the way.
Don’t think you can do much about it.
3. Non-disclosure of information at the time of purchase
Again, the insurance company is not at fault.
If you have deliberately withheld the information from insurance company at the time of purchase, then the insurance company can reject your claim.
And the insurance company is justified in doing so. The insurance company prices the premium of your insurance plan based on your medical information. If you do not disclose material information to the insurance company, the insurer is pricing the risk at a much cheaper price.
Many of us purchase insurance plans with a single minded focus on price.
With online purchases, you can save premium by not disclosing some medical information.
For instance, someone chooses to hide that he had undergone a heart surgery two years before the purchase of life insurance plan and die six months later. If insurance company subsequently finds out about such surgery during investigation, it will not honor the claim.
Health insurance claims can be rejected if the hospitalization was due to a pre-existing illness, which was not disclosed at the time of purchase.
4. Leaving the application to somebody else
It is important to check the application forms before signing the dotted line. Many a times, you leave everything to the insurance agent. Firstly, insurance agent may not be completely aware of your medical history. Secondly, he may not disclose some information (with or without your consent) to increase the chances of policy issuance.
Thirdly, he may fear the disclosure may result in hike in premium and you may not be willing to cough up such high premium.
5. Mis-Selling by the Insurance Company/Bank/Agents
You have been deliberately sold a wrong product or a product which does not meet your requirements.
For instance, ICICI bank blatantly mis-sells ICICI Home Safe Plus insurance policy to its home loan customers. Home Safe Plus is a critical illness and personal accident cover. However, customers are tricked into believing that they are purchasing a life insurance cover and that their home loan amount will be settled if they were to die.
Hence, you are sold a critical illness and a personal accident cover while you thought you are purchasing a term life insurance plan.
If you were to die because of non-critical illness, the insurance company will not pay. Why? Because not every type of death is covered under the plan. Your family will be left to fend for itself.
And this has happened.
You can go through such a case here. The insurance ombudsman made an observation that ICICI Lombard was at fault for selling the policy. Search for Home Safe Plus in the document.
ICICI Bank can always say that the policy is sold by ICICI Lombard and that the customers are given full details about the policy. But you know how it works? Don’t you?
6. Insurance companies may work overtime to reject claim
Though I believe this is true, I must concede I have heard only one side of the story. A reader commented on my blog that an insurance company produced fake papers to reject claim. Read this post from Deepak Shenoy, CapitalMind. Deepak has talked about a similar case.
Insurance company may also try to link hospitalization to a pre-existing illness and try to reject a claim. However, it wouldn’t be proper to put the entire blame on the insurance company without listening to their side of the story.
You can always contest insurer’s decision to reject a claim. The final call will be taken by ombudsman or a court of law.
What should you do?
- Read and understand terms and conditions before signing up for the plan. If you can’t, seek professional help.
- Fill up the proposal form yourself. Or sign only a completely filled in form. Do not sign a blank proposal form.
- Make complete health disclosures. Do not hide anything. Do not decide if the information is material or not. Let the insurance company decide if the information is material.
Insurance is a contract. You can’t control what the insurance company will do but you must keep your end of the bargain.