Term insurance is designed to provide financial protection to a policyholder’s family in the event of their untimely death. Under this arrangement, the insurance company pays the agreed death benefit to the nominated beneficiaries if the policyholder dies during the policy term, subject to the policy’s terms and conditions. Policies commonly offer coverage periods ranging from 10 to 40 years.
For example, someone with a ₹50 lakh home loan, a ₹30 lakh car loan and future expenses such as their children’s education may consider a term insurance policy with a ₹2 crore cover. The payout could help the family manage outstanding debts and essential expenses if the policyholder is no longer there to provide financial support.
However, a term insurance policy does not guarantee that every claim will be approved. Incomplete disclosures, missed premiums and policy exclusions can create problems during claim settlement. Understanding these risks before buying a policy can help policyholders protect their families more effectively.
6 Reasons Why a Term Insurance Claim May Be Rejected
According to a blog post by HDFC Life, incomplete or inaccurate information provided during the application process is one of the reasons a term insurance claim may be rejected. Other issues can also affect the outcome.
1. Hiding pre-existing medical conditions
Applicants should disclose relevant medical conditions, including diabetes and high blood pressure, when applying for insurance. Failing to provide required health information may affect claim settlement.
2. Incorrect nominee details
Incomplete or inaccurate nominee information can create complications for beneficiaries when they attempt to claim the policy benefit. Applicants should ensure that the details provided are correct and up to date.
3. Failure to pay premiums
Regular premium payments are essential to maintaining coverage. If premiums remain unpaid and the policy lapses, the intended insurance protection may no longer be available, subject to the policy’s terms.
4. Death during excluded activities
Some policies exclude deaths arising from specified high-risk activities, such as paragliding or racing. Whether a claim is payable depends on the exclusions and conditions stated in the policy.
5. Death linked to alcohol or drug consumption
Deaths associated with excessive alcohol or drug consumption may be excluded in certain circumstances, depending on the policy wording and the facts of the case. Policyholders should review the applicable exclusions carefully.
6. Failure to disclose relevant information
Withholding information that the insurer requires during the application process can complicate claim settlement. For example, where pregnancy-related information is relevant and required, failing to disclose it could create difficulties if a death occurs during childbirth.
To reduce the risk of disputes, applicants should answer all questions accurately and disclose the information requested by the insurer. Anyone uncertain about their medical history or other application details should seek clarification before purchasing a policy.
How Much Term Insurance Cover Should You Choose?
A common starting point is to consider coverage worth 10 to 15 times your annual income. However, this is only a general guideline and may not be sufficient for every family.
For instance, a person earning ₹15 lakh annually could consider a basic cover ranging from ₹1.5 crore to ₹2.25 crore under this approach.
The appropriate amount depends on several factors, including outstanding loans, household expenses, children’s education costs, the number of dependants and the family’s future financial needs. Existing savings and other financial resources may also influence the amount of protection required.
The objective is to ensure that the death benefit can help dependants manage essential expenses and financial commitments if the policyholder dies during the coverage period.
Who Is Eligible to Buy Term Insurance?
Individuals below 18 years of age are not eligible to purchase term insurance under the stated age requirement. Insurance companies also apply their own eligibility conditions, and applicable age limits may vary between insurers and products.
Before purchasing a policy, applicants should review the insurer’s eligibility requirements, coverage conditions, exclusions and premium obligations. Choosing an appropriate sum assured and providing complete information are important steps towards ensuring that the policy serves its intended purpose.
Disclaimer: This article is intended for general informational purposes and should not be considered insurance, financial or legal advice. Claim decisions depend on the policy wording, disclosures made by the policyholder, applicable exclusions and the circumstances of the claim. Readers should carefully review the relevant policy documents and consult their insurer or a qualified insurance adviser before making decisions.