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Life insurance: Disclose true health status when buying a term plan


Which insurers have the best claim settlement record? Apparently, all insurers are doing well as they settle more than 98% of claims. Collectively, insurers have a repudiation rate of 0.87% in terms of policies and 3.06% in terms of claim amount repudiated. In terms of the benefit amounts, it ranges between 5% and 10% for many leading insurers. LIC has an acceptable repudiation ratio at 1.45% in terms of benefit amounts. But, this should also be somewhat less.

Among the death claims, more than 85% are non-early in nature, i.e., the claims that arise three years after buying the policies. Under revised Section 45 of Insurance Act, no policy can be called in question if three years have elapsed since taking the policy.

Claims settlement

While the average claim amount under repudiable cases is bound to be higher than the average claim amounts of the settled cases, if the ratio of average claim amount repudiated to average claim amount paid is too high, that is certainly a matter of concern. There can be two reasons why the claim amount repudiated per policy is high for so many private insurers. As bank employees are under severe pressure to bring business, they tend to sell high value policies (e.g. term plans) to all and sundry. When some of these policies result in early claims and investigations made by insurers reveal non-disclosure of material facts, claims are summarily repudiated.

The way out

What then is the way out? I would suggest to check the ratios of the insurers being talked about here. Many financial experts suggest that  young people buy high-value term plans. But many people do not know that the underwriting process for term plans needs to be very stringent. Term plans are not allowed to people with one or two serious health issues. Bancassurance channel is generally not aware of the basic nuances of selecting lives for term plans. Some agents are also poor in domain knowledge.

What is the problem in disclosing history of diabetes or heart disease? If you disclose these health conditions, you will not get the coverage under term plan or coverage may be restricted to, say, Rs 25 lakh instead of Rs 1 crore. But, when you disclose your medical history, you know that there will be at least protection of Rs 25 lakh for the family.

Select an insurer who does not repudiate high value claims under one pretext or the other. Disclose full medical history even if the insurance intermediary suggests otherwise. By disclosing your real state of health, at the most you will be covered by a lower sum assured/different product or some extra premiums will be charged or some exclusion clause will be imposed for a few months. But that is much better than the entire claim getting repudiated later.

Cover for life

  • Underwriting process for term plans needs to be very stringent
  • Select an insurer who does not repudiate high value claims under one pretext or the other
  • Term plans are not allowed if you have serious health issues

Source : Financial Express

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