Will Life Insurance Company Pay Death Claim?

I was prompted to key this on reading the news that HDFC Standard Life was fined by the insurance regulator IRDA for denying death claim in life insurance settlements. The news is an eye opener in the sense that it shatters your belief that your insurer will dole the payout to your family when you are not around.

You begin thinking how sensible it is to buy a term insurance plan in your overall financial planning to secure your family’s financial future when all they will get is nothing !

You begin thinking whether you can trust your life insurance company to pay your death claim. Will my life insurance pay the claim when you pass away, you ask yourself ?

It looks like the deserved payment to your family on your death isn’t going to happen very pro-actively from the life insurance companies themselves and you might need to take the battle to the court. But is that what you signed up for when you took an insurance policy ?

Death Claim in Life Insurance – It’s a business after all !

Life insurers are here for business. They want to make profits. It’s a no brainer that to make money in this business, an insurer needs to have investors sign up for it’s different types of life insurance policies. The more number of policies sold, the more money the insurer receives as premiums from policy holders – that swells its coffers.

To have a fat bottom line, the insurers does not want to give huge payouts that become applicable in case of policies which have a big sum assured, more so in case of term insurance policies. So they end up rejecting death claims by using some rule in the book.

The statistics of death claim in Life Insurance

Let us take a peek at what the life insurers have been upto in 2009-2010.

According to the Insurance Regulatory and Development Authority (IRDA), of the 7.62 lakh life insurance claims filed in 2009-2010, the total rejections were 15,000. To be more specific look at the insurer wise rejections and settlement ratios below. Some of the insurance companies paint a very sordid picture.

Claim settlement ratio is defined as the number of claims settled by the insurer among the total that it received while claim repudiation ratio is defined as the number of claims rejected by the insurer among the total it received.

Death claim in Life insurance settlement ratio in 2010 is as below :

Claim Ratios of Life Insurance companies for 2009-2010

The insurers who rejected death claims in life insurance the most are topping the chart – Aegon Religaire and Future Generali. Does this mean that these are bad apples ?

Not really, it must be noted that many private life insurers have started their business of late and they receive death claims which are early. Early death claims means a claim which has happened within 2 years of taking a policy. This raises eyebrows and the insurer takes more time, generally upto 6 months, to scrutinize the case to make sure there is no fraud. This leads to high pending cases for new private life insurers.

The problem and solution

When investors take life insurance, they think the life insurance agent ought to fill in the form himself. The main aim of the agent is to key in your policy. So he rushes to fill in the form, collect the cheque and encash it. In the process, you miss out on filing correctly and comprehensively your present medical condition, family medical history, other insurance policies that you have as of today and other important points in the form.

Later on, when the claim arises, the insurer rejects this based on suppression of material facts. They are right in saying that. As your risk was assessed based on facts you put forward in the form. And those facts were later on found to be wrong. The insurance company argues that pertinent facts were deliberately suppressed by the policyholder at the time of buying the cover.

The solution of death claim in life insurance is pretty simple.

1. Fill in the form yourself.
2. Do not hide your health condition, however bad it is.
3. Own up on smoking and alcohol if you have it.
4. Disclose your full family illnesses as well.
5. Go for the medical tests and make sure the doctor writes his findings correctly.
6. Fill out the form correctly, review it when you receive a photo copy from the insurance company.
7. In case of any discrepancies, write to the insurer and keep a proof of this intimation.

But still, will my life insurance pay the claim on my death ?

But suppose you have done everything right, what guarantee is there that your insurer will pay out ?

If you look at HDFC Standard Life’s claim repudiation ratio, it is 4%. So that makes HDFC Standard Life a good choice to buy term insurance from. But in-spite of that, IRDA did find that it’s claim settlement process as poor and has asked it to pull up its socks and put a robust system in place.

However good the advertisement on the TV is about the insurer, ordinary investors have no clue on what is in store for them in the future. You can do innumerable calculations and compare metrics. But you can never say for sure whether the insurance company will pay out on its own.

The problem becomes more miserable as when the claim happens, you are not around. Your family, at this time of utmost grievance, has to fight it out with the insurer. That is more time spent at the courts and lawyers. That time could fruitfully be used to collect one’s morale. Regain emotions together to think about the future and build it for the kids.

The silver lining is that there are insurers that pay the claim on their own when you die. Not everyone is up for rejections. But it is alarming to note that all of them are running helter-skelter to sell their policies. Only quite a few of them are taking claim settlements seriously.

My personal take is that I don’t trust the life insurers at all. I have instructed my near and dear ones to make sure that if the payout does not happen, they should fight it out.

I hope they don’t get that opportunity ever.

Will my life insurance pay or will they deny the claim ?