Why a Claim may be Invalid in Life Insurance

Why a claim may be invalid

Once an insurance company has completed its investigations it may conclude that it does not need to make a claim payment because the claim is invalid. There are three main circumstances in which this may arise:

The policy is not in force:

If the policy was not in force when the event occurred, the insurance company will reject the claim.

Example: Ajay has taken out a term plan for 20 years. He pays the annual premium on the 1st of April every year. In the 3rd year he suffers a severe heart attack. Due to financial problems because of huge hospital bills, Ajay is not able to pay the premiums on time. His financial problems continue for a longer time than expected and he is not able to pay the premium even during the grace period. At the same time Ajay’s health deteriorates and he dies on 15th May.

Ajay’s nominee files a claim with the insurance company but the company rejects the claim as the policy was not in force due to premiums not being paid, even during the grace period.

Excluded conditions apply: 

If the death is caused by something excluded from cover under the policy, the claim will not be met.

Example: Insurance policies exclude death due to suicide in the first year of the policy, therefore the death claim for a policyholder who commits suicide during that first year, will be rejected by the insurance company.

The claim is fraudulent: 

If, during its investigations, the insurance company finds out that a material fact was deliberately suppressed by the insured then it will reject the claim.

Example: If the insurer finds out that the age declared by the insured at the time of taking out the policy was wrong or the insured was suffering from some illness that was deliberately not disclosed, then the insurer can reject the claim on the grounds of misrepresentation.

Anand Khemka
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