Most insurance claims are rejected due to non-disclosure of material facts at the time of signing the contract. To understand it better, let’s look at the legal provision of the insurance contract.
Correct disclosure of facts: Insurance contract falls under the category of a special contract, that is, a contract where in addition to the provision of the Contract Act 1872, some additional conditions apply for establishing the validity of the contract. These include presence of an insurable interest and the duty of utmost good faith.
While entering into an insurance contract, the policyholder is expected to act with a duty of utmost good faith. This duty places a responsibility on the life assured to declare in utmost good faith, all material facts impacting the risk under the insurance policy. For example, if a life assured is suffering from an elevated blood pressure, he is duty bound to mention this fact at the time of entering into a life insurance contract.
In case, the policyholder purchases a policy without mentioning this fact, he may be granted the cover based on his declaration, however, in case of an early death, the insurance company is within its rights to repudiate the claim as he has not disclosed material facts at the time of entering the contract.
On the face of it, it appears that the insurance company is unfair in repudiating the claim on the basis of the non disclosure, however, in case one sees the insurance business closely, one will realise that the claim amount is actually paid by the other policyholders who contribute by a principle of sharing of risks.
The insurer provides the administration and the platform wherein policyholders can purchase the covers. It is the responsibility of the insurer to ensure that non-genuine claims and claim arising due to non-disclosure of material facts are monitored as it acts as trustee of the pool of money of all policyholders. We must understand that insurance contract is a special contract where there is a duty of disclosure of material fact and one must make it a point to answer all questions of the proposal form correctly so that claims are paid as and when they arise.
Rightful nomination: Another key factor during claims is establishing to the insurance company that he/she is the rightful person entitled to receive the policy money. An insurance company as a trustee of the policyholder funds is expected to pay to the rightful person entitled to legally receive the policy money. Hence, the insurance company insists that the claimant provide evidence that the claimant is the rightful person entitled to receive the policy money.
Insurance law has a provision of nomination. The insurance company is discharged of its liability once it pays the money to the nominee registered under a process established by the Insurance Act 1938. A claim under a policy that does not have a nomination cannot be settled as the insurance company cannot be discharged. The insurance company will insist on a succession certificate or indemnity to pay the claim. Every policyholder should make a valid nomination as per the provisions of Section 39 of the Insurance Act 1938. A nomination can be changed at any time during the term of the contract and the life assured is expected to review the nomination made under various policies from time to time.
Submission of documents: Correct submission of documents to claim the policy money is another critical aspect. The documents under any life insurance claim fall under the following three broad categories:
* Documents to prove that the insured event happened.
* Documents to prove that the event that happened is specifically not excluded under the policy contract.
n Documents to prove the identity and the fact that the claimant is the rightful person to receive the policy money.
An insurance company cannot settle claim until all documents are in place. In case, original documents cannot be produced, there is a process to get the documents certified and the claimant is expected to follow the process of certification of copies of all documents. Irda mandates that all claim processes be communicated to the policyholder via the policy document and on the website; the lives assured and the possible claimants will do well to read the processes at least once.
Author is Senior VP, Underwriting and Claims, HDFC Life