How often have we been told to start our financial management by buying a term insurance policy to secure our loved ones in the event of a sudden misfortune? Buying a term plan is especially necessary if you are burdened with financial responsibilities or dependents relying on your income for daily living.
Though it is quite likely that you will also leave behind a decent net worth for your family members, including term insurance in your portfolio ensures monetary security in the event of early demise. Undoubtedly, an insurance policy underscores the making of a contract between the insurer and the insured.
However, to ensure hassle-free claim payout, you must ensure to take the necessary steps post-term insurance purchase. These steps if taken will increase the probability of claim acceptance. These include:
Have a health record in place
There is no second-guessing the fact that some people buy term insurance despite suffering from chronic illnesses. Some are diagnosed with life-threatening diseases only after the policy has been bought. Some insurance companies mandate their customers to undergo some necessary medical tests during which their unfavourable health conditions are revealed. Irrespective of when the insured starts suffering from the problem(s), the insurance company will always try to stall the claim on some pretext or the other. Though the insurer can completely deny the claim on certain grounds, such incidents are very rare.
To ensure that nominees are able to receive the claim settlement amount, the insured must maintain their medical records tenaciously. It does not matter if the insured develops diseases like diabetes or heart disorders after buying the policy. Keeping documents of every test conducted or surgery carried out will help the nominees to submit the necessary documents while seeking the claim amount in the event of an unfortunate demise.
Also, it is best to attach the medical documents and prescriptions along with the policy document for more clarity. The insured must inform and educate the nominee about the need to share the medical documents along with the policy document while making the claim.
Take good care of yourself
Just because you have a term policy does not mean that you can take the risk of indulging in habits that may adversely affect your health. Many people tend to start smoking after they have paid for the policy. Considering how the insured may have adopted certain habits after the policy purchase, there is no liability on their part to inform the insurance company of the same.
However, in exceptional circumstances, the insured company may cite this behaviour or habit as a pretext to deny the claim. The insurance company may also claim that the insured had lied to it about his or her habits while applying for the policy. This is possible in circumstances where the insured may have died of smoking or drinking habits or health issues stemming from any of them or both.
Also, many people are interested in participating in adventure sports and may have inadvertently missed out on informing about the same to the insurer. Sudden death due to a fall while venturing out into high-intensity activities or while participating in some outdoor adventure like skiing, trekking or mountaineering after the policy has been issued may lend enough ground to the company to deny the claim.
This explains why you must beware of hiding details of your health and hobbies while buying the policy. Though it is quite rare that the insurer will stall the policy after three years of having bought it, they can deny a claim citing fraud or submission of incorrect details.
Focus on enhancing your net worth
Do not rest or rejoice simply because you have bought a cover worth ₹1 crore. The value of money depreciates with time, which means that the value of a crore today may run into just a few lakhs after a decade or more.
Also, the depreciating value of money coupled with inflation means that the cover amount may not be enough to help your nominees sustain their regular lifestyle. What seems adequate will surely not be enough for tomorrow. This means that the insured must not be content with just taking a term plan. They must strive to increase their net worth by investing in diverse options such as equities, debts, fixed-income plans, commodities and real estate.
Also, if the insured had secured a loan or liability, say a home loan or any other, chances are that the nominees will have to use the insurance amount to repay the loan. This is another reason for the insured to keep working towards increasing their net worth.
Keep financial goals in mind, plan for retirement well and then decide which investment opportunities will help to gain persistent earnings in the long run.
Risk versus reward notion
Buying a term plan does not imply that one has escaped risk. Rather, there is an added risk of the claim amount being denied on unforeseen grounds. This is more so for those interested in buying term insurance focus only on the claim settlement ratio of the insurers. A high claim settlement ratio does not imply that the insurance company will honour the claim after 20-30 years. It simply means that it settles more claims when compared to other insurance companies. No matter how careful one may be, the risk of claim rejection always remains.
Hire a SEBI-registered investment advisor
Family members may not be adept at handling finances. Some may not be aware of how to claim the policy amount or invest it for better returns in the long run. Hire a professional SEBI-registered investment advisor who will guide nominees to parking the claim amount in the right investment options. Financially illiteracy is a bane in India. Even the most educated and elite are confused regarding where to invest and where not to. Seeking professional advice will ensure the correct utilization of the claim amount.
It is not enough to buy a term insurance policy. In fact, the whole purchase process is futile if the nominees are not able to use it well. Once you have bought the insurance, ask yourself “What next?” This will help you seek responses to various questions regarding your loved ones’ security and if only the insurance claim amount would be enough to secure their financial future.