Buying a term life insurance policy is must for an individual who has liabilities and dependents on him. Any financial plan would be incomplete without incorporating a term life insurance policy.
While we have already discussed about all the details regarding term life insurance policy and most of you must already have one to cover your life, the real problem arises during the claim settlement when the insured person is not around to see the chaos. It becomes very important to keep your family informed about the term insurance policy and educate them regarding the process of claim settlement when the time comes.
Here is everything you need to know about claim settlement in case of term life insurance policy:
Insurance companies segregates the claims into two categories
1) Early claim
2) Standard claim
1) Early claim: If the claim for a term insurance policy arises within 3 years from the date of policy, it is considered as early claim and thus warrants detailed scrutiny by insurance company. This is an area where process of claim settlement becomes very complicated because there is a lot of documentation involved in this. Also the investigation is thorough as insurance company doesn't want to settle bogus claims.
2) Standard claim: Any claim arising on a term life insurance policy after 3 years is considered as standard claim. In case of standard claims, there is a standard process that needs to be followed for claim settlement which is much easier than early claim process.
Let us now understand the process of claim settlement:
Step 1: Inform the insurance company about death of insured
The nominee or beneficiary of the policy should inform the insurance company about the death of life insured. The insurance company has to be informed with 3 months from the date of death. Nominee or beneficiary can visit the office of insurance company to complete this process.
Step 2: Submission of documents relating to claim settlement
- Claim form: Nominee has to submit a duly filed claim settlement for available on insurance company's website or their branch office. All the details must be filed accurately in order to avoid claim rejection
- Death certificate: The original copy of death certificate issued by government authorities along with an attested copy has to be submitted.
- ID proofs: ID proofs such as Aadhar card, PAN card, Passport size photos of nominees has to be provided for verification along with claim form.
- Policy document: Term insurance policy document is to be attached with the claim settlement form.
- Medical reports: If the insured was admitted to a hospital before the death then a copy of medical records of insured is to be attached with claim settlement form. This would include test reports, treatment and medications reports, discharge summary & doctor's certificates.
- Other documents: Depending upon the type of death, other documents such as FIR, Post mortem report, Autopsy may be required by insurance company.
Step 3: Assessment of claim by insurance company
Once all the documents relating to claim settlement are submitted to insurance company, The company will then assess the claim. All the documents submitted with be scrutinized to check for genuine claim. The insurance company may send a letter or email to the nominee in case they need any additional documents to process the claim. Keep in mind that in case of early claims, the process involves thorough checking of documents to ensure only genuine claim is settled.
Step 4: Settlement of claim
As per IRDAI rules, insurance company has to settle the claims within 30 days from the receipt of documents from nominee. However, in case any further investigation is required, the claim has to be settled within 6 months. After the assessment of documents submitted by nominee, the insurance company takes the final call on whether to settle the claim or reject it. If the claim is settled then amount of sum assured is transferred to nominee's bank account. If the claim is rejected then a letter/email regarding the rejection of claim will be sent to nominee stating the reasons for claim rejection.
Section 45 of the Insurance Act, 1938 states that an insurance company cannot question any life insurance policy on any grounds after three years of policy issuance. This comes as a relief to customers as they are assured of claim settlement under any circumstance once the three years period is complete. It is important to keep in mind that claims cannot be rejected on any grounds after completion of three years. Insurance companies have a clear conflict of interest while settling the claims. A customer should be aware about this rule and communicate it with the nominees so that they can get the claim amount without much hassle.
TIP: If you have taken a policy from your agent then make sure you share your agent's contact number with at least two of your family members. This will ensure that they have a point of contact handy in case of claim.
CA Rohit J. Gyanchandani is Managing Director, Nandi Nivesh Private Limited, A Pune based Wealth Management Company.
Follow the entire series on life insurance here.