Picture yourself sailing on a ship in the middle of the sea. The ship has a lifeboat that is meant to save you in the event of an emergency situation. However, if the lifeboat fails to function properly during such a situation, it can put your life in danger.
The same holds true for life insurance as well. Life insurance promises financial protection for your family in case of unexpected events. However, there may be certain scenarios where your insurance policy will not pay the benefits. The loss of a loved one is a difficult experience that can leave families feeling emotionally vulnerable. The added stress of uncertainty about the payout of a life insurance policy can only compound these feelings of frustration and anxiety.
All your invested money will be lost forever. Plus, if your policy has a maturity benefit component, you will not receive the money as well if you survive the policy term.
In this article, we will discuss some common scenarios where your life insurance may not pay out.
First, What is Life Insurance?
When you purchase a life insurance policy, you sign a contract with your insurance company to provide financial stability for your family, in the event of your unexpected passing away. In exchange for this coverage, you are required to pay a regular fee, called the ‘premium’.
The insurance company promises to pay a predetermined sum of money to your nominees called the ‘sum assured’. This money can help your loved ones cover regular expenses, outstanding debts, and other monetary obligations.
Life insurance serves as a crucial tool for financial protection for your loved ones when you are no longer around. Certain life insurance plans also help you achieve long-term financial goals such as saving for retirement, funding your child's education, or their wedding.
In What Cases Does Life Insurance Not Pay?
The insurance company will not pay out benefits if -
1️⃣ Your Life Insurance Policy Lapses
When you purchase a life insurance policy, you should also understand the importance of making timely premium payments to keep the policy active. Regular premium payments are necessary to ensure that your policy remains active and you have continued coverage.
If you miss a premium payment due date, the insurance company will offer a grace period during which you can make the missed payment. However, if you fail to pay the premium within this period too, your life insurance policy will lapse. This means that the policy will stop offering coverage and all benefits will cease.
Now, you or your nominee will not be able to file any claims under the policy, which can leave you and your loved ones vulnerable to financial risk. To prevent this from happening, it is crucial to make timely premium payments under your life insurance policy.
Setting up auto-debit or standing instructions on your bank account is an effective way to ensure that your premiums are transferred to the insurer directly and on time. By taking such proactive steps, you can reduce the possibility of your policy lapsing due to non-payment of premiums.
2️⃣ Incorrect Details Are Provided
During the application process, the insurance company will generally ask for -
- Personal details such as your name, age, address, educational qualifications, occupation, etc.
- Health-related details like your and your family’s medical history, and any underlying medical conditions, surgeries or treatments you may have undergone, etc.
- Certain documents like Aadhaar Card to prove your identity, income tax returns to show proof of income, recent passport-sized photographs, etc.
You need to provide accurate information and relevant documents when you're filling the proposal form. In the event that you fail to disclose material information or provide false details, your or your nominee’s claim could be jeopardised.
3️⃣ The Claim Is Filed For Exclusions
Life insurance policies have certain ‘exclusions’ that can impact a claim. These are specific situations that the policy will not cover. One of the most common exclusions in life insurance policies is death by suicide within the first year of purchasing the policy. In this case, the insurance company will not approve the claim. Instead, the insurer will return the premiums (without taxes) to your nominee.
Except for the case of death by suicide within the first year of purchasing the policy, a life insurance plan covers all types of death. And, in the case of the Saral Jeevan Bima policy, the coverage starts after a 45-day waiting period.
Riders also come with exclusions. These are optional add-ons that can be added to your policy to enhance your coverage. And, to avoid any unexpected surprises during a claim, you have to be aware of the situations that are not covered under the riders as well.
Therefore, it is crucial to educate yourself and your family about the coverage and exclusions under the policy and riders. This can help you make sure that you or your nominee do not face any unexpected surprises while filing a claim.
4️⃣ There Are Documentation Issues
When it comes to making a life insurance claim, either you or your nominee will initiate the claim process. The insurer will then require you or your nominee to fill out a claim form and submit the required documents. Sometimes, they may request additional documents as well.
Once the verification process gets over, the claim will get approved and processed. However, if the documents are not valid or there are any discrepancies, the insurer may reject your or your nominee’s claim. You should also note that each insurance company has different requirements when it comes to documentation.
So, you should -
- Check with your insurer about the steps involved in the claims process when purchasing a life insurance policy. And, educate your nominee about the same.
- Ask the insurer for a list of the necessary documents required for a claim. You can gather all the documents and store them in a secure location. You could also consider opening an e-insurance account or creating an account on the Digilocker app. Make sure you share these account details with your family so that they can easily access the documents in case of your absence.
The primary objective of purchasing a life insurance policy is to shield yourself and your loved ones from possible financial adversities. Nevertheless, certain circumstances may prevent your insurance company from paying the promised benefits. It is crucial for both you and your nominee to be aware of such situations to avoid any impediments that may hinder the claim process.