Why do Term Insurance Claims Get Rejected?

by SMCIB on Wednesday, 26 April 2023

Why do Term Insurance Claims Get Rejected?

Term insurance is the simplest and most straightforward way to protect the financial futures of your loved ones. It is especially useful when you are the sole earning member of your family and your loss can cause them significant financial hardship.

Term insurance is a type of life insurance policy that promises to pay your loved ones a fixed sum of money if you pass away when the policy is active. This is known as the death benefit. Your family can use this money for their short-term and long-term financial obligations like loan repayments, house bills, education fees, weddings, etc. It is crucial to note that term insurance will not pay you anything if you survive the policy duration.

Now, let’s look at an example.

Sudhir is a 35-year-old individual. He purchases a term insurance policy with a sum assured of Rs. 1 crore for a duration of 25 years. He also takes a home loan to build his dream house and a car loan to purchase his own vehicle. And, he aims to settle these liabilities in the next few years.

Unfortunately, after two years of purchasing the policy, he passes away in a road accident. The burden of loan repayment gets shifted to his dependent family members. The claim amount from his term insurance policy will help them comfortably settle these pending loans as well as take care of their everyday needs.

So, his nominee raises a claim with the insurer. But, unfortunately, the claim gets rejected. It was found that Sudhir missed paying the premium in the second year of his policy due to which it lapsed. Since his family members were unaware of the same, they had to face a huge financial crisis.

So, whenever you buy a term insurance policy, it is important to know about the various reasons why a claim can get rejected to avoid any denials or disputes in the future.

In this article, we’ll deep dive into why term insurance claims get rejected. Let’s see!

Why do Term Insurance Claims Get Rejected?

There can be several reasons for term insurance claim rejection. Here are some -

1️⃣ Lapsed Policy

Once you purchase a term insurance policy, you need to pay the premiums duly to keep it active. If you fail to do so, your policy can lapse and all benefits under your will cease.

Insurance companies give you some leverage - if you miss a payment - in the form of a grace period. It can be called a ‘second chance’ to pay your premium and save your policy from lapsing. If you still fail to pay your premiums during the grace period, your policy will lapse permanently.

If your policy lapses, your nominee won’t be able to file a claim if you pass away during the policy duration. So, if you want your loved ones to live a financially comfortable life in your absence, make sure you pay your premiums on time.

Note: Set up auto-debit or standing instructions on your bank account to not miss out on your premium payment. This will automatically transfer your premium to your insurer without any delay.

2️⃣ Misinterpretation or Non-Disclosure of Information

Whenever you sign up for term insurance, you will be asked for -

  • Personal details like your name, age, address, educational qualification, occupation, etc.
  • Health details like your medical history, your family’s medical history, any underlying medical conditions you have, surgeries/treatments you have undergone, etc.
  • Various documents like Aadhar Card (proof of identity), income tax returns (proof of income), recent passport-sized photographs, etc. to support your application.
  • Information about any life insurance policies you already own and/or have owned.

It is important that you furnish true and accurate information and provide the insurer with the correct documents. Any sort of non-disclosure, misrepresentation, falsity, or withholding of information can lead to a claim rejection in the future. Your family’s future can be jeopardised as a result and you won’t even be around to help them out - defeating the entire purpose of buying term insurance.

3️⃣ Staying Unaware of Policy Exclusions

Every policy comes with certain exclusions, i.e., situations that will not be covered at any cost. These exclusions are mentioned in the policy document and it is important to read and understand them thoroughly. If you stay unaware of them, it might lead to a rejection of the claim.

Let’s take a look at some exclusions associated with term insurance policies -

Death by suicide or self-harm in the first policy year is the only exclusion
Now, when it comes to term insurance, the only exclusion is death by suicide or self-harm during the first 12 months of the policy’s inception. In such a case, your nominee’s claim will not be honoured. The insurer will return the premiums paid, minus taxes, to your nominee. Apart from this exclusion, a term insurance plan covers all types of death.

Waiting period under the Saral Jeevan Beema Policy
If you have purchased a Saral Jeevan Bima policy, you will be required to serve a 45-day waiting period before the coverage begins. Saral Jeevan Bima also comes with the suicide exclusion we discussed in the above point.

Exclusions imposed by riders
A rider is essentially an add-on that you can opt for along with your base policy to enhance your coverage in certain situations like a critical illness, accidental disability, etc. You have to pay an extra premium for it. Rider may come with additional exclusions and may not always cover the situations covered by your base policy.

So, it’s extremely, extremely important to go through your policy document and understand what it covers and what it doesn’t. Educate your loved ones, especially your nominee, about the same. This will help them avoid any future hassles or disputes - if they ever have to raise a claim.

4️⃣ Documentation Issues

When your nominee makes a claim, they will be required to fill out the claim form and submit the required documents to support the claim request. The insurer may even ask for additional documents. The insurer will then assess and verify the form and the documents. If they find everything to be okay and in order, the claim will be processed. However, if the documentation is incomplete, inaccurate, or doesn’t provide sufficient evidence to support the claim, the insurer can reject the claim request.

For instance, Jonita is the nominee of her husband’s term insurance policy. He passed away recently. So, Jonita makes a claim under the policy and submits the claim form along with the required documents. The insurer asks for the policy copy as an additional document, but she misses out on the communication and fails to submit the same. And so, her claim gets rejected.

Remember that the documentation and claim process may vary across insurers. So, when you purchase a policy, ask the insurer about the documents needed to raise a claim along with the steps involved in the process. Make sure you educate your nominee about the same to ensure a smooth claim process.

Note: Once you get the list of required documents, secure them in a safe place. You can also open an e-insurance account or an account on the Digilocker app to store them. Also, share the account details with your family so they can access all the documents.


A rejected claim will not bode well for your loved ones. It can cause them financial hardship and mental stress. And, it will defeat the entire reason for buying a term insurance policy. So while purchasing a term insurance policy, it's essential to read the policy document carefully and understand the reasons behind claim rejection. Educate your loved ones about the same to avoid any hassles in the future.

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