Situations when your client’s life insurance claim may get rejected

life insurance claim rejection

A claim under a life insurance policy is very meaningful for the family that loses its breadwinner. The claim helps in compensating for the financial loss suffered by the family in such case of premature deaths. As such, if it is rejected, it comes as a shock and a jolt to the bereaved family. Either the life insurance company is blamed for not honoring its promise or the agent is blamed for selling the wrong policy. What your clients overlook is the fact that the claim might have been rejected because of their own actions. There are very common reasons of claim rejections which, if avoided, would result in successful settlement of your clients’ life insurance claims. Do you know what these situations could be? Let’s understand –

  • Providing wrong or false information in the proposal form

The life insurance proposal form is the basis of your client’s life insurance contract. The insurance company assesses the risk and issues the policy based on the information that your clients provide in the proposal form. If any wrong information is provided or if any important fact is hidden from the insurance company and the claim occurs due to such hidden or false facts, the insurance company has the authority to reject the claim. Life insurance is a contract of utmost good faith and if your clients violate this faith, their claims would be rejected.

Example – Your client lies about his smoking habit when filling up the proposal form. If the client dies due to lung cancer or any other ailment caused due to smoking, the claim would be rejected by the insurance company.

How to avoid rejection? : Always ask your clients to fill up the form correctly and honestly. They should provide all the information about themselves honestly so that the claim is not rejected.

  • The claim occurred due to an excluded instance

Every life insurance policy excludes death which occurs due to specified instances. If your client dies due to such exclusions which are applicable in the policy, the claim would be rejected.

Example – If your client dies due to an accident which was a case of drunk driving or when participating in adventure sports, the claim would be rejected. Other instances of excluded deaths include death due to criminal activities, nuclear contamination, suicides, etc.

How to avoid rejection? : Help your clients understand the exclusions in their life insurance policies so that they avoid making claims for such exclusions.

  • Claims made under a surrendered or foreclosed policy

Surrendering a life insurance policy means terminating the policy before the chosen term comes to an end. When the policy is surrendered, the surrender value is paid and the insurance cover ceases to operate. Foreclosure, on the other hand, is termination of the policy by the insurance company when the outstanding loan and interest rate exceed the surrender value. In both surrender and foreclosure, the coverage stops. If a claim is, however, made under the policy which has been surrendered or foreclosed, the claim would be rejected because the policy would no longer be active.

Example – Your client took a loan in his life insurance policy and did not repay it. The outstanding loan and its interest was about to exceed the surrender value and so the company foreclosed the policy. The client died and his family made a claim on the foreclosed policy. The claim got rejected.

How to avoid rejection? : Ask your client not to surrender the policy as it provides coverage against death and helps his family face the financial loss. Moreover, if a loan is taken under the policy, ask your client to repay the loan on time to avoid foreclosure. If the policy would be active then a claim would be paid if the client dies. However, if the policy has been surrendered or foreclosed, your client should inform his family members so that they don’t make a claim in the policy and face rejection.

These are the three most common situations when a life insurance claim is rejected. You should understand these situations and educate your clients about them too. This would help your clients avoid claim rejections and get a full settlement of their claims.


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