Whoever is planning to buy term insurance, they have the biggest concern of whether the company settle the claim or not. So ideally, they look for the Claim Settlement Ratio. However, from now onward, you no need to concentrate that much on this raw data.
Recently, IRDA amended the Section 45 of the Insurance Act. This move totally relieved many of us from worrying of Claim Settlement Ratio. However, I feel that Claim Settlement Ratio of what IRDA publishes yearly is a raw data. It does not specify what type of products insurance company accepted or reasons for rejection. That is the reason believing too much on such raw data is not worth.
For example, LIC’s major business usually comes from traditional plans. In these traditional plans, sum assured ranges from Rs.1 lakh to around Rs.10 lakh. In such a situation, how can we believe LIC’s superiority of Claim Settlement Ratio and buy term insurance with LIC? You may easily understand this by looking at the amount of claim LIC accepted to numbers of claims it accepted.
Also, I mentioned many times that there are a million reasons for one’s death. In the same way, insurance companies have a million reasons for rejection. Therefore, the only thing, which in our hand is to make sure that, all data declarations will be perfect. This reduces the probability of rejection.
Now with the recent amendment to Section 45 of Insurance act, claim settlement ratio no longer a great criteria while choosing a term plan. So what this amendment is?
Few points of recent amendments are as below.
1) “No policy of life insurance shall be called in question on any ground whatsoever after the expiry of three years from the date of the policy, i.e. from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later.”
It says a lot. Even if you shared wrong information or hid some material facts, then also it is purely life insurance Company’s responsibility to dig deep and find out faults WITHIN 3 YEARS ONLY. After 3 years, they cannot question. Note the period of 3 years, it is from the date of issuance of the policy, or the date of commencement of risk or the date of revival of the policy or the date of a rider to the policy, WHICHEVER IS LATER. So let us say if you took the policy today and after a few years the policy lapsed due to non-payment of premium. However, you thought to renew it again and paid all dues. In such situation, this 3-year period starts from such revival date, but not from the original policy issued date.
2) “It is regardless of whether the claim has arisen or not and when it is intimated. Once this period of 3 years is over, the policy cannot be called in question.“
Let us say the death occurred within 3 years, but the nominee informed Life Insurance Company after 3 years. In such situation, whether the policy be called in question and may be rejected on the ground of misrepresentation or suppression of a material fact not amounting to fraud?
The new amendment clearly states that 3-year period applies to such policies also where the nominee intimated by late about the death of the policyholder.
3) “The 3 year period is not necessarily connected with death claims arising under the policy and is counted from the date of issuance of a policy or commencement of risk or revival or rider whichever is later. A Policy can be called into question within 3 years, even if there is no death claim.”
Means, it is purely life insurance company’s job to call for a question whether the claim arises or not.
4) “The revival of a policy is treated as a fresh contract and if the policy (revival) is called into question within 3 years of such revival, the premium collected from the date of revival of the policy to the date of repudiation is to be refunded along with all the admissible benefits accrued as on the preceding day to the date of such revival.”
Let us say your term insurance lapsed and you thought to renew. However, during policy revival Life Insurance Company found that there was suppression of material facts. In such situation, a Life Insurance company has to refund such revival premium and the policy gets cancelled (only in term insurance policies).
How these changes affect future buyers of term insurance?
1) No longer an easy process of buying-Life Insurance companies may start strict scrutiny of proposals. This may lead to rejection at an initial stage itself and buyers may find it difficult to easy ONLINE buying. Because insurance companies may ask for additional data or may request to undergo medical tests, even for small some insured proposals.
2) The premium will raise-Yes, because of this, buyers friendly initiative life insurance companies may increase their premiums. Because life insurance companies must compensate any such loss from all other insured. Therefore, they may raise the premium. (However, no need to worry for those who already bought).
3) Fraud may increase-As the insurance companies must not question the policy after 3 years, someone with minor health issues may suppress data.
4) No one will dare to lapse his or her term insurance-Because of this amendment, you notice that effective 3 years in case of a lapsed policy will again start from the revival date, but not from the date of issuance of the policy or the date of commencement of risk. Hence, there may be a decrease in lapsation.
5) Claim intimation may be intentionally delayed-Just to take advantage of this new amendment, someone may delay claim intimation. Let us say death occurred within 3 years, then to make sure that policy completes 3 years, nominees may delay claim intimation. This makes the insurance company not to question or reject.
The complete amendment can be viewed at “Applicability of provisions of Sec 45 of Insurance Act 1938 in various scenarios“.
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