Chapter 15: Claims
A claim is a demand that the insurer should make good the promise specified in the contract.
Under a life insurance contract, a claim is triggered by the happening of one or more of the events covered under the insurance contract. While in some claims, the contract continues, in others, the contract is terminated.
Let us take the same example with slight changes in the terms of the policy.
Krishna Kumar has taken a life cover of Rs. 2 lakhs with a critical illness benefits rider. Unfortunately, he suffers first-degree burns in a fire accident. He has to undergo skin grafting surgery.
Now a claim arises as a specified event under the terms of the policy has occurred
Claims are of two types. Death Claim and Survival Claim.
A death claim arises only upon the death of the life assured whereas survival claims can arise by one or more events.
Examples of events triggering survival claims are:
- Maturity of the policy;
- Instalments payable on reaching milestones under money-back policy;
- Critical illnesses covered under the policy as a rider benefit,
- Surrender of the policy by either the policyholder or assignee.
Let us look at the different risks covered under life insurance with different plans.
Claims Occurring during the Policy Term
Survival Benefit Payments: Periodical payments are made by the insurer to the insured at specified times during the term of the policy. The policy bond is returned to the policyholder bearing an endorsement of payments made after each survival benefit instalment.
Example: Ranjith has a money back policy of Rs. 1 lakh for 25 years. He received the first payment of survival benefit 4 years ago.
Surrender of Policy: The policyholder opts for a premature closure of his policy. This is a voluntary termination of the policy contract.
A policy can be surrendered only if it has acquired paid-up value. The amount payable to the insured is the surrender value. This is usually a percentage of the premiums paid. There is also a minimum guaranteed surrender value (GSV). However, the actual surrender value paid to the insured is more than the GSV.
Example: Vimal Varma has a life insurance policy of Rs.1 lakh for 15 years. He has paid the premiums for 5 years. Now he wants to discontinue with the policy, as he is moving out of country.Vimal Varma decides to surrender his policy and take the surrender value.
Rider Benefit: A payment under a rider is made by an insurance company on the occurrence of a specified event according to the terms and conditions. Under a critical illness rider, in the event of diagnosis of a critical illness, a specified amount is paid as per terms. The illness should have been covered in the list of critical illnesses specified by the insurance company.
Under hospital care rider, the insurer pays the treatment costs in the event of hospitalisation of the insured, subject to terms and conditions.
The policy contract continues even after the rider payments are made.
Example: Krishna Kumar has taken a life cover of Rs. 2 lakhs with a critical illness benefits rider.Unfortunately, Krishna Kumar suffers first-degree burns in a fire accident. He has to undergo skin grafting surgery. The claim has arisen as the specific event under the terms of the policy has happened.
Claims Occurring After Policy Term: The following claims occur after the policy term:
Maturity Claim: The insurer promises to pay the insured a specified amount at the end of the term, if the insured survives the plan’s entire term. This is known as a maturity claim.
Example: Anmol Sharma has taken a life insurance policy of Rs. 1 lakh for 10 years in June 1998. His policy matured in 2008 May. He received his maturity claim of Rs. 1 lakh and the accrued bonus amount.
Payment of Maturity Value
The maturity value of the policy depends upon the type of policy taken by the policyholder.
Verification before Making Maturity Claims
The insurer has to be convinced that all the conditions and requirements for settlement of claim have been complied.
Check whether all premiums have been received
Check whether any loan is taken and payment of interest and principal
Calculate bonus amount, if any
Check whether the policy has been assigned
Death Claim: The procedure for settling a death claim is relatively complex as compared to maturity claims.
In the case of death claims, the insurer gets intimation from the dependents or nominees of the insured who died. The insurer takes further course of action in settlement of the same.
If the insured expires during the term of his/her policy, accidentally or otherwise, the insurer pays the sum assured plus accumulated bonuses, if participating, less dues like outstanding policy loan and premiums plus interest thereon respectively.
The death claim is paid to the nominee, assignee or legal heir, depending on the situation.
A death claim marks the end of the contract because of death of policyholder.
The insurer takes action in a death claim after a demand is made. However, for a maturity claim, no demand from the policyholder is required.
Types of Death Claim
- A death claim may arise:
- Early (less than three years policy duration) or
- Non-early (more than three years)
Early Claim : Claim arising out of early deaths within three years from the policy commencement calls for more scrutiny. Insurance companies have to investigate the facts relating to such early deaths.
Verifications before Payment of Death Claims
The insurer will check the following details:
Forms to be Submitted for Death Claims
The beneficiary needs to submit certain forms to the insurer to facilitate processing of the claim. They are:
Claim form by nominee Certificate of burial or cremation Treating physician’s certificate Hospital’s certificate Employer’s certificate
Certified court copies of police reports like First Information Report (FIR), Inquest Report, Post-Mortem Report and Final Report are required in case of death by accident
Death certificate issued by municipal authorities as proof of death
Repudiation of Death Claim: While processing a claim, the insurer may detect that the proposer has made incorrect statements or has suppressed material facts relevant to the policy. Then, the contract becomes void. All benefits under the policy are forfeited. Example: The claim may be repudiated, if the age is found to be different.
However, this penalty is subject to Indisputability Clause Section 45 of the Insurance Act, 1938.
This clause states that if a policyholder suppressed material facts, at any time up to 2 years from issuance of policy, repudiation can be done by insurer if material facts in proposal are false.
Presumption of Death: The Indian Evidence Act provides for presumption of death in cases where an insured person has not been heard of for 7 years. In this case, court orders to the effect that the person has been missing for 7 years should be obtained. On submission of the court order, the insurance company will process the claim.
It is necessary that premiums should be paid until the court decrees presumption of death. Insurers may, as a matter of concession, waive the premiums during the seven-year period.
Claim Procedure for Life Insurance Policy
A life insurance policy shall state the primary documents to be normally submitted by a claimant in support of a claim.
On receiving a claim, a life insurance company shall process the claim immediately. If there are any queries or requirement of additional documents, these shall be raised at one time and not in a piece-meal manner. This should be done within a period of 15 days of receipt of the claim.
A claim under a life policy shall be paid or be disputed giving all the relevant reasons. This should be done within 30 days from the date of receipt of all relevant papers and clarifications required.
In case of investigations and disputes, the insurance company shall complete such investigation at the earliest. This should be done not later than 6 months (180 days) from the time of lodging the claim.
Where a claim is ready for payment but the payment cannot be made due to any reasons of a proper identification of the payee, the life insurer shall hold the amount for the benefit of the payee. Such an amount shall earn interest at the rate applicable to a savings bank account with a scheduled bank (effective from 30 days following the submission of all papers and information).
Where there is a delay on the part of the insurer in processing a claim for a reason other than the one covered by sub-regulation (iv), the life insurance company shall pay interest on the claim amount at a rate, which is 2% above the bank rate prevalent at the beginning of the financial year in which the claim is reviewed by it.