Rejection of insurance claims and how to prevent them

You must have heard people talking about someone’s insurance claim getting rejected. Though the claim settlement ratios of majority insurance companies are quite good, there could still be a possibility of a claim getting rejected.  Imagine a situation where you or one of your family members is hospitalised and an insurance claim you thought to work as a lifeline is denied?  It could be any grim situation like- a death in the family or a life threatening serious injury to a loved one, or a dear one fighting with a deadly disease causing financial trouble.  It becomes really painful to see someone very close to you battling for life or already dead and the only reliance in the form of an insurance claim just disappears. Learning later that it was because of a silly mistake on your part, the guilt might chase you for years to come. 

An insurance policy is meant to secure our future. Not only that, our family’s future also depends upon it. While getting insurance for a specific purpose, make sure that it covers the very reason behind getting it.  Otherwise it becomes a useless document adding to your stress when financial help is needed the most.

Any contractual agreement should not be executed blindfolded. You need to be very alert whenever you sign a document. Insurance policies are no exception and they involve a contract between the insurer and the policyholder. One mistake and the entire exercise to secure your life against many possible dangers, vanishes into thin air. 

There was an incident which took place earlier this year and got circulated on social media. Accidental death of an insured occured. The insurance company rejected the claim on the grounds of difference in the capacity of the two wheeler insured was riding on and the one covered under the contract. Death happened due to a head injury when the insured was riding a 346 CC bike. The terms of the insurance policy did not cover a motor scooter over 150 CC. The claim was declined by one of the leading general insurance companies. An important clause like the capacity of the vehicle was perhaps missed or wasn’t explained to the policyholder.

Be it any renowned and established insurer or a new age Insurtech firms, all of them go by the terms of the policy laid down precisely in the brochure and other policy documents. The ultimate responsibility to read and interpret the document lies on the policyholder. The insurance company fixes its liability, prints all the details clearly and categorically. So before taking a final call, read it thoroughly, take help when you feel confused and only when satisfied, finalise the agreement. Remember, a friend or a relative or a commission agent can compel you to get a policy based on their judgement. Do your own homework before relying on anybody. Because if you miss anything, it will be your loss. 

Many insurance policies have an add-on cover to the base policy called riders like accidental riders, critical illness riders, etc. They too come with clauses. Read them carefully else you will end up getting an irrelevant insurance cover.  Specifically the inclusion and exclusion clauses call for fullest attention. The inclusion part might still be given importance but not the exclusion one. This article is concentrated on the exclusion clauses and the role of the insurance agents in buying a particular insurance cover.

To limit losses and refrain people from choosing irrelevant policy covers, insurance companies use ‘exclusions’. Exclusions are not covered by the insurance company. For example, if a person dies because of smoking, the nominee of the insured will not get anything as smoking related complications are specifically excluded or not covered by the insurance company. Such a clause limits the losses of the life insurance policy. Individual life insurance policies do not pay the sum assured in case the death takes place because of the exclusions and related conditions. 

In case of an accident death rider where the insurance company promises to pay an additional sum assured if the life-assured dies in an accident. Now if the death happens due to the assured’s drinking habits or his participation in a car racing event, the company will decline to pay. There are a list of such exclusions along with the waiting period which is also a type of exclusion. 

You should always pay attention to the particulars given under the heading” Your policy does not cover”. Read both general and specific exclusions. 

Some general exclusions are given here though they vary from one policy to another:

1. Any bodily injury or sickness which is caused 

• Intentionally
• Due to civil war
• Under the influence of alcohol or drugs
• Due to driving two wheeler of more than 150 cc
• Due to AIDS/HIV 
• Due to active participation in violent labour disturbance and or public disorder
• Participation in hazardous sports are clearly excluded from the health insurance policies. 

2. Pre-existing medical conditions: While applying for insurance, the insurer wants you to be aware of the illnesses not covered by the policy, in case they are already existing. Sometimes if the health insurance provider agrees to cover the pre existing condition, it is subject to a waiting period of about two to four years before the ailment is covered. The time span from buying a policy to when it starts covering you is called the waiting period. 
3. Injuries resulting from a suicide attempt: Most health covers do not cover the injuries inflicted to one when there is a self-harm or suicide attempt. 
4. Cosmetic treatments: Majority of insurance providers exclude cosmetic treatments. Joint replacements and dental surgeries are also the most common exclusions. A plastic surgery which is required after an accident or injury is however covered.
5. Therapies: Therapies like naturopathy, acupressure etc are well-known exclusions.
6. Waiting period: A life insured has to understand the applicability of the waiting period clause. Different policies have different waiting periods. It can be a minimum of one to two years for pre-existing illnesses. Pre conditions like hernia, osteoporosis and ENT related disorders also have one to two years condition. Some companies offer coverage with time limits or partial coverage clauses. 
7. Abortion and pregnancy: Abortion is not covered due to the legality involved. Pregnancy is also usually excluded. 
8. Supplements which are not part of treatment and are brought externally get excluded. Registration fees, service charges, admission fees etc are also not covered in health insurance policies. 

All the major and popular companies provide exclusions for riders. As these policies are add on covers, there shall be specific exclusions given for them in the brochure or the policy::

Personal accident cover–

For In-Hospital Expenses

• Any usual and reasonable In-hospital medical expenses before the period of insurance
• Any dental work
• Any claim caused by or arising from or due to Sickness of any and every kind.

Emergency Medical Expenses

• Any medical expenses incurred where an insured journey is undertaken against the advice of a qualified licensed medical practitioner.
• Any medical expenses incurred when the specific purpose of a journey is to receive medical treatment or advice.
• Any medical treatment, drugs or medicines, prescribed or applied, before the period of insurance.  
• Any dental work

Surgical expenses

• Congenital anomalies and conditions arising there from
• Pregnancy, childbirth, miscarriage or abortion or any female organs disease.
• Any hospital, surgical treatment or surgical procedure as the result of sickness within ninety days of the policy effective date.
• Cosmetic or plastic surgery, except as the result of an accident.
• Any infection occurring during in-patient care
• Any hospital, surgical treatment or surgical procedure on adenoids or tonsils within one hundred eight days of the policy effective date.

Temporary total disablement

• Any ransom amount
• Any amount paid to an informant or informants.
• Any fraudulent,dishonest, or criminal acts of the insured person
• Any insured person being kidnapped by an immediate family member.
• Any kidnap occuring in South America, Mexico or the Philippines

Reconstructive surgery

• Any reconstructive surgery not performed by a fully registered and licensed cosmetic surgeon.
• Any reconstructive surgery an insured person elects to have. 

Exclusions for the accidental death rider-

• The policy must be in force on the date of the accident.
• Death occurs within 180 days of the occurrence of the accident.
• The benefit is available only for the policyholders that are under 65 years of age.
• Benefits equal to the sum assured of the base policy subject to a maximum of a certain amount will be payable in case of claim.( this amount differs from policy to policy by various companies)
• Death due to aerial flight

Critical Illness cover exclusions

• STDs other than HIV/AIDS
• External congenital conditions
• Any pre-existing disease
• Intoxication by alcohol or narcotics or voluntarily taking or using any drug, medication or sedative unless it is an ‘ over the counter’ drug, medication or sedative taken according to package directions.
• Nuclear,biological or chemical contamination known as NBC

Over and above the above conditions, there is a list of conditions specifically meant for heart and cancer diseases. Read them carefully. Few describe the stage and type of the disease. A sample of exclusions are listed here:

• Pre-existing diseases that are diagnosed by a physician within 48 months prior to the effective date of the policy issued by the insurer for which medical advice or treatment was recommended by or received from a physician within 48 months prior to the effective date of the policy or its reinstatement.
• Any investigation or treatment for any illness, disorder, complications or ailment arising out of or connected with the pre-existing illness shall be considered part of that pre-existing illness.
• Benefits shall not be payable for any conditions which are a direct or indirect result of any pre-existing conditions unless life assured has disclosed the same at the time of proposal or date of revival whichever is later and the company has accepted the same. 
• Any illness due to a congenital defect or disease which has manifested or was diagnosed before the insured attains aged 17.

Stand alone personal accident cover

• Death occurs when the insured is not driving
• Death or disability while driving under the influence of drugs/alcohol
• In absence of a valid driving license, the car insurance goes out of action. 

There are conditions for waiting periods too. A critical illness diagnosed in the waiting period will not be paid. So that people who are aware of their critical illnesses can be prevented from purchasing such rider plans.  Survival period is the number of days after making a critical illness claim that the insured must survive to get the benefit. Usually a waiting period is 90 days from the date of risk commencement.

Role of Insurance agents

Another very important point for the people in general is not to get misled by the insurance agents. They are the ones who are in a hurry to sell their products without explaining the crucial details pertaining to the policy they are selling. Who suffers is not them but the clients/policyholders. Agents get commission for getting more and more clients, naturally they do not bother about what happens to policyholders in the worst scenario. 

Why you should be vary of the techniques employed by the insurance agents and not fall prey to their false presentations and promises:

Ordinary people do not have the time nor the resources to do research about the kind of policy they decide to take on the basis of the insurance agent’s promises. Often they land into trouble when they find out later that those promises were fake and they have been tricked just to get business by those agents. Here is how misleading these selling techniques could be-

Giving a pink picture about the policy coverage: This is perhaps the most common technique employed by agents to get more clients. Accident and health insurance policies are misused to get more clients. They seldom explain the conditions/exclusions that could make the entire claim void. Right from filling the form, the agents hardly care about details of what their clients are declaring therein. The potential policyholder could be involved in some adventure sport, or may be a smoker or an addict of some kind. If such a person falls sick and gets admitted to a hospital, the facts will get revealed. Most of the insurance policies do not cover illnesses happening because of certain conditions and habits. Obviously the insurer will refuse to process the claim if any of these  reasons were present causing the sickness. As discussed earlier, certain types of hospital claims are not payable. Suppose there was a preexistent illness before getting the cover which specifically excludes claims made on those grounds. Misrepresentation by agents regarding coverage will make the client get a false impression that everything is included in the policy. The facts remain undisclosed. Disputes and fights are only the next possibility on the top of the practical difficulties faced by the policyholder. 

Providing false information about premium: In order to provocate the potential clients, agents do not clearly discuss premiums to be paid. They just elevate the picture to be larger than what it really is. Insurance is a matter of duty on the part of both the parties, namely the insured and the insurer. The former has to make a full and timely payment of premium, only then the latter will undertake to fulfill the responsibilities. The policyholder needs to understand the gravity of the situation in case there is a failure on his part to make timely payment. Discussing the duties of both the parties are not given due weightage by agents. 

Failure to explain the terms of the policy: Agents fail to highlight the exclusions, sometimes they even fail to explain what exactly is the benefit of getting an insurance policy. When an individual pays a cost, the returns too need to be explained. The insurance cover and  the payment of premium are directly related. You cannot expect to benefit manifold by paying a meagre amount by way of premium. Depending upon the clauses and time period of the policy, returns are correlated. There is a minimum period for which the policyholder has to pay premiums. Actual annual returns must be checked against the premium payment term.  Agents overlook the need to specify this period.

Making a policy look better than investment: This is yet another way to trap potential clients. Alongwith the health and other benefits, the agents represent a policy to be beneficial more than a regular investment. People also do not understand that the basic idea behind an insurance cover is to protect them in case of certain eventualities and they are not meant to earn you returns or income or anything else. They cannot be substituted for investments. Insurance companies take risk against payment of premium and it is a mutual benefit contract.

Now having said what can happen when the agent is hurriedly selling you an insurance product, It is better to hire a professional who can make you well versed with all the particulars of the policy, both the inclusions and the exclusions. Because without understanding the terms of the policy, the outcomes could get heavily affected.  

The importance of hiring a professional/fee based investment advisor/consultant

Whether to hire a commission based agent or a fee based advisor is a debatable issue. There are a few apparent advantages of hiring a professional consultant over a regular commission agent. 

Fee based insurance advisors provide quality services which will save an individual from many potential conflicts. They charge a fee for their work and in exchange they review the facts of the specific insurance proposal that might have come from agents or by the buyer himself. They suggest the best course of action and in particular what kind of policy is relevant in your case. Their advice is not driven by the urge to sell their product like that in the case of an insurance agent. Fee based advisors work to interpret and make you understand what’s the best option available or applicable in your case. Their action is not tainted by any selling motive. Rather they work for you and suggest the most suitable product. They personally do the research work according to client specifications and when the clients are unaware or half aware about any situation, they give them fullest information on the subject. They are professionally equipped to analyse the policy terms and conditions. 

The process of analyzing can further be filtered by assigning them the task to focus only on the policy which you have chosen, instead of going through a number of similar options. That way you can save your money and time by doing so. Their fees are based on the complexity of the advice you need.  Simply reviewing a policy will cost you less. For all the expert advice and extra work, the fees will be higher. 

As compared to the risks that a policyholder may have to face because of a sales-enthusiast commission agent, hiring an expert fee based consultant is a far better and much more advisable option. In the long term at least there is a guarantee that you will get paid as per your understanding of the policy because you have taken a well thought decision. If the consultants have good relationships with the insurer, they can get you some discount. Other administrative work also becomes smooth because of the consultant. The cost of hiring may look higher but the surety, relaxation and ease of the process is worth giving it a shot.  

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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