Recently, we at Andromeda received a query mentioning the case of Mr. Rakesh who had paid premium to a life insurance company to buy a cover of Rs. 50 lakhs. Unfortunately, Rakesh died in a fatal accident within 15 days of paying the premium to the insurance company. On finding premium receipt in Rakesh’s papers, his wife approached the insurance company for the claim. But the claim was denied. It was only then that she realized that life insurance policy was not in existence as the premium was received only as a deposit (in fact the receipt issued by the Insurance company clearly indicated that the money was received as a deposit and that the risk cover had not yet started) and her husband had yet to undergo some specific medical tests required by the insurance company.
All that the wife got back was the premium amount paid by her husband. So all the careful planning by Rakesh to take an adequate life insurance for the safety of his family had come to naught simply because of his dilly-dallying approach towards completing the formalities for the life insurance policy.
Let’s try to understand why the claim was rejected
Insurance is a contract and a contract will be considered complete only when both parties agree to the terms and conditions of the contract. A contract always involves a mutual agreement between the two parties. In case of insurance, the first party is the person who is willing to be insured and the second party is the insurance company who will insure the person. When a person is paying a premium to the insurance company, then it simply means that the person is proposing the insurance company to cover him. Or to put in simple words, the person is willing to be covered by the insurance company and he shows this willingness by paying the premium. Now it depends upon the insurance company to agree to cover him or not.
The insurance company after receiving the proposal will carry out its underwriting process under which it will study the person’s financial and health conditions. Once it is satisfied, then only the insurance company will cover the person and issue a cover note (also called the First Premium Receipt by some Insurance companies) or the insurance policy to the person. The insurance cover starts only from the date of such cover note or insurance policy. In case the insurance company is not satisfied with person’s health or any other condition during the underwriting process, it rejects the policy and the premium amount is paid back to the person after deducting some charges.
These days a lot of policies are sold Online. One can buy a life insurance or a health insurance, product over the Internet by making the payment through a credit card or net banking. Once the premiums are paid, the insurance company sends a receipt of the premiums paid through email. This is only a receipt acknowledging the deposit of the amount. Some people may think that the insurance cover has started as the premiums are paid but actually, that is not so in all cases.
Depending on your age, the amount of cover sought and the details filled in by you, the company may require you to submit some further documents and/or go for medical tests. The policy is not issued till these formalities are done and the results are acceptable to the Insurance company. The risk cover starts only from the date mentioned on the insurance policy.
Please make sure that you send all the documents that are requested by the insurance company as soon as you make the payment of the premium for the insurance company to issue you a policy on time. In case you buy the policy offline, then you have to submit the documents along with the proposal form at the time of payment of the premium.
In case medical tests are needed, it is always advisable to go for the medical tests as soon as possible. Some insurance companies arrange for a person to come to your residence or else you will have to visit a nursing home or a hospital. Most insurance companies will require you to go to a specific medical or diagnostic center near your house but in some cases, you can go to any center accredited to the insurance company. The insurance company will also let you know the list of tests to be done.
In most cases facility of pick up for your reports is provided by the insurance companies, you should make sure these are picked up without any delay and is submitted to the insurance company. Please make sure that you get acknowledgment for the medical reports submitted by you. The insurance company may reject the proposal if they see some additional risks involved with the person. These risks may range from the person being overweight to the person suffering from some disease/condition that came out during the medical tests carried out for the insurance policy or they may ask for an additional premium to cover increased risks. If the additional premium is acceptable to you, you will need to provide your consent letter and the first year’s additional premium.
The most common mistake people make is of postponing the medical tests even after paying for the policy. The other being of not following up after the medical tests to make sure that the policy has been accepted.
So make sure you do not make these mistakes, or else your premium payment will go in vain, and thus you or your family will be left without getting any benefit from the insurance company.