Section 45 of Insurance Act says claims can’t be rejected in policies older than three years. Then why demand so many papers in such cases?
The Covid-19 pandemic has focused the spotlight on the life insurance industry’s death claim payment process. An example will illustrate its lacunae.
As part of the comprehensive financial advice our firm offers, we review clients’ risk coverage and recommend appropriate insurance policies, which they buy either directly or through an agent/brokers. Claim processing, too, is handled by the clients themselves or their agents/brokers.
Mahesh, a client, unfortunately, passed away recently and there was a death claim on his life policies. He had purchased three large term policies through an agent (one from LIC and two from private insurers) in 2013. He had been paying the annual premiums regularly. The agent was assisting in the death claim process with all three insurers. Our firm also assisted Mahesh’s spouse in the death claim process. Mahesh worked for a leading Indian IT company. He had been deputed to the United States two years ago, where he fell sick and expired.
Two months after his death, the death claim had still not been paid. When I dug deeper, I discovered that an extensive claim form plus the death certificate certifying the cause of death and hospital medical records had already been submitted.
But the insurers’ requirements did not cease there. All three demanded a “certificate” from the employer giving details like when the employee first reported the illness, his attendance and leave records over the past several years, and whether he had taken sick leave. The insurers also wanted details of all the medical reimbursements made by the employer over the past few years. Given the liabilities attached to any action by an employer, the latter was naturally reluctant to issue any such certificate. Nonetheless, it eventually relented and issued a certificate to help its employee.
All the three insurers also required “certificates” from the attending physician and hospital certifying things they had no knowledge of—like the contributory causes for the death, whether the patient has been treated by another physician in the past several years, etc. The physician and the hospital in the US flatly refused to provide any such “certificate” and asked Mahesh’s family to depend on the medical papers they had already provided.
Till the time of writing this article, all three insurers have still not paid the death claims.
I looked up Section 45 of the Insurance Act, 1938, which was amended in 2015, to reduce the hardships of families in receiving death claims. The section now states that a life insurer cannot deny a death claim “on any ground whatsoever” three years after the policy has been issued. Prior to this amendment, insurers could reject claims even in very old policies if they could prove fraud. As a natural corollary, it follows that life insurers should have an easy summary death claim procedure for policies older than three years.
Details of the death claim process for all life insurers are available on this link: https://bit.ly/3xycG4O. None of the 25 companies has a summary death claim process for old policies.
Truth be told, life insurers see themselves as investment-gathering companies rather than as protection providers. Otherwise, why would insurance penetration be measured as the ratio of insurance premium to gross domestic product (GDP), and not as gross life insured amount to GDP? The regulator must insist on a simplified summary death claim process for old policies.
Last I heard, Mahesh’s family was still struggling to get the hospital to issue a certificate. It is only a matter of time before someone drags life insurers to court. Once a court passes scathing remarks, the regulator will be forced to act on this issue.
The writer heads Fee Only Investment Advisers LLP, a Sebi-registered investment adviser