Last Updated on May 4, 2020 at 5:02 pm
Claim settlement ratio does not matter anymore from 2015 if your life insurance policy is at least 3-years old because IRDA has amended the section 45 of insurance act such that any life insurance policy which is at least 3-years old cannot be denied claim “on the ground of misrepresentation or suppression of a material fact not amounting to fraud“. Source: Applicability of provisions of Sec 45 of Insurance Act 1938 in various scenarios (thanks to Ramesh Mangal for the link).
Claim settlement ratio does not matter regardless of the age of policy simply because life insurance is an individual product. As long the applicant has been honest while applying, there is no chance of claim denial. I had recently showed that as LIC starts to process high sum insured policies, its claim settlement ratio can only come down: How to Buy a Term Life Insurance Policy. I had also shown that for private companies which have been in existence for a while, the claim settlement ratio is quite high: How to choose a term life insurance provider in 30 minutes!
In the absence of detailed claim settlement data based on the type of policy rejected and the reason for rejection, it is difficult to write a convincing article on why claim settlement ratio does not matter.
The amended section 45 act is a game changer. It effectively sends a message to a potential term life insurance buyer: Claim settlement ratio does not matter if your life insurance policy is at least 3-years old!
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
It is fairly obvious to everyone that withholding information could lead to claim rejection. The fear while buying was that claim could be rejected citing frivolous reasons. Both LIC and private life insurers are quite capable of this. See: The Games Life Insurers play! and why no insurer will hand life insurance claim amount on a platter!
With this amendment, IRDA has attempted to do away with this fear.
The amendment occurred in the winter session of parliament last year, but I came to know about it when there were 3 threads on this subjected yesterday at Facebook group, Asan Ideas for Wealth: One by Ramesh citing the above IRDA link and two citing a Value Research article on the subject.
Amended Section 45 of the Life Insurance Act
Section 45 (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.
Read the rest of the new Section 45: Incontestability
The flip side to ‘claim settlement ratio does not matter’
The amendment may only be outwardly buyer-friendly.
1. Fraud will increase. It is not insurer-friendly and they have made representations against this amendment.
Will this not encourage a person with high blood pressure or a smoker to not disclose these facts while applying in the hope that they will not die within the next 3 years so that their claim is not loaded?
2. Application procedure would become tougher:
Since they cannot investigate policies and to claim fraud, insurers will do their best to ascertain crucial information from term life insurance buyers at the time of buying. This means medical tests could be made mandatory to all and from a lower sum insured limit (don’t know if this gradually been implemented).
3. Policies will become expensive: My view is that this ruling could mean policies would become more expensive.
Before this ruling, insurers could use reject claims if material evidence is found to be suppressed regardless of policy age’. Thus, they had the ability to distinguish a ‘good’ policy (for which they do not have to pay up!) from a ‘bad’ policy(for which they have to pay up).
This distinction is no longer possible and therefore to cut losses (claims paid out from the premium pool), insurers could hike premium uniformly.
When IRDA said health insurers could not load policies based on claim history, they hike the premium right from the start. I believe the same can happen here and is fair from their point of view.
What should you do?
Now that claim settlement ratio does not matter,
(I) choose a term life insurance provider in 30 minutes! Get one from any company you are comfortable with.
(II) Consider these things to do AFTER you take a term insurance policy!
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)