The Games Life Insurers play!

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“Applying for term insurance? Be sure to be honest when you apply and disclose all relevant facts. Your (nominees) claim cannot be rejected” Does this advice sound familiar? I have offered it to others myself. The question is, is this advice correct?

The answer is ‘Yes’ but … there is no guarantee that the claim settlement will be prompt. There is no guarantee that the ombudsman will not be involved.

Some people think a medical test conducted prior to issuing a policy is the best way to ensure claims will not be rejected.  Medical tests have nothing to do with prompt claim settlement! In this case too there is no guarantee that the claim settlement will be prompt. No guarantee that the ombudsman will not be involved.

Here are a collection of bizarre claim settlement stories catalogued by the Insurance Ombudsman. These stories are from book 7.

  1. SBI Life rejects claim based on evidence from a Apollo hospitals doctor that deceased had medical conditions prior to issue of policy which were concealed at the time of application. Wife shows documentary evidence of onset of medical condition more than two years after policy inception. Deceased was never treated at Apollo hospitals!! Ombudsman directs claim be honored invoking section 45 of life insurance act (see below). It was a housing loan policy worth Rs. 6 lakhs. Since it was a decreasing cover the policy amt at the time of death would have been much less than Rs. 6 lakhs!

2.  ‘Aviva Life’ rejects claim based on minor sons statement that his father was treated for ‘some’ disease for last 5 years (prior to policy inception)!! Ombudsman invokes section 45. Aviva told to pay up.

  1. SBI LIfe rejects claims stating insurer suffered from pulmonary fibrosis prior to inception of policy without proof. Told to pay! No evidence of such illness on date of medical test or date of declaration of good health (or DGH see below)

4.Mother says son died of chest pain. Mother-in-law says it is suicide! LIC rejects claim based on mother-in-laws statement with no other proof! Told to pay.

  1. A person manufacturing illicit alcohol is assumed to be a chronic alcoholic. ‘Max New York Life’ rejects claim that alcoholism was suppressed while applying for policy without proof. Ombudsman directs claim be honored invoking section 45 of life insurance act.  Not relevant to everyone you think ? Perhaps only bartenders should beware?! Those who work on-site too (why?).


  • Who do you think got statements from the minor son, the irate mother-in-law? Insurers often employ private detectives to investigate claims.
  • Everyone the deceased ever made contact with is a potential source of damning information for the insurer. This could include your present and former wives/GFs. Present and former colleagues and neighbours. The guy who handles your leave (taken too much ‘sick’ leave?). The pharmacy guy from where you get your medicines.
  • Most of the examples in the ombudsman catalogues involves policies worth only a few lakh. Typical term insurance policies are worth tens of lakhs! Therefore … care to complete?

What’s the point?

Term insurance is taken for only one purpose: for the financial security of our family when we die. When we take the policy we assume that this financial security will reach the family asap. This is by no means a certainty. It depends on when we die and how we die. Even for ‘simple’ deaths of individuals with policies more than 2 years old there can be inordinate delays. Yes, yes if the deceased had been honest while applying (which is mere common sense) then there is no chance the claim will be rejected … by the ombudsman. There is no guarantee of early claim settlement.

The point is having enough life insurance and honestly applying for it is necessary for eventual claim settlement but not sufficient for hassle-free claim settlement.

Am I being paranoid? I call it pessimism. For a given situation I would like to understand all possible influential factors so that I can prepare myself and in this case prepare my nominee and family for the same. They may not take it seriously now but if I print this post and attach it to my policy document the message will get across when needed.

What more can be done?

  • Pray that we live for at least two years after the policy is issued! (read Section 45 and its corollary!)
  • Live a good dignified life. Treat everyone around us with kindness. There is a financial reason to do so!

DGH: The Declaration of Good Health requires no ‘physical deformity, mental disorder, critical illness or any condition require medical treatment for ‘critical illness’ as on the date of DGH’

Section 45 of Insurance Act 1938 – Indisputability Clause
No policy of Life Insurance shall, after the expiry of two years from the date on which it was effected, be called in question by an Insurer on the ground that a statement made in the proposal for insurance or any report of a medical officer or referee or friend of the Insured or in any other document leading to the issue of the Policy, was inaccurate or false, unless the insurer shows such statement was on material* matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policy holder and that the policy holder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose.

  • “Material” shall mean and include all important, essential and relevant information in the context of underwriting the risk to be covered by the corporation.

Corollary:  I am not a legal expert but to me section 45 implies, ‘if the policy is not two years old the insurer can dispute claim without proof’. Of course the ombudsman will offer judgment in favour of the nominee … eventually.

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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  1. Wonderful piece sir.
    Lots to learn and lots more to implement. But yes, it does make you paranoid when thinking of insurance and when reading such information more and more.

    1. Thanks Prasad. Lots to learn. Very true. The idea is not to be paranoid but at the same not live with a phony sense of security. Having a term plan is a good way to secure the financial health of our loved ones but we cannot guarantee about the ease of claim settlement.

  2. This kind of information make me think endowment plans are better… We can be sure that some thing will reach our loved one…

  3. hello, we took a term insurance for my husband – online.
    reading blogs about term insurance, everyone says that you should be mentioning about all the other insurance policies that you have – also, in this article, you mention about disclosing all the illness . But, while taking policy online, they just ask about your smoking habits – so how should be dealt with.
    sorry, if you feel like this question a bit foolish, but i am still new in this field so hope you would help me.

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