My Insurance Insider and Finance Blog

Image via WikipediaIt was 26th July, 2000. Ashok Jain aged 42, an employee of Haryana irrigation department, had laid sprawled and knocked unconscious on the floor after being returned from his field work to home. Unfortunately Ashok was died from a heart attack.

Being grief-stricken, Kusum(Ashok’s widow) passed along a few months. The family literally had no savings, and she had two teenagers to raise alone. Fortunately, there was a life insurance policy Ashok had taken a month before his death. “We needed the money badly, because even my husband’s pension hadn’t started arriving,” recalls Kusum who filed a claim.

But, Kusum got yet another shock when insurance company refused to pay up. It reasoned that Ashok had been hospitalized with a head injury two years back which he did not mention in the policy’s proposal form. Thats why the company had the legitimate right to refuse a claim on the ground of non-disclosure of medical facts.

“The head injury resulted from slipping off the stairs. It had nothing to do with his heart attack. In fact, since the week long hospitalization after the fall, he had not taken a day’s medical leave,” says Kusum. Moreover, Ashok did not deliberately conceal the facts, actually it was the agent who had filled the forms.He just signed up in a way countless of Indian insurance consumers customarily do.

Life Insurance Corporation(LIC), India’s largest state-owned insurance company having about 80% of market share, had repudiated 8614 claims from April 2006 to March 2007, or 1.43% of all death claims field. Whereas, the private life insurers repudiated 1836 claims, or about 13.98% of claim. Experts argue that most of these were “early claims,” where the policy holder died within the first 2-3 years of taking the insurance.

As per the Insurance Act, once 2 years period get past, no claim can be denied merely on the ground of non-disclosure of material facts. It is the insurance company who has the responsibility to prove that there has been a deliberate suppression of a material facts such as a pre-existing ailment etc that affects policy-holder’s longevity.

But why do the insurers refuse to pay up? They are all because of frauds, false statements, and holding back the material or key medical information by the potential customers. Insurance business, just like other businesses, are driven by profits earn from premiums against underwriting insurance policies and without these vigilance insurers would be nowhere with such a huge early claims.

Apart from those above, Indian life insurers had the history of repudiate claims on flimsy reasons. There are some classic cases - When Atul Sheth of Ahmedabad died, he was happened to be insured for Rs.3.5 lacs. But unfortunately Atul had missed paying his last premium. And naturally Atul’s widow, Naina was denied her claim on the ground that the deceased had eaten bananas and pears ignoring his ayurvedic physician’s warning and accused Atul a man of “intemperate habits,” a term usually reserve for alcoholics. Fortunately, in both these cases, widows were paid up after Ahmedabad-based Consumer Education and Research Center(CERC) intervened.

But the things have been improved a lot after Insurance Regulatory and Development Authority (IRDA) came into existence in 1999 Non-disclosure of medical and material facts are the biggest single reason insurance companies used to reject life claims. Insurers have manytimes refused to pay claims even if the customer is not at fault. Chetan Patel of Ahmedabad had purchased a Janata Personal Accident Policy (for 20 years period) for a sum insured of Rs.4 lacs from a state-owned insurance company.

Chetan was electrocuted accidentally in October, 2006 when returning from a pilgrimage. But the insurance company denied to pay up his widow Geeta reasoning that the JPA policy had been made defunct in 2002. Though the company claimed that it had advertised that in the papers, but it did not intimated to Patels about it nor premium has been refunded. Geeta approached to CERC which won a similar court case earlier, and when the insurance company was referred to the old court order, claim paid up.

Here is an another case of Alpesh Patel, the same Ahmedabad resident. The newly married 23-year old who ran a video-shooting business was literally vanished on 5th January, 2004 on his way to work on his motorcycle. On the next day, Alpesh’s body was fished out of the Narmada canal. His bike was found on a bridge above.

Soon after his marriage, Alpesh had purchased two insurance covers totaling Rs.5.5 lacs. A.D.Patel, decease’s father had filed a claim, enclosing copies of the police report and death certificate that gave the cause of Alpesh’s death as “unexplained drowning.” The insurance company’s response was negative: “…as the deceased life assured committed suicide within one year from the date of the policy, the policy has become null and void in terms of policy contract….”

But Alpesh had been happy young man, and nobody who knew him would believe it was a suicide, maintain his father. The Patel filed a case with the District Consumer Disputes Redressal Forum, Ahmedabad, and won. But the insurance company has since appealed that verdict in the High Court.

Source:Reader’s Digest