I saw a thread on social media where a life insurance company was being criticised for seeking details from the employer of the deceased.
The argument was that “the employer did not pay the premium so he has no role to play”.
Please understand that life insurance is a social business where a group of us have got together a mechanism for risk transfer. If people make wrong and false claims, the social cost of insurance will go up. Let us get to the basics. If you want any insurance (in this case life insurance) you must fill the form yourself and be totally truthful.
When you lie on the life insurance proposal form, you are lying to your dependants. The life insurance company will just not pay the claim amount. This is the worst thing that you can do to your family. This is like cheating your family. Every question should be answered properly, truthfully, and should not be ignored. Questions like caste, marital status, whether a parent died before the age of 65 are important and should be filled honestly.
Let’s take an example. If a person takes a lifence policy without mentioning that he has diabetes. Let us say in 6 months he dies of a road accident, will the claim be paid? In the same example if he dies in a plane crash, will the claim be paid?
Well, in case of a road accident there will be a post mortem and it will reveal that he had diabetes - blood sugar. The insurance company can (and will) put forward an argument that diabetes impacted his eyesight and he did not see the truck in good time. However, the plane crash claim will be paid in full - there is not likely to be any post mortem, right?
When a person fills an insurance form he is only proposing. The insurance company sees the details and decides whether to convert the “proposal” to a “contract”. This means there can be no lie in the form. When the life insurance company gets suspicious about a pre-existing illness, they do have a right to seek more details. If they feel that the “policy holder” has lied in the form, they are likely to scream “fraud” and refuse to part with the money.
When a person takes a life insurance policy, the policy writer (the insurer) has full rights to access your past medical records. So if a person has had a longer track record of some illness, the life insurance company will investigate the past. This could mean talking to your family doctor, friends, colleagues. In some cases, they even appoint investigation agencies to help them.
Insurance companies even access clients’ general insurance details, where he may have made some illness related claims. Tips for policy holders to avoid trouble: Fill in the life insurance form in your own handwriting and be truthful. Also, make sure that the copy of the form filled in by you is attached along with the policy document and pay premiums 10 days in advance.
PV subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest C 40 a day’