Published in Mint on Aug 16 2016
Most people buy insurance in three quick steps: give the agent a quick listen, sign off on the paper and store the policy away. Yes, insurance legalese makes for laboured reading, but ignorance is even more painful. You need to know your policy—the exclusions at the very least—to avoid rude shocks at the time of making a claim. We take you through some of the often-overlooked fine print in an insurance policy that lead to claim rejection. We look at two of the most popular non-life policies: health insurance and motor insurance.
You know that a mediclaim policy pays for hospitalisation expenses, and usually doesn’t cover pre-existing ailments in the first 4 years of buying the policy. So, any claim that can be linked to a pre-existing condition during this time can be rejected. “People usually know that a pre-existing ailment is not covered initially, but what they don’t know is that there are certain ailments that come with a waiting period, even if you are not diagnosed with any of it while buying the policy,” said Mahavir Chopra, director, health, life and strategic initiatives, Coverfox.com, an online insurance broker. For instance, ailments such as cataract, hernia or joint replacements (unless due to an accident) come with an initial waiting period of usually 2 years.
These are excluded initially to rule out fraud or a pre-existing condition. While most insurers cap the amount payable for cataract, some may also have sub-limits on other ailments.
“It’s important that policyholders don’t focus on premiums alone. They need to go through the terms and conditions, specifically through the sub-limits and caps relating to room rent, and specific ailments and procedures that create confusion and result in rejection of claims,” said Roopam Asthana, chief executive officer and whole-time director, Liberty Videocon General Insurance Co. Ltd.
Also, policies come with an initial waiting period of about 1-3 months before you can make a claim. This does not apply to accidents though. In the case of benefit policies, like a critical illness policy, where the policyholder gets a lump sum on being diagnosed with a listed critical illness, there is also a survival period. So, usually the insurer will pay the claim after the policyholder has survived for at least a month after being diagnosed.
It is important to understand the exclusions as they often become grounds for claims rejection. Chopra gives an example: “We came across a case where a pregnant lady was hospitalised on account of fever. Now, fever per se doesn’t need hospitalisation but as the patient was pregnant, and the doctor wanted to put her under observation. The claim was rejected on the grounds that hospitalisation was due to maternity, which was an exclusion in the policy.”
Even if your policy covers maternity, there are caveats that you need to plough through. “The maternity cover may cover only two children or require a large gap between the first and the second child,” said Kapil Mehta, co-founder, SecureNow Insurance Broker Pvt. Ltd.
Also, Chopra said the insurance company may choose to pay only for active treatment. “Active treatment means a means a patient is given medical care to improve her condition. So, if a patient is, say, on a ventilator even when according to the doctors she has no chance of a recovery, the insurance company may not bear that cost because this is not active treatment,” said Chopra.
Another important step to take is to renew your policy on time. “If you miss renewing your policy within 30 days, the insurer is not liable to renew your insurance. This is most relevant for people who have made a claim,” said Mehta. A break in a health insurance policy is problematic on many levels. You are treated as a fresh applicant, so you lose out on all the waiting period credits. What’s worse is that the insurer may refuse to insure altogether if you are critically ill.
Insurance is mandatory for all plying vehicles. But what comprises car insurance? The mandatory cover that you need to buy is called third-party insurance, which protects you from any financial liability in case your vehicle causes any damage to life or property of a third person. Third-party insurance usually comes wrapped up in a comprehensive policy that also comprises own-damage (OD) cover (this insures your vehicle against theft or damage).
Chopra said claim rejection in motor insurance is high because of low awareness. Keep a few basic things in mind. “A valid driving licence is important for anyone driving a vehicle as per law. So, if there is an accident and the driver didn’t have a valid driving licence, the claim will be rejected. The insurer is not liable to pay own-damage or third-party claims in this case,” said Asthana. “This is particularly true in the case of paid drivers. One must make sure they have a valid licence. Also, when a relative (or friend) borrows your car, make sure she has a valid licence,” he added.
The other common reason for claim rejection is when you bunch up claims. “When you renew your car insurance policy with another insurer, the new insurer will not cover any past damages. It’s a common tendency to bunch repairs and carry them out all at once,” said Asthana. Therefore it’s advisable to raise a claim as soon as possible.
Even if you renew the policy with the same insurer, past claims can be rejected. “Insurers may cover old damages from different incidents of damages within the same policy period, after applying suitable deductible on both incidents. However, they won’t pay for damages that are not from the same policy period, as the policyholder could have then wrongly benefited from the no-claim bonus. Insurers will however pay past claims if there is a valid reason for the delay,” said M. Ravichandran, president-insurance, Tata AIG General Insurance Co. Ltd. Deductible is the portion of the claim amount borne by the policyholder.
When you renew your policy with a different insurer, you can transfer the no-claim bonus (the discount you get on the annual premium if you don’t make a claim). This bonus is applicable on the premiums that apply for the OD cover. So, every year when you renew your policy, you get a discount—the maximum is usually capped at 50%—on the premium. Everybody loves the no-claim bonus but don’t overstate it when renewing with a different insurer. Chopra said that if the new insurer finds out you were not truthful about the previous no-claim, it can reject the claim by saying that you have not paid the full premium for your insurance cover.
Negligence is also a big reason why claims are rejected. “Insurers don’t pay a claim on account of negligence. Say, if your car was stolen when you forgot your keys in the car, the insurer will not pay for it,” said Mehta.
You also need to be careful when buying or selling a car. “Valid registration papers are needed. Else, the insurer is not liable to pay any claim,” said Chopra. Even if you were driving a second-hand car without getting it registered in your name, the claim will be rejected.
Buying insurance is not enough. To make it work for you, understand its exclusions and take steps to make the claims process smoother.