CLAIMS AND SETTLEMENT
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Role
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Name
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Affiliation
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Principal
Investigator
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Dr.Gyanendra
Kumar sahu
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Asst.Professor
Utkal University
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Content Reviewer
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Dr.Gyanendra
Kumar sahu
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Asst.Professor
Utkal University
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Description of Module
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Items
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Description of Module
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Subject
Name
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Law
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Paper
Name
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Law
of Insurance
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Module
Name /Title
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Claims
and settlement
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Module
No.
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VI
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Objective: After reading this module, the
learners will have a clear picture of :
The
Insurance Policy is taken by the consumers to compensate them in the event of
happening of an unforeseen event. It is a hedge against unavoidable
circumstances.
Learning Outcomes: If the
insured does not suffer any loss no claim is paid to him. The premium is
charged on yearly basis and no accumulation takes place. However the scenario
is different in case of life insurance. If the insured dies during the policy
period he gets the sum assured along with the bonus accrued under the policy if
any. If the insured survives the policy period he gets the maturity amount
accrued under the policy. In this lesson we shall learn the various aspects in
settlement of life insurance claim.
Introduction
The
Insurance Policy is taken by the consumers to compensate them in the event of
happening of an unforeseen event. It is a hedge against unavoidable
circumstances. In general insurance the loss is payable only on happening of
some specific event. If the insured does not suffer any loss no claim is paid
to him. The premium is charged on yearly basis and no accumulation takes place.
However the scenario is different in case of life insurance. If the insured
dies during the policy period he gets the sum assured along with the bonus
accrued under the policy if any. If the insured survives the policy period he
gets the maturity amount accrued under the policy. In this lesson we shall
learn the various aspects in settlement of life insurance claim.
CLAIM
SETTLEMENT Payment of claim is the ultimate objective of life insurance and the
policyholder has waited for it for a quite long time and in some cases for the
entire life time literally for the payment. It is the final obligation of the
insurer in terms of the insurance contract, as the policyholder has already
carried out his obligation of paying the premium regularly as per the
conditions mentioned in the schedule of the policy document. The policy
document also mentions in the schedule the event or events on the happening of
which the insurer shall be paying a predetermined amount of money (S.A.). There
may be three types of claim in life insurance policies– 1. Survival Benefit
Claim 2. Maturity Benfit Claim 3. Death Benefit Claim We shall discuss
hereunder the details of each category of claims.
Survival Benefit :
Survival benefit is not payable under all types of plans. It is payable in
endowment or money back plans after a lapse of a fixed period say 4 or 5 years,
provided firstly the policy is in force and secondly the policyholder is alive.
As the insurer sends out premium notices to the policyholder for payment of due
premium, so it sends out intimation also to the policyholder if and when a
survival benefit falls due. The letter of intimation of survival benefit
carries with it a discharge voucher mentioning the amount payable. The
policyholder has merely to return the discharge voucher duly signed along with
the policy document. The policy document is necessary for endorsement to the
effect that the survival benefit which was due has been paid. The survival
benefit can take different forms under different types of policies.
Maturity Claim It is a
final payment under the policy as per the terms of the contract. Any insurer is
under obligation to pay the amount on the due date. Therefore the intimation of
maturity claim and discharge voucher are sent in advance with the instruction
to return it immediately. If the life assured dies after the maturity date, but
before receiving the claim, there arises a typical problem as to who is entitled to receive the money. As the
policyholder was surviving till the date of maturity, the nominee is not entitled
to receive the claim. The policy under such conditions is treated as a death
claim where the policy does not have a nomination. The insurer in such a case
shall ask for a will or a succession certificate, before it can get a valid
discharge for payment of this maturity claim. In case the policy has been taken
under Married Women’s Property Act, the payment of maturity claim has to be
made to the appointed trustees, as the policyholder has relinquished his right
to all the benefits under the policy. It is for this relinquishment of right
that the policy money enjoys a privileged status of being beyond the bounds of
creditors etc. If the maturity claim is demanded within one year, before the
maturity it is called a discounted maturity claim. This amount is much less
than the maturity claim.
Death
Claim If the life assured dies during the term of the policy, the death
claim arises. If the death has taken place within the first two years of the
commencement of the policy, it is called an early death claim and if the death
has taken after 2 years, it is called a non early death claim.
The documents required for payment of maturity
claim : (i) Age proof, if age is not admitted. (ii) Original policy
document for cancellation. (iii) In case assignment is executed on a separate
paper, that document has to be surrendered. (iv) Discharge form duly executed.
(v) Indemnity bond in case the policy document is lost or destroyed, duly
executed by the policyholder and a surety of sound financial standing.
The documents required for payment of a death
claim. (i) An intimation of death by the nominee or a near relative. (ii)
Proof of age if not already admitted. (iii) Proof of death. (iv) Doctor’s
certificate who attended the deceased during his last illness. (v) Identity
certificate from a reputable person who saw the body of the deceased life
assured. (vi) Certificate of cremation or burial from a reputable person who
attended the funeral. (vii) An employer certificate if any, of the deceased. If
the policy has been assigned validly or if there is a valid nomination in the
policy document, no further proof of title to the policy money is necessary. In
other cases, the satisfactory evidence of title to the estate of the deceased
is required from competent court of law. e.g. (i) A probate of the will, if a
will has been executed by the deceased life assured. (ii) A succession
certificate if no will has been left. (iii) A certificate from the
Administrator General, if the total amount of the estate left does not exceed
Rs. 2,000/-. In case there is a rival claim court’s prohibitory order may be
required to prevent the insurer from making the payment to the nominee as
mentioned in the policy document.
In case the life assured has disappeared Under
Indian Evidence Act, 1872, Section 108, a person who has
disappeared is presumed to be dead only if he has not been heard of for 7 years
by those who would naturally have heard of him, if he had been alive. The
claimant has to produce the decree of the court to the effect that the assured
should be presumed to be dead. The legal heirs are required to keep on paying
the premium payment till such court order is received failing which the policy
will be treated as a paid up policy.
In case the premature death claim In case
of a premature death claim, i.e. a death within two years of the commencement
of the policy, the insurer asks from claimant documents in order to eliminate
the possibility of any suppression of a material fact at the time of submitting
the proposal. (i) Hospital treatment details where the assured was
hospitalised. (ii) Certified copies of postmortem report (iii) The police
investigation report if death is due to an accident or unnatural cause.
PROCEDURE OF CLAIM SETTLEMENT Maturity Benefit If the policyholder lives
through the duration of the policy and becomes eligible to get the maturity
value it is called the settlement of a maturity claim. As the policyholder is
alive, the nomination is of no significance. Age is normally admitted at the
stage of the proposal. If it has not been admitted for some reason, it is
necessary to submit the age proof before the payment of the maturity value.
Much before the date of maturity the insurer sends the claim discharge voucher
which has to be returned duly signed and witnessed along with the policy
document for payment of the maturity value.
Death
Claim In case of the death of the policyholder at anytime during the
duration of the policy, the claim amount becomes payable to the nominee
mentioned in the policy document. The nominee or the nearest relative shall
send an intimation of death of the policyholder to the insurer stating therein
the fact of death, the date of death, cause of death and the place of death
along with the policy number. Insurer deals with the death claim differently on
the basis of the duration or the policy. If the policyholder has died within
two years of the commencement of the policy, i.e., acceptance of risk which may
be different from the date of commencement if the policy has been dated back it
is treated as “early or premature claim” and if the death has occured after 2
yrs of the commencement, it is treated as normal death claim. In a normal death
claim, that is if the life assured has died after two years of the commencement
of risk, the insurer, on being intimated about the death of the policyholder,
calls for the age proof, if not earlier admitted, the original policy document
and proof of death. The proof of death can be a certificate from the municipal
authorities under which cremation has taken place, or other local body like
death registry. The claimant generally is required to fill in a form giving
certain routine information about his title to the policy money and the
information relating to death, which is normally called a claimant’s statement.
Premature
claim It is a premature claim if the death has occurred within two years
from the commencement of the policy or the date of last revival, or medical
examination. The insurer takes certain precautions before making payment under
such a premature claim. It wants to satisfy itself that it is a genuine case
i.e., the correct policyholder has died and that the cause of death does not go
back to a date prior to the commencement of the policy. The duration of last
illness is of vital importance to eliminate any fraudulent intention. Last
medical attendants’ certificate, hospital report, burial certificate,
employees’ leave record, if he was an employee in a reputed firm etc, are the
different records examined and normally a senior officer is deputed by the
insurer to make on the spot investigation, through neighbours, colleagues or
doctor of the locality.
As the
revival of the policy is a de novo contract of insurance, the insurer would
like to verify whether the statement contained in the declaration of good
health given at the time of revival is correct. If such a statement is proved
fraudulent relating to a material fact, the claim, may be rejected. Life
insurance is a contract of utmost good faith and good faith has to be observed,
not only at the time of the proposal, but also at the time of the revival of
the policy whenever it is done. In case there is a rival claimant to the
insurance money, the insurer can get a valid discharge by paying to the
nominee. The rival claimant can approach a court of law which may order to stop
the payment till the case is finally disposed of. However if there is no
nomination under the policy, the insurer shall await a valid title through
either a will or a probate as a letter of administration or a succession
certificate. It may take quite sometime to get such certificate from the court
and in the meantime the family may suffer. A good agent therefore shall ensure
that there is a valid nomination or assignment. If there is an assignment, the
policy money is paid to the assignee. If there is a reassignment of the policy,
it is necessary that a fresh nomination is done, as assignment invalidates the
existing nomination. However, if there is a nomination in favour of the insurer
for taking any loan, the nomination is said to be unaffected subject to the
claim of the insurer. If the premature death has been due to an accident, it is
necessary to get a police inquiry report in lieu of the attending physician
certificate. Suicide, if it has taken place within one year of the beginning of
the risk, exempts the insurer from the liability of the payment of the claim.
The propensity to commit suicide is a moral hazard and is not expected to
continue beyond one year. If the policyholder disappears and he has not been
heard of for 7 years by those who would naturally have heard of him, if he had
been alive, he is presumed dead as per Sec 108 of the Indian–Evidence Act,
1872. However, it is necessary to keep the policy in force during this period
by payment of the due premiums on the due dates.
Claim concession
Normally, a death claim becomes payable so long as the policy is kept in force
by payment of due premium. In other words if the payment of premium is stopped
and the grace period expires and if the death occurs thereafter the policy is
treated as lapsed or paid up depending upon whether the premium has been paid
for less than 3 yrs or 3yrs & more. Under a lapsed policy no claim is
payable. In case of a paid up policy, only the paid up value is payable.
However, some companies provide certain concessions with regard to the claim
payment, if the policy has run for 3 yrs or more: 1. If the premiums under a
policy have been paid for a minimum period of three full years, and the life
assured has died within 6 months from the date of the first unpaid premium
insurer pays the full sum assured instead of the paid up value and only the
unpaid premiums for the policy year are deducted from the claim amount. 2. This
concession is extended to a period of twelve months and the full sum assured is
paid if the life assured dies within one year from the due date of the first
unpaid premium, provided the premiums have been paid for a minimum period of 5
years subject to deduction of the unpaid premiums for the policy year.
Ex
Gratia claim When a policy has not acquired paid up value
and claim concession rules are not applicable, nothing is payable in case of
death. However some insurers relax the rules in favour of the claimant. If the
premiums have been paid for more than 2 years and (a) the death occurs within
three months from the first unpaid premium, full sum assured with bonus, if
any, is payable ; (b) if the death occurs after 3 months, but within 6 months,
half the sum assured is paid ; (c) if the death occurs within one year from
first unpaid premium, notional paid up value is paid. Under the first
condition, the unpaid premium with interest for the policy year of death will
be deducted from the claim and no deduction is made in the other two
conditions.
CLAIM SETTLEMENT OPTIONS Most
claims are paid in single lump sum. In case of a small sum assured, this lump
sum payment may become necessary for immediate needs. (However, where the sum
assured is large the amount if paid in instalments would be a valuable aid to
the family maintenance). It is surprising that adequate attention is not paid
to this aspect of the settlement options either by the claimant, or by the
agent or the insurer. The settlement options as available are not competitive
in interest rates and therefore most claimants probably would not opt for it.
Lump sum payments are most likely to be spent much faster leaving the family
without the benefit of security. The family in the absence of the breadwinner
may not have the foresight and the ability to look to the safety of the capital,
rate of return, liquidity and ease of management of money. Many insurance
companies world over are facilitating the management of the claim by offering a
lot of options to the claimant. Life insurance can be described as the creation
of capital and annuities as a method of distribution of capital. Life insurance
companies therefore, can convert this capital into annuity payments as per the
needs of the claimant. An agent would do well to advise the widow in this
regard and help her to purchase a suitable annuity policy with this claim
amount so that the family can look after itself smoothly for quite sometime.
Annuities of various types are available, as has been discussed in the chapter
on “Life Insurance Products”. Lump sum payment, let it be remembered, does not
offer protection against the creditors of the beneficiary, while the payment
through annuity payment does. For beneficiaries, inexperienced in the art of
money management receiving guaranteed payments in instalment may be more
desirable.
IRDA REGULATION ON POLICYHOLDERS PROTECTION The
Insurance Regulatory and Development Authority has issued the Protection of
Policyholders’ Interests Regulations, 2002. This regulation states the matters
to be stated in the life insurance policy for the protection of policyholders
interests. It also lays down the procedure to be adopted towards the settlement
of claim under a life insurance policy.
Claims
procedure in respect of a life insurance policy (i) A
life insurance policy shall state the primary documents which are normally
required to be submitted by a claimant in support of a claim. (ii) A life
insurance company, upon receiving a claim, shall process the claim without
delay. Any queries or requirement of additional documents, to the extent
possible, shall be raised all at once and not in a piecemeal manner, within a
period of 15 days of the receipt of the claim. (iii) A claim under a life
policy shall be paid or be disputed giving all the relevant reasons, within 30
days from the date of receipt of all relevant papers and clarifications
required. However, where the circumstances of a claim warrant an investigation
in the opinion of the insurance company, it shall initiate and complete such
investigation at the earliest. Where in the opinion of the insurance company
the circumstances of a claim warrant an investigation, it shall initiate and
complete such investigation at the earliest, in any case not later than 6
months from the time of lodging the claim. (iv) Subject to the provisions of
Section 47 of the Act, where a claim is ready for payment but the payment
cannot be made due to any reasons of a proper identification of the payee, the
life insurer shall hold the amount for the benefit of the payee and such an
amount shall earn interest at the rate applicable to a savings bank account
with a scheduled bank (effective from 30 days following the submission of all
papers and information). (v) Where there is a delay on the part of the insurer
in processing a claim for a reason other than the one covered by sub-regulation
(4), the life insurance company shall pay interest on the claim amount at a
rate which is 2% above the bank rate prevalent at the beginning of the
financial year in which the claim is reviewed by it.
