Reasons why your term insurance application might be rejected

New Delhi: Many times, a company will deny a term insurance application even if all of the required documents and proofs have been submitted. There can be myriad reasons some of which we will explore in this article.

You cannot doubt the importance of life insurance in today’s financial planning. Having such a plan relieves you of the financial risk associated with death and provides your family with a much-needed buffer against unwarranted financial stress.

Buying a life insurance policy is not difficult. Of all the kinds of life insurance policies, term life insurance is the most basic of them all. It is a contract in which a life insurance company agrees to pay a specific sum of money to the nominees of the person who has purchased the insurance.

The premiums are low, but the sum assured is large. Because this is a high-risk product for insurers, the application process is lengthy and requires numerous documents and proofs. There are so many reasons why a term insurance policy application may be denied by the insurance company.

Not enough income

An individual’s income is used to underwrite a term insurance policy. The amount of the sum assured is determined by a multiple of the life insured's annual income. This multiple varies between salaried and self-employed workers. There is also a limit below which the insurance amount cannot be provided.

For example, if someone wants a 1 crore rupee term insurance policy but has no assets or supporting commensurate income, his or her insurance application is unlikely to be approved.

Occupational risk

Some occupations or jobs are more dangerous than others. Life insurance companies are hesitant to provide coverage to people who work in such occupations. Some jobs in businesses such as firecracker factories, hazardous chemical companies, electrical line installers, truck drivers, flight engineers, or any other occupation involving a high level of risk are typically denied coverage by insurance companies because they pose a higher risk than an individual working in a safer occupation.

Pre-existing health disorders

Because the likelihood of developing health complications is low in the early stages of life, obtaining term insurance is simple. The risk of contracting these diseases rises with age. Insurance companies conduct a thorough medical examination before issuing a policy.

If the disease or illness is discovered during the medical examination, the insurance company will either apply a loading (an increase in premium to cover the increased risk) or immediately deny the life insurance. The results of medical tests performed by insurance companies determine this. You must disclose all details about your health conditions to the insurance company to ensure that claims are not denied.

Involvement in hazardous activities

Extracurricular activities are also considered dangerous and increase the risk of death. Participants in mountaineering, base jumping, rock climbing, and other adventure sports may have difficulty obtaining life insurance.

Most insurance companies will insure scuba divers, for example, but it depends on the type of diving they do, the number of times you drive in a year, or the location and depth at which they usually dive. It is critical that the facts about these activities be made public.

Earlier rejection

Underwriting risks is the business of insurance. Each insurance company takes enormous risks by insuring lives at extremely low premiums. They are profit-making entities, and their job is to keep the risk to a minimum.

Individuals whose applications are turned down by another company raise the overall risk. However, the circumstances and reasons for the previous application's rejection would normally play a significant role in the new insurer's final decision.

It is critical to accurately disclose all facts in order to assist the insurance company in underwriting your policy. In most cases, insurance companies will apply loading (a premium increase) and issue the policy. This is still preferable to not having life insurance at all. There is no chance of claim rejection if the facts are disclosed.