A young information technology professional applied for an online term life plan from a private insurance company. At first the company accepted the initial premium from him. However, later he was asked to undergo a medical test, following which his application was rejected on the ground that he was suffering from high blood pressure and cholesterol. Eventually, he got an insurance policy from another company but at a much higher premium.
It is only in very extreme cases that a life insurance company rejects a policy. Generally, the company will offer the policy at modified terms, that is, at extra premium, says G N Agarwal, chief executive officer (CEO) and chief actuary, Future Generali Life Insurance. If the customer is suffering from a chronic illness, but not of a permanent nature, the company may advise the customer to apply after a few months. For instance, if the customer is suffering from cancer and is undergoing treatment, then the company may agree to give the policy after a few months, once the treatment is completed. This, too, will be at a higher premium. If a company has turned down your application, it is unlikely that another company will approve your application, since a policy is rejected only in the rarest of rare cases, says G V Nageswar Rao, managing director and CEO, IDBI Federal Life Insurance.
"Rejection is only in cases where the company feels that the person's health condition is very bad," Rao says. While buying a life insurance policy, in the application form itself you will be asked if you have applied for a policy earlier. Even if you have and it was rejected, it is better to disclose it. In such a case, it is possible the second company, too, may reject your application or may ask you for a much higher premium. But that is better than having your claims rejected, going ahead, on the grounds of non-disclosure of pre-existing ailments.
If another insurance company does approve your application, the premium could be much higher. It could be two to three times higher in case of a risk plan, while the difference might be lower in case of a savings plan, says Agarwal.
The company will charge higher premium depending on the ailment and the extent to which it is under control. For instance, if your diabetes is under control using oral medication, you may be charged a lower premium than one whose diabetes is under control using insulin injections. The difference between the premiums can vary between 20-50 per cent.
All companies offer policies up to a certain sum assured without asking for medical tests. This is called the non-medical limit and it varies depending on the age of the customer, sales channel and the kind of product. If the sum assured is within the non-medical limit, then the customer is not asked to undergo a medical test. He or she has to only answer the health questionnaire. Only if the customer answers in the negative is he asked to undergo a medical test.
Policies sold through bancassurance channel have a higher non-medical limit, while those sold through the agency channel have a lower limit. This is because the risk is perceived to be higher in the case of agency channel, since agents deal with a larger number of customers and also tend to hide facts about pre-existing illnesses, to ensure lower premiums for their customers. Similarly, in case of savings products, or products which are bundled with a home loan, the non-medical limits are high because the assumption is that people will not take a home loan, merely to get an insurance, says Rao.