Instances of motor and health insurance claims being rejected are common. If the insurance company does not reject your claim outright, it could ask for details such as medical reports, details of bills, identity proof and so on, which will delay the payment. But, if you thought such instances don't happen in case of life insurance, you are wrong.
A life insurance claim too, can be rejected in case the policyholder has not nominated anyone or in case the nominee has passed away earlier. While cases of insurance policies being issued without a nominee are rare, there are several cases where the nominee is also no more, say industry officials.
Hence, it is not only important to nominate, but also to update the nomination, says Vijay Sinha, senior vice-president, marketing and product development, Tata AIA Life Insurance.
Many of us buy life insurance policies early in our careers (more for tax saving purposes) when we are unmarried. In such cases, we might nominate our parents. Later on, when we get married we fail to update the nomination. So, it may happen that when it is time to claim the insurance money, both the policyholder and the nominee are not alive.
In case there is a dispute, then the family members have to produce a succession certificate to prove that they are the rightful heirs and claimants to the money. As this is a court procedure it could take time and until then the money remains with the insurance company.
"There is no way for the company to find out the status of the nominee. So, it is important that policyholders inform the company in case of an event like marriage and update their nomination," Sinha says.
If there is no nominee, there could be several claimants, such as spouse, parents, children and siblings. This can lead to legal disputes, especially if the amount involved is large.
Updating the nomination is a simple procedure and can be done by sending an email, going to a branch or speaking to the customer service unit of the insurance company. Yet, most people don't bother to do it due to sheer inertia, says A S Narayanan, chief distribution officer, Bajaj Allianz Life Insurance Company.
"Usually nominees are not changed as frequently as people change addresses. It happens only in case there is a change in the family situation. But, it is the same as a nominee for a bank account or a nominee for a property," he says.
In case there is no nominee and the spouse is alive, the insurance company might ask for relationship proof, such as marriage certificate. In case the spouse passed away before the policy holder and there is more than one child, then the company usually gives the money to one of the children, but after taking a no objection certificate from the others. "We ask the other child or children to sign an indemnity bond in favour of one to ensure that there is no dispute," Narayanan adds.
It is in case of disputes that the company insists on a court certificate or succession certificate.