INSTITUTE OF MANAGEMENT STUDIES DAVV INDORE

MBA (FA) IIIRD SEMESTER - FA303C

INSURANCE AND BANK MANAGEMENT

CLAIM MANAGEMENT IN LIFE INSURANCE

 When making a decision on buying the life insurance, customer consider large number of
factors like pricing of the product, its features, likely return, tax benefit etc.
 Though all these factors are important, one very important aspect is how insurance company
handles and settle the claim
 If the nominee is not able to receive the claim amount in a reasonable time and with ease, the
very purpose of taking insurance is defeated
 Though IRDA has laid down broad guidelines on claim settlement , how quickly and efficiently
the staff handle the proposal is equally important.
 What is claim
 A claim is a demand that the insurer redeem the promise made in the contract. Insurer now
has to perform its part of contract by settling the claim, after satisfying that all the terms and
conditions of policy are being met
 There are 3 main types of claim – maturity claim, survival benefit payment and death claims.
 IRDA Guidelines on claim settlement
 A life policy shall state the documents which are normally required to be submitted with by
claimant
 Life insurance Company to process the claim without delay. Any query or requirement of
additional documents to be raised at one time and not in peace meals, within a period of 15
days from the receipt of claim
 Claim shall be paid or disputed giving reasons, within a period of 30 days from the receipt of
claim. If investigation is required to be conducted by insurance company , it should be
completed within 6 months.
 Where claim is ready for payment but it cannot be made due to reason of no proper
identification of payee, the insurance company shall hold the amount and will pay interest at
savings bank rate.
 Where delay is on part of company in processing the claim form, interest will be paid at 2%
above prevailing bank rate.
 Maturity claims
 Some life insurance plans, such as endowment plan and whole life plans, promise to pay
insured a specific amount at the end of plan if they survive for entire term. This is known as
maturity benefit amount or maturity claim.
 Amount payable on maturity is sum insured + any accumulated bonus – outstanding premium
and interest thereon.
 In some term policies at the completion of term premium is returned “return of premium (ROP)
“ plans
 In case of ULIPs the insurance company pays fund value as maturity claim at the end of term
plan.
 In money back policies, maturity amount minus survival benefits received during the term of
policy.
 Action on maturity claim is normally initiated by the insurance company itself.
 Insurance company knows from its own record which policy is maturing each month.
 Insurance company normally sends an advance notification to the person insured.
 Insurance company will than take necessary steps and asks for documents from the
concerned policy holder.
 Insurer is expected to make the payment on maturity date by post dated cheque or obtaining
mandate and directly credited bank account of customer.
 If the policy is reported lost, then payment can be made on the basis of indemnity.
 If the policy is assigned, it is prudent on the part of insurance company to first check that the
assignee has no outstanding claim.
 Survival benefit payments
 The process of survival benefit payments is similar to payment of maturity claims.
 Action here also will be initiated by the insurer
 A post dated cheque on direct credit to bank account through mandate is followed.
 Death claims
 The process unlike maturity and survival benefit payment, is started by the claimant.
 The claimant will advise the insurance company about the death of insured.
 Insurance company will then wait for relevant documentation, check the documents and will
further investigate if deemed necessary.
 Once the insurance company is satisfied about claim, he will settle the claim and will send the
sum insured to nominee or beneficiary within a reasonable time.
 Procedure for settlement of death claim
 After the death of the insured, the intimation about his death to reach insurance company
through nominee, assignee, relative, agent or employer.
 Notification of death is not enough; the insurance company need proof – death certificate.
 The claimants statement is recorded
 Proof of identity of nominee
 Claimant should inform – his relationship with deceased, original policy and details of policy,
date and place of death, cause of death, sum assured etc.
 All premium has been paid
 Discharge form from nominee
 If assignment is done, proof that nothing is payable to assignee.
 Presumption of death
 Proof of death is essential for a claim to be settled. However, sometimes a person is reported
missing without information and whereabouts are not known. As per Indian Evidence act 1872,
it is presumed that if individual has not been heard of for 7 years is presumed to be dead.
 Insurance company in case of doubt may ask nominee or heirs to approach court for decree

 Insurance company should be more cautious if

- The notification of death is received from a stranger and not from family members
- Too many enquiries about progress in settlement of claim
 - If notification of death is received 3 years after the death.
 Early Death claim
 If claim occurs within 3 years from the date of risk is classified as an early death claim.
Additional requirements are:
- A statement from last medical attendant of deceased
- Statement from hospital if admitted before death
- Statement from person who last attended the deceased and who sent dead body
- If the life insured had an unnatural death, such as an accident, by suicide or by unknown
cause – copy of First Information report (FIR) should be obtained.
- Post Mortem (PM) report and forensic report depending on, if taken out.
 Rider Benefits
 Payment is made under a rider on occurrence of specified event which may be
 Accidental death benefit
 Critical illness
 Hospital care
 Valid and invalid claims
 Claim is considered a valid claim when following things satisfy:
- Insurance policy is in force
- Insured event has taken place
- Original policy document, other valid documents and a completed claim form has been
submitted
- Has the policy holder performed their part as to age admission, disclosure of all material
facts etc.
- Claim has been received from right persons (can be nominee or legal heirs)
 Invalid claim
 After investigation insurance company may conclude that it does not need to make payment
because the claim in invalid. There can be 3 main circumstances in which this condition may
arise.
- The policy is not in force
- Excluded condition applies – if the death is caused by something excluded from cover
under the policy for example death due to suicide.
- The claim is fraudulent
 Void contracts
 A contract if found to be void will not be required to be honored. For example
 The contract was done by a drunken person and was not capable entering the contract at that
point of time or person was of unsound mind.
 Insurance has been taken out in support of some Unlawful activity
 If there is no insurable interest attached to policy.

Prepared by:
Arvind Paranjape, CAIIB
paranjape.arvind@yahoo.com 9425067026