Cover for natural death begins after the initial waiting period ends

The National Consumer Disputes Redressal Commission (NCDRC) ruled in a recent case (Sophia & Anr. vs State Bank of Travancore & Anr.) that the rejection of a claim in a home loan-linked insurance cover was justified because the insurer had died during the initial waiting period. However, the NCDRC also took cognisance of the 97-day delay in issuing the policy after the proposal form and premium had been submitted. Hence, it upheld the State Commission’s ruling, which enjoined the insurer to pay the loan amount already disbursed, but not the full sum insured.

 

Understanding initial waiting period

 

Some life insurance policies have an initial waiting period, and others do not. “There is no initial waiting period in term policies. Coverage begins from the date of policy issuance. The nominee receives the death benefit if the insured dies from natural or accidental causes after this date,” says Varun Agarwal, head of term insurance, Policybazaar. Most term policies, however, exclude death by suicide during the first year.

 

Saral Jeevan Bima, the standardised term product introduced by the insurance regulator, has a 45-day initial waiting period during which only accidental death is covered. Many home loan protection plans also have a 45-day waiting period for non-accidental deaths. Riders attached to these policies may have their own waiting clauses.

 

The initial waiting period is meant to safeguard against moral hazard. Agarwal says a person may buy a policy with the intent to harm themselves soon after, so that their nominee gets the benefit. “Indiv­iduals with known severe health conditions might purchase policies when death is imminent,” says Col Sanjeev Govila (Retired), certified financial planner and chief executive officer (CEO), Hum Fauji Initiatives, a financial advisory firm.

 

When does coverage begin?

 

Many customers assume that coverage starts once the premium is paid or the proposal form submitted. “Risk cover does not commence merely upon payment of premium or submission of the proposal form, but after policy issuance or the date explicitly mentioned as ‘commencement of risk’,” says Asav Rajan, associate partner, IndiaLaw LLP.

 

Govila adds that even post-issuance, full coverage — especially for natural death — may only begin in some policies after the waiting period ends. 

 

Issuance timeline

 

Under the Irdai (Protection of Policyholder’s Interests) Regul­ations, 2017, insurers must process life proposals within 15 days. “Any delay beyond this should be justifiable and should be communicated to the prop­oser. If the insurer needs add­iti­onal documents or clarification, the timeline pauses until those are submitted,” says Govila.

 

In case of delay after submission of all the documents and the premium, contact the insurer’s grievance officer. “If the response is unsatisfactory, escalate the issue via Irdai’s Integrated Grievance Management System (IGMS). You may also approach the insurance ombudsman or a consumer court,” says Deepika Kumari, partner, King Stubb & Kasiva, Advocates and Attorneys.

 

Sync cover with loan disbursal

 

In loan-linked policies, coverage must start before or on the date of disbursal. “To avoid a gap, coordinate with the bank and the insurer to ensure that the cover starts before loan disbursal,” says Kumari.

 

Borrowers may also opt for a term plan instead of a home loan protection plan. “Make sure its tenor spans the loan repayment timeline,” says Amit Kumar Nag, partner, AQUILAW.

 

Finally, in case of delay in issuance of policy, customers should immediately inquire and complain with the insurer. “As the above case shows, the NCDRC and the State Comm­ission did hold the insurer liable for delay,” says Nag. 

Three waiting periods in health insurance

 

* Health insurance policies have three types of waiting periods: initial, specific ailments, and pre-existing diseases (PEDs)

 

* The initial waiting period is generally 30 days from the policy start date, during which only accident-related claims are allowed

 

* Specific ailments like cataract, hernia, or knee replacement usually have a waiting period of 1-2 years

 

* PEDs such as diabetes, hypertension, etc., typically have a waiting period of 2-3 years

 

* Some new-age plans offer day one riders that provide immediate or early (within 30 days) coverage for PEDs

 

Source: Policybazaar