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Wondering how does life insurance work in India? Well, life insurance policies generally offer two kinds of payouts to the policyholder or their beneficiaries. If the insured person passes away during the policy's tenure, life insurance payouts typically include death benefits paid to the specified nominee. On the other hand, if the policyholder survives the plan's tenure, the insurer pays out maturity benefits and bonuses, if applicable, to the insured.
The amount of funds payable as death benefits or as maturity benefits is generally specified upfront, so the policyholder is aware of the minimum amount they’re eligible to receive at a later date. However, many insured people remain unaware of the process involved in raising a claim and obtaining life insurance payouts when the time comes. To understand this process better, here’s a closer look at how a life insurance policy payout works.
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Life insurance policies generally offer two kinds of payouts to the policyholder or their beneficiaries. If the insured person passes away during the tenure of the policy, life insurance payouts typically include death benefits paid to the specified nominee. On the other hand, if the policyholder survives the tenure of the plan, the insurer pays out maturity benefits and bonuses, if applicable, to the insured.
The amount of funds payable as death benefits or as maturity benefits are generally specified upfront, so the policyholder is aware of the minimum amount they’re eligible to receive at a later date. However, many insured people remain unaware of the process involved in raising a claim and obtaining life insurance payouts when the time comes. To understand this process better, here’s a closer look at how a life insurance policy payout works.
Also Read about - Who is the Insurer and Insured?
The first step to obtaining a life insurance payout is to file a claim with the insurer. You can do this in any one of three ways, as explained here.
If you’re the beneficiary of the deceased policyholder, you may need the following documents to substantiate your claim.
Maturity benefits are paid out when the tenure of the policy has been completed. Generally, as the term of the plan is coming to an end, the insurance company intimates the policyholder two or three months in advance. A discharge voucher is sent to the insured person. To initiate the life insurance payout, this voucher needs to be signed by the policyholder and sent to the insurer, along with a copy of the insurance policy document.
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Most insurance providers offer two kinds of life insurance payout options. Here are the details about these alternatives.
In this case, the sum assured as death or maturity benefits is paid out to the policyholder or their beneficiary as a single payment. This lump sum life insurance payout may also include loyalty additions and bonuses, if any. Single payments ensure that the insured or their nominee receives a significant sum of money in one transaction, so they can choose to invest it in other instruments or use it to take care of sizable expenses like college fees, repayment of debts, or down payments on housing loans.
In some cases, insurers may also offer the option of periodic life insurance payouts. Here, one portion of the benefits is paid out as a lump sum amount, while the rest of the benefits may be converted into annuities or instalments, which are paid by the insurer over the course of a predetermined period. This way, the recipient enjoys a steady stream of income that can be useful for meeting regular periodic expenses like rent, utility bills, or EMI payments involved in repaying a loan.
In case there’s no dispute or default related to your insurance claim, the process is generally smooth and hassle-free. For straightforward claims that do not violate any terms or clauses, insurers tend to settle the payments quickly, within 30 to 60 days, or even earlier in some cases.
With the life insurance plans offered by Canara HSBC, you can enjoy a quick and hassle-free process right from claims to settlement. With options like Invest 4G Plan and the iSelect Term Plan, you can be eligible for death or maturity benefits that can help you deal with any financial crisis in the future. With only 3 simple steps, the claims process at Canara HSBC is simple and straightforward. All you need to do is intimate the claim, register it, and submit the necessary documentation. The terms of the life insurance payouts are also transparent and made available to you even before you purchase the plan.
Filing a life insurance claim should ideally be a straightforward process, but claim rejections do happen. Often, these rejections stem from avoidable mistakes. Understanding the common pitfalls can help policyholders and beneficiaries ensure a smooth claim settlement without unnecessary delays. The following are common reasons behind claim rejections:
One of the most common reasons for claim rejection is the failure to disclose pre-existing medical conditions. Insurers assess a policyholder’s health history before issuing a policy. Any undisclosed illnesses, chronic conditions, or high-risk lifestyle choices (such as smoking or excessive alcohol consumption) can lead to rejection.
For example, if a policyholder has diabetes or hypertension and kept it undisclosed while purchasing the policy, the insurer may deny the claim. To avoid this, always provide full and honest details when filling out the policy application form. Even minor health issues should be disclosed, as transparency ensures claim approval later.
A life insurance policy is only valid as long as premiums are paid regularly. If the policyholder fails to pay the premium within the grace period, the policy lapses, and any claims made after that will not be honoured.
To prevent this, policyholders should set up auto-debit instructions with their bank accounts or set reminders for premium due dates. Some insurers also allow premium revival within a certain period after lapse, but this usually comes with additional requirements like medical tests and penalties. Ensuring timely payments will keep the policy active and prevent unnecessary claim denials.
Paperwork errors are another major reason why claims get delayed or rejected. Missing documents, incorrect nominee details, or incomplete claim forms can slow down the claim process or lead to outright rejection.
Before filing a claim, double-check that all required documents are in order. This includes:
The original death certificate
The original policy document
A properly filled claim form
Proof of nominee identity and relationship with the insured
Hospital records (if applicable)
An FIR report (in case of accidental death)
If any document is unclear or missing, the insurer may ask for additional verification, delaying the payout. To prevent this, beneficiaries should keep all documents organised and submit them as per the insurer’s guidelines.
Most life insurance policies cover natural and accidental deaths, but certain causes of death may be excluded. For instance, suicide, unfortunate demise due to participation in hazardous activities (like extreme sports), or resulting from criminal acts may not be covered.
It’s important to read the terms and conditions of the policy carefully to understand any exclusions. If the cause of death falls under an exclusion, the claim is likely to be denied. Consulting with an insurance advisor at the time of purchasing a policy can help policyholders choose plans with fewer restrictions.
Another common issue arises when the nominee's details do not match official records. If a nominee’s name is incorrectly mentioned in the policy or is not updated after marriage or legal name changes, it can lead to disputes or rejection.
To avoid this, policyholders should regularly review and update their nominee details in case of life changes such as marriage, childbirth, or divorce. Keeping nominee information current ensures that the rightful beneficiary receives the claim amount without complications.
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While most life insurance claims are processed within a month or so, there are instances where payouts get delayed. Beneficiaries who depend on this money for immediate financial needs may find themselves in a difficult situation. If your claim settlement is taking longer than expected, here’s what you can do:
One of the most common reasons for a delay in claim settlement is incomplete or incorrect documentation. Insurers require specific documents, including the death certificate, policy document, identity proof of the nominee, and any additional paperwork like a hospital discharge summary, etc.
If any of these documents are missing or have discrepancies, the insurer may request further clarification and cause delays. It is advisable to maintain a checklist and confirm with the insurer that all necessary paperwork has been submitted correctly.
After submitting the claim, beneficiaries should regularly follow up with the insurer through customer support, email, or by visiting the insurer’s branch office. Most insurance companies also provide an online tracking system where claimants can check the status of their claim.
If there is an unreasonable delay, requesting a written update from the insurer can help escalate the matter. Keeping a record of all communications, including emails and reference numbers, can be beneficial in case of disputes.
In some cases, insurance companies may take longer to process claims due to additional verifications. For example:
If the cause of death is unclear, insurers may require additional medical records.
In accidental deaths, an FIR or post-mortem report may be needed.
If the nominee’s details are not updated, additional proof of relationship may be required.
If the insurer requests additional information, it’s best to provide it promptly to avoid further delays. Understanding how life insurance works and familiarising yourself with the claim process in advance can help you handle most situations efficiently.
If a claim remains unresolved beyond the insurer’s stipulated time frame without a valid reason, policyholders or nominees have the right to escalate the issue. The Insurance Ombudsman is a regulatory body that helps resolve disputes between policyholders and insurers.
To file a complaint, beneficiaries need to:
Submit a written complaint to the insurer and allow 30 days for resolution.
If no satisfactory response is received, escalate the complaint to the Ombudsman with relevant documents.
The Ombudsman will review the case and facilitate an appropriate resolution.
Most insurers try to settle claims swiftly, but in rare cases of undue delays, seeking external intervention can help ensure a faster settlement.
One of the most effective ways to avoid claim delays is to choose an insurance provider known for transparent and efficient claim processing. Our claims process is designed to be quick and hassle-free, ensuring that you receive timely financial support.
With our options, you can ensure a smooth life insurance payout process with hassle-free paperwork and clear terms of settlement. By opting for a trusted insurer, you can secure your family’s future without worrying about unnecessary delays or complications.
Understanding how a life insurance policy payout works is crucial for every policyholder. Knowing the process of filing a claim, necessary documents, and available payout options can help ensure a smooth claims settlement. While life insurance provides financial security to your loved ones in case of unforeseen events, it's equally important to understand the mechanics of receiving the benefits when the need arises. By being aware of the process, you can manage the formalities with ease and receive the due payouts without unnecessary delays.
Remember, choosing the right life insurance policy and understanding its terms and conditions is essential for making informed decisions.
The amount of life insurance you need depends on your income, dependents, debts, and lifestyle. A general rule of thumb is to cover 10-15 times your annual income.
It is a financial compensation an insurance company provides to a policyholder or their beneficiaries when a covered event occurs.
There's no fixed average payout. It varies widely based on the policy type, sum assured, and policy term.
This depends on your financial situation and needs. A lump sum offers flexibility but requires careful management. A spread-out payout provides a steady income stream.
The payout is typically the sum assured, plus any bonuses or additions. For term plans, it's usually the sum assured. For endowment plans, it's the sum assured plus maturity benefits.
The maturity payout is the amount you receive when the policy term ends. It includes the sum assured and any accumulated bonuses or dividends.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
