How Insurance Literacy Can Help Policyholders Make Better Use Of Life, Health Plans

The terms and conditions in insurance policies typically contain a lot of jargon, which often makes it difficult for the average policyholder to understand the finer nuances of an insurance policy. As it is vital that one understands one’s insurance policy properly to fully understand its benefits, it is important to have insurance literacy as lack of knowledge about the terms as conditions, including exclusions, can cause great distress, including financial stress in the event of a crisis situation, should the policy disallow some of the claims made.

Says Saurabh Vijayvergia, founder and CEO, CoverSure: “Too often, insurance policies are sold or renewed without clear explanations, leaving customers with contracts full of jargon, but little understanding of what they actually cover.”

The confusion further creates a gap where people have policies, but lack the confidence to use them effectively or to make informed decisions, Vijayvergia adds.

He shared an anecdote on the same. “I’ve spoken to countless policyholders who have shared stories like, “I bought the policy my agent suggested, but I didn’t know it had sub-limits on certain diseases,” or “I thought I had maternity cover, but turns out I had to wait four years,” he adds.

What is Insurance Illiteracy?

Insurance illiteracy is the lack of knowledge and confidence in understanding or selecting or in the usage of insurance policy.

It impacts individuals’ financial well-being and ability to navigate complex insurance systems. Factors contributing to insurance illiteracy include complex language, limited financial literacy, and lack of awareness. Improving insurance literacy can help individuals understand their options, manage their finances, and access necessary services.

Vijayveragia adds, “Insurance illiteracy is more than just not knowing technical jargon—it’s when people don’t fully understand what their policy covers, what it excludes, or how to actually use it. He said that many policyholders are unaware of key details, such as waiting periods, exclusions, or claim procedures. As a result, they often can’t use their insurance effectively when it matters most.

Sharing his thoughts on claim rejection, he said: “Claims get rejected over missed documents or misunderstood terms, and many people don’t even realise they have access to embedded benefits—like free health check-ups or free coverages in  their credit & debit cards—simply because no one told them.”

He explained the inconveniences of a misunderstood policy, as the lack of awareness extends beyond policyholders.

He adds: “Often, even the family members of the insured have no idea what coverage exists or how to access it in an emergency. Insurance illiteracy also leads to people being underinsured—they believe they are protected but don’t have enough cover for real-world costs. So really, the issue isn’t just buying insurance—it’s about understanding and using it. Until people are more informed, they’ll continue paying for protection they don’t fully benefit from.”

Why Insurance Literacy Matters

Insurance literacy matters because insurance is meant to be a safety net. But if people don’t understand it, they are either under-protected or paying for coverage they actually require.

There are now several platforms and tools that are helping simplify insurance and make it more understandable for everyday users:

Ways To Simplify Your Terms and Conditions

Here are some platforms suggested by Vijaveragia:

• Policyholders can check platform, such as Ditto which breaks down complex insurance terms into plain, relatable language.

• The Insurance Regulatory and Development Authority of India (Irdai) also has a consumer education website (policyholder.gov.in/), which provides content to promote insurance literacy.

• Another big step forward is the Centralised Information System (CIS) launched by Irdai, which mandates insurers to offer a concise overview of critical details at various junctures within an insurance agreement.

• Additionally, platforms like CoverSure offer a detailed analysis of a policy, offering insights into what the policy covers, doesn’t cover, along with the embedded benefits. It also allows secure and automated sharing of insurance portfolio with the family so that they are informed at every step and can use the policy effectively when the need arises when they need to use the policy.

How Insurance Illiteracy Leads To Claim Rejections

Insurance illiteracy and unawareness often has a huge role in claim rejections.

Says Vijayveragia: “A recent survey showed that nearly half the people who filed health insurance claims in the last few years had their claims rejected—either fully or partially. And a lot of those rejections were because of reasons that sound vague, like paperwork issues or “invalid” claims.”

Key Reason of Claim Rejection

Vijaveragia highlighted the real problem. He adds: “Most people don’t really understand the fine print—the exclusions, waiting periods, or the need to declare pre-existing conditions at the time of purchase. So, when it comes time to make a claim, people end up paying out of the pocket despite having insurance.”

He also shared some important data on the matter. As recently as December 2024, the Centre informed Parliament that Life Insurance Corporation (LIC) of India had Rs 880.93 crore in unclaimed maturity amounts for FY 2023–24. In 2024, up to 372,282 policyholders failed to collect maturity benefits, Minister of State for Finance Pankaj Chaudhary informed Parliament. This reflects another issue: insurance information is not shared pro-actively with families/nominees.

So yes, insurance illiteracy doesn’t just cause rejected claims—it causes missed claims, out-of-pocket spending, and unclaimed benefits.

Incidentally, an Irdai report for 2023-24 shows that about 11 per cent of health claims were denied last year, which amounts to a huge Rs 26,000 crore in rejected claims. Usually, it’s about missing documents or not knowing exactly what the policy covers. 

According to Vijayveragia, people should not buy policies blindly. “At the end of the day, insurance is meant to protect you — but that only works if you and your family understand what you are buying and how to use it. Being informed is the best way to make sure insurance works in your favour, not against you.”