Types of Death covered & not covered by term insurance plans

When COVID-19 broke across the globe, we witnessed fatalities irrespective of one’s age and gender. If life insurance policies had been a choice before, after witnessing that pandemic outbreak, it wasn’t any longer. Life insurance products became a necessity. One of the most common types of life insurance policies is term insurance plans, thanks to its

Now, term insurance plans are a popular choice among those seeking to ensure their family’s financial future in the event of the absence of the breadwinner. While this is a smart financial move, you might want to get well-acquainted with the cracks (terms & conditions and exclusions) in this type of life insurance plan. This will help you stay a step ahead when you are about to avail yourself of a term insurance plan and apply for a claim settlement.

Subsequently, here’s a look at the types of death covered and not covered by term insurance plans in India –

What are Term Insurance Plans in India?

Term insurance policies in India are long-term financial commitments between the insured and the insurer that offer policyholders access to a large coverage. This coverage is substantial, considering that it’s supposed to act as an income replacement for the policyholder who had contributed significantly to the family. The sum assured of a term insurance plan can be claimed once the policyholder passes away during the tenure of the policy and can be used to fund diverse expenses, including the expenses of the spouse, higher education, marriage & childbirth of the dependents, fulfilling existing loans, investing in real estate, stock market, mutual funds, etc. This amount so obtained after the death of the insured is called a death benefit.

Death Benefit Opportunities under Term Insurance Plans in India

Since term insurance providers offer access to a considerable amount against a nominal premium, they are extremely stringent regarding the eligibility criteria required to purchase a term policy. Additionally, they have placed quite a few restrictions on the death benefits offered that revolve around the types of death covered and not covered by term insurance policies. If you are planning to buy a term insurance plan, you need to be acquainted with these limitations –

What Types of Death are Covered by Term Insurance Plans in India?

     a. Natural Death – This is one of the primary reasons why policyholders may pass away, and it guarantees an assured payout of the pre-decided sum assured. While some natural reasons for the death of a policyholder may be issues like heart attack, there are also some ailments that might lead to his/her death –

     –  Terminal Illness – Say, a policyholder is suddenly diagnosed with an ailment that leaves him with a poor prognosis of only a few months (less than 6 months). Under such circumstances, if the policyholder had opted for a terminal illness benefit, he can get access to a lump sum that can fund diverse expenses.

      – Critical Ailments – In the case of the best term insurance policies, the insurer offers a highly recommended rider called the Critical Illness Benefit Rider. If you have opted for this rider, you can see that the insurer includes a list of critical ailments. If you are diagnosed with either of these ailments, the insurer will offer you a lump sum that can be used at your discretion. Based on the type of critical ailment you have opted for, this disbursed amount can either be a part of the base sum assured (Accelerated Critical Illness Rider) or over and above the pre-decided cover amount (Standard Critical Illness Rider).

    b. Natural Disaster – Deaths caused by natural disasters like earthquakes, floods, hurricanes, and other acts of nature are covered under a term insurance plan.

    c. Accidental Deaths – In general, vanilla term insurance offers a death benefit if the policyholder passes away due to an accident. This death benefit is equal to the pre-decided sum assured. However, let’s say you are an entrepreneur who travels frequently; hence, your term insurance advisor advised you to take up an Accidental Death Benefit Rider. Under such circumstances, if you pass away following an accident, your nominee will get an additional sum over and above the base amount.

What Types of Death are Not Covered by Term Insurance Plans in India?

• Undisclosed Health Conditions – Term insurance providers have an extensive process when you apply for a plan. This includes a detailed questionnaire and cross-verifications by the insurer’s team. Needless to say, the questionnaire contains queries about your pre-existing conditions and lifestyle habits (smoking, etc.).

However, let’s say that you omit a health condition or smoking habits, and your term insurance provider is unable to spot this error. This in no way means that you are safe with the “lying by omission”.

If the death is caused by an omitted medical condition or lifestyle habit, the insurer may very well deny the claim altogether because the acknowledgement of those lifestyle habits and pre-existing medical conditions meant that they could have collected a far higher premium. So, they were denied this premium collection and took a high risk without being made aware of the situation.

• Suicide – Term insurance plans do not cover deaths caused by suicide if the incident takes place within a year of purchasing the plan or reviving a lapsed policy.
• Death due to participation in hazardous activities/adventure sports – The questionnaire (which is offered by the term insurers when you apply for a term insurance plan) comprises queries regarding your hobbies or lifestyle habits. This is intended to cross-check if you practice any hazardous activities or adventure sports. If they notice such habits, the insurer may reject your policy application.

On a similar note, if you do not practice any such adventure sports or habits and yet pass away after getting into one such activity, the term insurance provider will most likely reject the claim of your nominee.

• Death when under the influence of intoxicants – If the death of the policyholder is caused by an accident or any event that involves the consumption of alcohol or any other narcotic drugs, the insurer will deny the payment of your claims
• Death during war – Wars cause multiple casualties, which may take a toll on the financial health of a life insurance provider. And since this is a man-made event leading to the loss of lives, term insurance plans do not cover deaths caused due to wars.
• Death during a terrorist attack (perpetrator)/homicide – If the insurer finds out that

         – your disability or death is caused by a terrorist attack where you were the perpetrator or

         – the death is actually a homicide or

         – if you have been involved in a homicide,

         – the insurer is most likely to reject such death benefit claims.

Conclusion

While term insurance plans are a smart financial move, much like any other financial product, these also carry certain exclusions. So, we have listed out the types of death covered and not covered by term insurance plans in India. However, please remember that this is a financial product requiring a long-term commitment. So, to stay safe, it’s best to go through the policy document and check out the clauses and restrictions involved before you purchase a plan.