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Types of Death Covered and Not Covered by Term Insurance

With so many different kinds of term insurance plans now available in the market, each with its own sets of clauses, terms, conditions, and add-ons/riders, it is perfectly logical for anyone to be confused about the pay-outs offered by term insurance upon the policy holder's demise. Read on for knowing better as to which kinds of death are encompassed in any term insurance plan, and the ones that are not.

It is one of the best one-size-fits-all as well as highly customizable forms of insurance. It pays out the assured sum to the policyholder's beneficiary upon the policyholder's death. However, there is a condition that this sum assured will be paid only if the policy terms are held, and the premiums are paid in a timely fashion throughout the policy term. If the policyholder lives through the entirety of the term, then the insurance cover will cease, and nothing will be paid.

It is better not to consider term insurance as a way of investing. It is almost like paying an actual premium for the protection it provides to the policyholder in case of any unanticipated financial crises. The policyholder will receive no benefits until any unfortunate eventuality occurs.

Purchasing term insurance is like buying relaxation for the mind and economical protection for the policyholders' beneficiaries. Term insurance plans give tax benefits based upon the premiums that have been paid under section 80C of the 1961 Income Tax Act. The policyholder's nominee will also receive a tax-free payout by the insurer's company, in case of the policyholder's death under Section 10 (10D) of Income Tax Act.

All dividends towards premium payments are expended to provide cover for the insurance cost. Therefore the term insurance policyholders cannot get a share from the profits received by the insurer upon investing the same in the money markets. The surrender value will be provided in the term insurance policies except for the limited plans and the single pay plans. Any policyholder cannot get loans based on the policies.

The term insurance premium is the minimum in monetary value when compared to all the other varieties of life insurance plans. However, there are some procedures available that offer returns on the premiums paid in case the policyholder endure the term. The premium amounts for these kinds of plans may vary widely, and they might be a bit more costly than an ordinary term insurance plan. 

So, now that everyone knows that term insurance plans pay only upon the policyholder's demise let us get a view at what kinds of deaths are covered and what sorts of death are not covered under the term insurance plans. Along with reasonable premium rates, in case of any unfortunate eventuality, term life insurance plans give financial protection to all of the surviving family members of the insured. In case of the expiration of the insured during the policy tenure, a lump-sum death benefit will be compensated to the beneficiary.

Even though these plans are particularly designed to contribute coverage in term insurance to the nominee of the insured person, some death events are excluded from such payment. In this article, we explain how to determine and understand the types of deaths that cannot be covered in a term insurance plan, which are the kinds of deaths that will receive term insurance coverage. The causes are given below, along with the explanation as to why they are included/excluded from the term insurance coverage:

Normal Death or Death Caused by Any Health-related Issues

Most term life insurance plans generally cover natural deaths or deaths caused by any health-related issues. If the policyholder sees an unforeseen demise due to any type of medical condition or critical illness, the nominee of the policy will receive the death benefit, which is the sum assured of the policy.

There are various types of tools available to calculate the gains earned from investments based on different conditions and aspects impacting an investment. Here you go:

Accidental Death

The term insurance plans also give coverage in case of a possibility of the policyholder's death due to an accident. Moreover, many term insurance plans come with many additional accidental death benefit riders due to which extra assured sum shall be paid to the nominee of the policy along with the guaranteed basic sum assured, in the case of accidental death of the insured individual.

Yet, there are some specific exceptions to this. The death of the insured due to the influence of alcohol or any other type of drug/narcotic while driving may lead to the beneficiary's rejection of the claim. Claims are also not entertained if the policyholder is found to be involved in any kind of criminal activity. Besides, life insurance plans also forbid the paying of the sum assured in case of the death of any individual because of involvement in adventure sports like bungee jumping, parachuting, skydiving, rafting, etc.

Suppose Mr Rajesh has chosen a term insurance plan of Rs 25 Lakh. This plan is supposed to pay out a guaranteed additional sum on the policy holder's death due to an accident. Because of an unexpected event on his way to work, Mr Rajesh meets with a fatal accident. The situation, however, quickly turns to the worse, when his condition declines sharply. Ultimately, all medical assistance becomes unsuccessful. Mr Rajesh’s family then loses him to the accident.

All medical bills, including tests, surgeon's fees, hospitalization bills, etc. amounted to Rs 10 Lakh. Then insurance claims are raised by the family upon Mr Rajesh’s death. The insurance company then compensates for the death, where the assured sum amounting to Rs 50 Lakh was paid out since the death was affected by accident. Such benefits would help the family settle all the medical bills as well as use the excess amount for maintaining the present lifestyle.

Death by Suicide

The insurance regulator IRDAI (Insurance Regulatory and Development Authority of India) has formulated multiple changes in the suicide clause, starting from the 1st of January, 2014. Hence, all of the policies that were administered before the 1st of January, 2014, would have old sections on suicide. In contrast, the new section on suicide will be used for the policies that have been issued after the 1st of January, 2014. Let us know the suicide sections involved in both of these cases.

The suicide clauses applicable for all of the policies that were issued before the 1st of January, 2014 states the following tenet:

If the policyholder has had his or her life ensured, commits suicide in a year, whether he or she be sane or insane at that point, the policy will be invalid, and no claim shall then be payable.

Therefore, if the policyholder under this policy clause committed suicide after a year of the starting of the policy date, then the death benefit shall be paid to the beneficiary. A few companies have lengthy waiting periods of up to 2 years or even more for such claims. It is therefore instructed to the prospective policyholders to read the policy’s terms and conditions carefully, before claiming the sum assured.

For the policies that have been issued after the 1st of January, 2014, the suicide clause states the following tenet:

As for linked plans, in case of there being any possibility of the suicide being committed by the policyholder in the initial 12 months from the beginning of the policy and while in the middle of the policy term, the nominee is eligible to receive a 100% of the fund value of the policy. For non-linked plans, the nominee shall get up to 80% of the premium paid, if there is a death claim because of suicide within the initial 12 months from the beginning of the policy, and for the duration of the policy term.

It is of high importance to go through all of your policy documents to properly understand the terms and conditions of any term insurance policy, as there are indeed some life insurance companies whose policies for suicidal death may or may not provide the requisite coverage. It is also of equal importance to educate the nominee on the various inclusions and exclusions of the pay-out clauses of any term insurance plan so that he or she has a hassle-free claim process.

Homicide

In case of the insured getting murdered by the nominee, or the ensuing investigation after the suspiciousness of the murder reveals that the beneficiary has been involved in the crime, the insurance company will then reject the concerned claim raised by the beneficiary. The request for the claim is put on hold by the insurance company until and unless the beneficiary receives legal clearance.

There have been many cases, whether domestic or abroad, where the policyholder is made to forcibly sign upon a term insurance plan and name the perpetrator as a nominee before getting murdered or driven to suicide. In case such possibilities are suspected post-death of the policyholder, the insurance company will run its investigations, so will the police/legal forces. If it is somehow revealed that the nominee has either murdered the policyholder or is involved in the crime, then the pay-out of the death benefit will be in all probability be rejected. It may also be withheld till the period whence the charges have been dropped, and the court proceedings have given acquittal. So, this situation teaches us the lesson that it is not a sound plan to take a person's term life insurance by either defrauding the insurer or by murdering the insured, whether directly or as an accomplice. Murdering, defrauding, or abetting murder is, in itself, a gruesome crime, that too against humanity. Also, such a plan is highly unlikely to succeed, as the ensuing investigation will be thorough enough to put the perpetrator behind bars. There will be no payout of the term insurance benefit.

Self-Inflicted injuries

In case the insured's death is caused by self-inflicted injuries/hazardous activities, the insurer's company will reject the beneficiary's claim.

HIV/AIDS

Insurance companies do not accept the claims in case the insured's death occurs because of any diseases that are sexually transmitted, such as HIV/AIDS.

Intoxication

If the policyholder's death occurs due to drugs/alcohol overdose, then the insurer's company will not benefit the nominee.

Natural Calamity

If the policyholder's death occurs because of any natural calamity, the insurer's company will not benefit the nominee unless the policyholder has opted for a requisite rider benefit for the same. 

Death Caused By Terrorist Attacks

If an insured meets his/her demise because of terrorist attacks, then such deaths cannot be claimed for the nominee's benefits. Though any policyholder cannot ensure safeguarding against the possibility of such death, they may always try to stay alert. One may try avoiding public places during national holidays since there are chances of the terrorist attack in these places at that time.

Death Caused By Any Undisclosed Disease or Habit

It is of utmost importance for any policyholder to disclose every tiny detail as related to both lives as well as lifestyle to the insurance company. If such details hold the possibility of becoming the cause for the demise of the insured, then the beneficiary's' claim is sure to be rejected in these cases. One such common cause is the declaration of smoking habits. The policyholder must also put forward the details of any fatal illness such as cancer or diabetes to the insurance company.

Death Occurred Abroad 

In case, due to any reason, the policyholder happens to be travelling outside his or her home country and meets his or her demise while on abroad, such deaths will not be covered by the term insurance. International visits should be avoided in case the policyholder is unwell.  However, sometimes, foreign travels are unavoidable. This may also be because certain treatments are only possible at the specialized medical facilities located abroad. The best practice for a policyholder would be to know in detail regarding the terms as well as conditions of term insurance policy and also keep the family members afoot of the same. 

Death Caused by Critical Illness without Opting for the Rider 

To cover for the critical illness whose fatalities may lead to the policy holder's death, the policyholder must take up the specific riders offered by that insurance company. If the policyholder does not cover any pre-existing and likely-to-occur fatal illness, then he or she may be put in a huge risk. In such a case, if the policy holder's death happens due to such a critical illness, then it is not going to be covered by the term insurance plan. Therefore, in that case, if the beneficiary raises a death claim against the policy, then it will surely be rejected. 

Death Caused By Terminal Disease

Certain terminal diseases may, in all possible, cause the policyholder's death. The example of such diseases will be fourth stage cancers, some rare, deadly diseases, renal dysfunction caused by diabetes, etc. If any policyholder dies because of such kinds of diseases, then the death may not be covered in the term insurance plan. The policyholder may choose to take up the rider benefits against such diseases to help the beneficiary against possible claim rejection.

Claiming for Multiple Policies

In case any beneficiary lays claims for multiple term insurance policies, then he or she should follow the IRDAI mandates the guidelines. The policyholder should always submit the details of any existing term insurance plans while purchasing new ones. The information regarding such policies should be provided in the form containing proposals. The nominee must also present the death certificate of the insured to the concerned insurance company. The new company then verifies the given information with that of the existing insurance company. After the successful completion of the verification, the beneficiary is eligible to receive the claim.

The Conclusion

Before purchasing a term life insurance, it is of utmost importance for the insurance buyers to learn the tidbits of the term insurance policy documentation. Having proper ideas and knowledge regarding both of the inclusions and/or exclusions of any policy may help any potential policyholder to avail of the term insurance coverage as well as prevent any kind of occurrence of discrepancy while the claim is being processed.

Various companies can have various death benefits clauses. Therefore experts strongly recommend that one should go through all of these clauses carefully and get any subsequent doubts cleared. This acquired knowledge should also be passed down to the nominee so that there remains no confusion regarding the claim process at the time of the claim.

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