Term insurance plans are meant to cover the death of the policyholder within the term of the plan. Nominees get the death benefit if the policyholder dies within the tenure of the plan. This plan offers no survival benefits as they are pure risk cover. Though the term plans cover sudden deaths, there are some categories of deaths not covered by the term insurance policies.
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The main benefit of the term insurance plan is that it pays out a death benefit to the nominee, on demise of the policyholder within the term, protecting the family from a financial crisis. This is very useful if the policyholder was the breadwinner of the family. Death benefit can be as lump sum, monthly instalments or both depending on the requirement. Policyholders opt for payment in instalments as death benefit, if nominees are not good at handling money.
Term insurance has certain restrictions on the kinds of deaths covered. Term insurance policies cover natural death or death in an accident. It excludes coverage for certain types of deaths like suicide within a year, homicide by the nominee (The nominee kills the policyholder for monetary gain), death due to sexually transmitted diseases or death caused under intoxication (drugs or alcohol). This article briefly covers the types of death not covered by term insurance plans.
In case the policyholder commits suicide within a year of availing the policy, the beneficiary is eligible to receive 80% of the premiums paid for a non-unit linked policy like term life plans. No payout is made to nominees from term life plan on suicide within a year of availing the plan.
Deaths caused due to self-inflicted injuries are not covered by term insurance plans. A self-inflicted injury means self-harm or self-mutilation or any hazardous activity that leads to the death of the policyholder. Any claims made for death of the policyholder due to self-inflicted injury, will be rejected by the insurer and no sum assured will be paid.
Death caused by critical illnesses is included in term insurance policies if you have availed the critical illness rider. However, the rider excludes sexually transmitted diseases like HIV/AIDS. Death due to sexually transmitted disease is generally excluded from term insurance. The insurance company will not accept any claims arising out of death due to HIV/AIDS. In these cases, the insurer cannot be held responsible to pay the sum assured to the nominee.
Insurers generally charge high insurance premiums to smokers and drinkers. Special premium rates are also offered to people who quit smoking during the policy tenure.
Insurers do not issue term life policies to heavy smokers or drinkers. If the policyholder dies from ailments due to excessive smoking/drinking and this condition was not disclosed while availing the policy, the insurer rejects the claim. Death due to intoxication is not covered under term insurance.
There is a clause in the term insurance policy which states that the insurance company is not liable to pay a death benefit to the nominee for homicide. If the policyholder is murdered during the tenure of the term insurance plan, then a thorough investigation is conducted. In case the nominee is found to be involved in the murder or if the nominee himself has murdered the policyholder, then he/she will not receive the insurance payout. The payment will be withheld until the not guilty verdict by the courts. In case the court finds the nominee involved in the crime, then the insurance claim is rejected.
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There are other exclusions as well in the term insurance plan. The basic term life plan generally excludes death in a natural calamity. However, if you have availed a rider for the same, then your claim will be honoured and sum assured paid to the nominee.
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