What is a term insurance policy?

Term insurance plans are especially designed to offer a pre-decided sum assured to the policy’s beneficiary on the unexpected death of the policyholder during the policy tenure. This is known as the Death Benefit. In case the policyholder survives through the policy tenure, the insurance company is not liable to pay the sum assured to the policyholder or the beneficiary when the policy matures. This means that term insurance plans do not offer Maturity Benefit.

The primary objective of term insurance policies is to safeguard the existing lifestyle and future aspirations of the policyholder’s family, even when the policyholder is not around. On the sudden death of the policyholder during the tenure of a term insurance plan, the sum assured can either be paid as lump sum or as monthly instalments. Some term insurance plans offer the convenience of choosing a combination of monthly instalments and lump sum. These policies offer the policyholder the flexibility to choose between these options at the time of the purchase of the term insurance policy.

Term insurance policies are well suited for individuals planning to financially protect their families from unforeseen emergencies and future family goals, even during your absence. The monthly instalment acts as a reliable source of income, helping the family meet their current expenses. On the other hand, the lump sum payment enables you to plan for your future like child’s education and marriage, retirement planning, etc.

However, term insurance plans do not cover all types of deaths. Let’s take a look at the causes of death that is included and excluded from term insurance policies.

Inclusions of Term Insurance Plans

Here are the types of deaths that term insurance policies do not cover:

Natural death and death due to illnesses

Natural death or death as a result of illnesses is covered by term insurance plans. The pre-determined sum assured is payable to the beneficiary of the policy on the policyholder’s natural death or death caused by a health condition or disease.

Accidental death due to specific causes

Death caused by an accident is also covered in term insurance policies. Death, in this case, may be instant or after a few days in hospital. However, there are certain exceptions to death caused by an accident.

Exclusions of Term Insurance Plans

Accidental death caused to certain situations

Death as a result of the below situations are not eligible for availing the death benefit:

• Death caused as a result of the driver being under the influence of alcohol or drugs at the time of driving
• Death due fleeing after breaching a law
• Death caused while being involved in a crime
• Death due to an accident due to participation in adventurous sports like skydiving, bungee jumping, paragliding, biking, etc.
• Death caused beyond a certain geographical boundary, as specified in the policy document

Death by suicide

The modifications made by IRDAI (Insurance Regulatory and Development Authority of India) in the clause related to suicide create a division in the eligibility criteria for the sum assured. Therefore, term insurance plans issued before 1^st January, 2014 follow the old clause, while the new clause is relevant for those issued after 1^st January, 2014. Here’s the difference between the clauses.

The old suicide clause for term insurance plans issued prior to 1^st January, 2014, states:

“If the life assured commits suicide within one year from the date of start of risk or date of revival if revived, whether sane or insane at that time, the policy will be void and no claim will be payable.”

This implies that in case the policyholder commits suicide before the completion of the waiting period, starting from the date on which it was issued or renewed, the beneficiary will not be eligible for the sum assured. The waiting period generally varies from one to two years.

The new suicide clause for term insurance plans issued after 1^st January, 2014, specifies for a suicide committed by the policyholder of a linked term insurance policy within a year from the date of issuance of the policy, the beneficiary can avail 100% of the policy fund value. For a non-linked term insurance plan, the beneficiary will receive 80% of the premium paid against a death claim arising due to a suicide committed, even if it occurs in less than a year from the issuance of the term insurance plan during the policy tenure.

Self-inflicted injuries

Death as a result of injuries caused to himself/herself by a term insurance policy holder is another exception to the coverages offered by term insurance plans. In such a situation, the policy’s beneficiary cannot claim the death benefit.

Homicide

In case of death due to murder where a term insurance policy holder dies or he/she is found to be guilty of the crime, the beneficiary will not be eligible for the sum assured. The claim will either be rejected or withheld till the accused have been absolved of the charges and acquitted of the crime.

Natural disasters

In case of death of a term insurance policy holder caused due to natural calamities like storm, landslide, hailstorm, tsunami, etc., the beneficiary cannot claim the sum assured of the term insurance plan.

HIV/AIDS

Another reason for death that makes the insurers reject a death claim against a term insurance policy is the policyholder’s death due to sexually transmitted diseases like HIV and AIDS.

Claiming against multiple term insurance policies

IRDAI has laid down stringent regulations regarding the purchase of a new term plan by a beneficiary. The information required about the old plan will have to be accurately filled up in the proposal form while buying a new term insurance plan, and submitted along with the death certificate. The new insurance company undertakes a thorough check of the information and documents provided. Only after the successful completion of the verification process can the beneficiary receive the claim from a second term insurance plan as well.