Why do you buy a term insurance plan?
In most cases, the answer to this question is to have a life cover that will provide financial protection to your dependents in the event of your untimely death. As long as all premiums are paid, term plans provide a death benefit during the policy tenure. The payout can help maintain your dependent’s standard of living. It can let them cover essential expenses, such as daily living costs, children's education, home loan EMIs, and other financial obligations.
But not all deaths qualify for a term insurance benefit. There are conditions and exceptions in the fine print for types of deaths covered. Certain claims may be rejected if those conditions aren’t met.
Hence, it’s important to understand these conditions before choosing a term insurance plan. Your policy document clearly lists the types of death covered under the plan.
Types of deaths covered
Knowing the types of death covered is crucial before choosing a term insurance policy. It will let you make an informed choice and avoid surprises later. Let’s explore the types of deaths covered by term plans.
Natural deaths
If the insured dies due to old age, some medical condition etc. it is considered to be a natural death. Such deaths are covered under the plan, and the sum assured is paid to the nominee.
Accidental deaths
Accidental deaths are unpredictable. Such deaths are covered under term plans from the first day of coverage.
Deaths due to natural disasters
Coverage would be available if the insured dies due to natural calamities like earthquakes, floods, tsunamis, hurricanes, etc. The sum assured amount would be paid to the nominee, as death benefit by the Insurance Company.
Deaths due to an illness
The term insurance policy will come to your family's rescue if death occurs due to health-related issues or a critical illness. It would cover such deaths and pay the death benefit subject to policy terms & conditions.
Suicides
In the case of suicides, there is a specific conditions under term insurance plans. Coverage would be available if the insured dies from suicide after 12 months of buying a new policy or reviving a lapsed one. The death benefit would be paid in case of such suicides. However, this varies from plan to plan and also among the various life insurance companies as certain companies may or may not provide coverage for suicidal death.
For death due to suicide within 12 months of buying or reinstatement of a life insurance plan, death benefit is not provided to the nominee in most of the cases.
Moreover, it is always important to read policy terms & conditions and know the inclusions & exclusions of the policy before purchasing it.
Types of deaths not covered
While the aforementioned types of deaths are covered under term plans, some of the below mentioned ones are excluded –
Suicides within a year
As mentioned earlier, suicides have a specific condition under term insurance plans. If the insured commits suicide within 12 months of buying the policy, such a death would not be covered. In this case, the premium paid would be refunded back after applicable deductions, and the policy would be terminated.
Similarly, the death benefit would not be paid if the insured has revived a lapsed term plan and then commits suicide within 12 months of such revival.
Death when you are under the influence of intoxicants
If the insured is under the influence of alcohol, drugs, or any other intoxicating substance and then death occurs due to such an influence, the death would not be covered under the policy. Similarly, coverage would not be allowed if the insured is addicted to intoxicating substances and dies of the medical complications of such an addiction.
Death due to HIV/AIDS
Coverage for HIV/AIDS under term insurance plans may vary across insurers. Traditionally, death due to HIV/AIDS has been excluded from coverage in many term plans. However, with evolving underwriting practices, some insurers now may offer term insurance to individuals affected by HIV/AIDS, subject to specific terms and conditions. It is important to review the policy document and consult with the insurer to understand the scope of coverage before purchasing.
Death due to an illness that you hid from the insurer
Term plans require you to disclose your medical health and past history truthfully. If you hide this material information, it is considered a breach of good faith. If the health or medical illness gets complicated and the insured dies due to the same, such a death would not be covered.
Homicides
Though homicides are covered, there are instances when such deaths would be excluded. If the insurer finds out that the nominee or the beneficiary was involved in the murder or if the murder was done to acquire the insurance payout, the insurance company will reject the claim. In such cases, the death benefit would not be paid.
So, before you purchase your term insurance plan, know which deaths would be covered and which won’t by ensuring you have read the policy terms & conditions properly. This would help you avoid claim rejections and get the term insurance benefits when it is most required.
Participation in illegal activities
Term insurance policies usually do not cover death caused by the life assured's participation in illegal acts. Theft, assault and other criminal activity are some examples of unlawful activities.
Participation in adventure sports/activities
Most standard term insurance policies exclude coverage for deaths caused by adventure sports or hazardous activity. These include bungee jumping, skydiving, scuba diving, mountain climbing or other extreme sports where the risk of serious injury or death is more imminent compared to daily life.
The insurer may reject the claim if the life assured dies while participating in such activities, and the nominee may not receive the benefit. Some insurers may offer riders or additional coverage for adventure sports. They must be purchased separately.1
Death due to childbirth
Childbirth-related deaths are not universally excluded under term insurance policies. Coverage depends on:
- Disclosure of pre-existing conditions
- Specific policy terms and exclusions
Some insurers may exclude such deaths, especially if linked to undisclosed health risks. So, go through the policy terms. It is also paramount to disclose any health conditions when buying the policy.
FAQs
Does term insurance cover death while driving under the influence of substance?
Term insurance normally excludes deaths caused while the insured is under the influence of alcohol, drugs or other intoxicants. The insurance company will not pay the sum assured. They may also deny claims if the life assured had a history of substance abuse that led to medical complications.
Are deaths from pre-existing diseases covered?
Provided the pre-existing illnesses or medical conditions were disclosed during the application, term insurance can cover these deaths once the waiting period expires. However, concealing a pre-existing condition could lead to the insurer rejecting the claim.
Does term insurance cover accidental death?
Accidental deaths are covered from the policy's inception. Deaths due to accidents, falls or other sudden, unforeseen mishaps are included in the purview. Some policies provide additional accidental death benefit riders for higher coverage. But as some types of death may not be covered, always read the policy terms to check for any specific exclusions.
Does term insurance cover natural death?
Yes, term insurance usually covers natural death. This comprises deaths caused by illnesses, diseases, medical problems or aging consequences such as heart attacks, strokes, cancer and other health-related issues. If the life assured dies as a result of a natural cause, the policy will pay the sum promised to the nominee or beneficiary as long as the policy remains current and premiums are paid.
However, the policy may have a waiting period for certain pre-existing conditions, so full disclosure of health history is necessary to prevent claim rejection.
What are the major limitations of term insurance?
Term insurance is a pure protection policy. It pays a death benefit to the nominee if the life assured passes away during the policy term. As opposed to endowment or whole life plans, it does not accumulate any savings, returns on investment or maturity value. If the life assured survives the policy term, no payout is made (unless a return-of-premium option is chosen).
Does term insurance cover deaths due to cancer?
Term insurance covers deaths due to cancer, as the same is considered a natural cause of death. The nominee can receive the death benefit if the life assured was in good health at the time of purchasing the policy and dies from cancer subsequently in the policy's term. However, coverage is contingent upon the policyholder disclosing all relevant health information. If cancer was present before the policy was bought and not disclosed, the claim could be denied.
Is a heart attack an accidental death?
A heart attack is classified as a natural death unless caused by an accident. Term insurance covers it as a natural death and not under accidental death benefits. The sum assured will be paid to the nominee if the policy is active and premiums are paid.
Sources:
- https://economictimes.indiatimes.com/wealth/insure/life-insurance/8-major-death-cases-which-are-not-covered-in-term-life-insurance/articleshow/70444745.cms?from=mdr
