Life Insurance

What Situations Are And Aren't Covered By Life Insurance

by SMCIB on Monday, October 24 2022

Life insurance is one of the most important purchases you will make for yourself and your family. It ensures that your family doesn’t compromise on their lifestyle and dreams in your absence. Some life insurance plans also help in fulfilling your long-term goals such as saving for retirement, paying for your child’s education, marriage, etc.

Now, as important as it is to buy a life insurance plan, it is also important to educate yourself and your family about all the situations that it will and will not cover. Why? So that there are no difficulties at the time of claim under the policy.

In this article, we discuss all the situations that are and aren't covered by life insurance. So, let’s begin!

What Is Covered By A Life Insurance Policy?

Except for death due to suicide, all situations are covered under a life insurance policy. Here are a few examples -

  1. Death Due To Natural Causes

    A life insurance policy will cover natural death, that is, death because of any illness, medical condition, chronic lifestyle disease, etc. Death because of HIV/AIDS, STDs, etc. are covered too.

    Important: To ensure there are no difficulties at the time of claim, you must provide accurate details about your medical history to the insurer while buying the life insurance plan.

  2. Death Due To Accidents

    Death caused by an accident, regardless of whether it occurs at home, on road, in the air when traveling in a plane, etc. is covered by life insurance.

    For instance, Anish is covered under a term insurance plan with a sum assured of Rs. 1 Crore. He is on his way home from his office, and his car meets a major accident and he dies on the spot. In this case, the insurance company will pay a claim amount of Rs. 1 Crore to his nominee.

  3. Death Due To Involvement In Illegal Activities

    Death because of involvement in law-violating or illegal activities is covered by a life insurance policy.

  4. Death Due To Participation In Risky Activities

    A life insurance policy will also cover death caused due to participation in risky, adventurous sports/activities like paragliding, skydiving, scuba diving, river rafting, mountaineering, and so on.

    For instance, Rishi buys a Whole Life Insurance Plan with a sum assured of Rs. 40 Lakhs. The policy will cover him up to the age of 99 years. A few years after buying the policy, Rishi passes away in a river-rafting mishap. In this case, the insurance company will pay his nominee a claim amount of Rs. 40 Lakhs.

  5. Death Due To Natural Calamities

    A life insurance plan will cover death caused as a result of a natural calamity, like an earthquake, flood, landslide, hurricane, drought, and so on.

  6. Death Due To Manmade Disasters

    Death because of man-made disasters, such as terrorism, riots, war, civil disturbances, etc. is covered by a life insurance plan.

    For instance, Sameer purchases an Endowment Plan with a sum assured of Rs. 20 Lakhs, for a duration of 20 years. In the 11th policy year, he dies in a terrorist attack. So, the insurer will pay a claim amount of Rs. 20 Lakhs to his nominee in this case.

  7. Death Due To Intoxication

    Death due to excessive consumption of alcohol, drugs, narcotic substances, etc. is covered by life insurance.

Please keep in mind that this is not the complete list. Aside from the deaths listed above, a life insurance policy may cover a variety of other deaths. Keep in mind that it is the insurer’s responsibility to list any exclusions in the policy document. You should not assume any exceptions unless it is explicitly mentioned that the policy will not cover a situation.

Important: Riders May Not Cover The Above Situations

A rider is an add-on that you can buy with your base life insurance policy at a certain extra cost. It provides extra coverage and protection against certain risks, like accidental disability, critical illness, and so on.

For instance -

  • A critical illness rider will pay a fixed sum of money if you are diagnosed with a serious illness listed in the policy document.

  • An accidental disability rider will pay a fixed amount of money if you get permanently disabled because of an accident.

There are several types of riders you can add to your base policy - like a hospital care rider, surgical care rider, waiver of premium rider, critical illness rider, an accidental disability rider, accidental death rider, etc.

If you choose riders with your life insurance, keep in mind that they may not cover the situations we discussed above. Meaning, while life insurance will cover death caused by intoxication, accidents, involvement in risky activities, etc., the riders you choose may not cover these situations.

Let’s understand this better with the help of an example.

In July 2020, Piyush buys an Endowment Plan with a sum assured of Rs. 20 Lakhs and for a duration of 15 years. This amount will be paid to him on policy maturity or to his nominee in case of his death during the policy period. He also opts for an accidental death benefit rider of Rs. 5 Lakhs along with the Endowment Plan.

Piyush loves going on trips with his best friend, Isha, and partaking in adventurous activities. They both go on an adventurous trip at least once a year. In August 2022, they traveled to New Zealand to try skydiving, where Piyush, unfortunately, died in a skydiving accident.

Now, an Endowment Plan covers death due to participation in adventurous activities. The accidental death benefit rider, however, does not cover it. So, the insurance company will pay Piyush's nominee a claim amount of Rs. 20 Lakhs - they will not pay the accidental death rider benefit of Rs. 5 Lakhs.

What Is Not Covered By A Life Insurance Policy?

In life insurance, there is only one exclusion, i.e., a situation that it will not cover. That is, death because of suicide or self-harm in the first year of buying the life insurance policy. In this case, the insurance company will return the premium you paid (excluding the tax) to your nominee.

For example, Suyash buys an Endowment Plan in January 2022. He chooses a sum assured of Rs. 10 Lakhs and a policy duration of 10 years. He is required to pay an annual premium of Rs. 1 Lakhs (without tax) to the insurance company. And, he appoints his wife Sakshi as the nominee under the policy.

In May 2022, Suyash, unfortunately, passes away due to suicide. In this case, the insurance company will return the premium amount of Rs. 1 Lakh to Sakshi - and then, the policy will terminate.

Wrapping Up!

When buying any life insurance policy, it is critical to understand all the situations that it will and will not cover in order to avoid future complications. The only exclusion in life insurance is death by suicide during the first year of purchasing the policy. Apart from that, it will cover all sorts of death, such as death due to natural causes, accidents, intoxication, involvement in illicit activities, natural calamities, manmade disasters, and so on.

These deaths, however, may be excluded under riders you may choose with your life insurance policy. To avoid any hassles, make sure you carefully read the policy wordings before going ahead.

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