What Kind Of Deaths Are Not Covered In A Term Insurance Plan?

Rohan was the type to prepare for absolutely everything. He had to-do lists ready for all his life's key milestones, whether it was finding a decent flat in a quiet Tier-2 city, setting aside funds for his little girl’s education, or simply making sure his family’s everyday needs were always taken care of. The checklist? Long. Still unfinished. But one thing he was absolutely certain about? His term insurance plan. After all, isn't that the best method of providing financial security for loved ones?

But one night, at a friendly dinner with friends, he was suddenly caught off guard by a question.

"What kind of deaths are not covered in a term insurance plan?"

He had never actually considered that before. He always presumed term insurance protected against all forms of death, natural, accidental, or otherwise. But was this really the case?

What if a person dies in an accident while travelling overseas?

What about disasters? Or extreme circumstances?

Those questions had stayed with him all through dinner. Inquisitive and somewhat worried, Rohan made up his mind to read thoroughly into his policy documents.

Late at night, under the dim glow of his study lamp, he was going through the documents. What he discovered in the fine print stopped him cold. It was shocking! While term insurance has only one key exclusion, the surprise came from the riders, each came with its own set of conditions where claims could be denied. And the more he read on, the more he understood that most people, much like him, may not entirely know these all-important facts. Did you have any idea that your policy could be covering such details?

Let's look at the research done by Rohan and figure out what the policy doesn’t cover, because hey, what’s left off the menu is just as important as what’s served, right? But first things first, let’s talk about the main character in the room, the term insurance plan itself.

What Exactly Is Term Insurance?

Term insurance is one of the easiest and most affordable means of safeguarding your loved ones' future. It will provide your family with financial assistance when they need it most, in case something were to occur to you.

Term Insurance Policy ki poori jaankari | टर्म इन्शुरन्स detailed गाइड

How does it work, then? Let's simplify it for you.

The primary objective of term insurance is to substitute your income and provide financial security to your family. In case of your death during the policy tenure, the insurance provider pays a specified amount, sum assured, to the nominees you have selected.

Sum Assured - a term you may not be familiar with. Let us help you understand it.

This is the total amount your family will get in case of your death. It assists in meeting basic needs such as daily expenses, loan repayment, your child's education, etc. The sum assured guarantees that your loved ones do not suffer financially and can go on with their lives without significant interruptions.

The relieving news? Your loved ones will get this amount depending on the claim payout option you chose when buying the policy, either as a one-time payout, monthly instalments, or a combination of both. That way, they can budget in a manner most suitable for them.

Term insurance is a simple cover plan that protects you for a specified period, like 10, 20, 30 years, etc. Your family gets the settlement in case you pass away within that time. But you do not get any maturity amount if you survive the policy duration.

Term Insurance is affordable because, unlike other plans, it is not an investment or a savings plan. It is much cheaper than other plans, such as whole life insurance or endowment plans, since its sole intention is to provide financial protection. Because you are only paying for the assurance that your loved ones will be well provided for if you pass away, and not for extras.

Next, we look at the types of death not covered under a term insurance plan.

What Kind Of Deaths Are Not Covered In A Term Insurance Plan?

Although term insurance is straightforward, people often find themselves confused about what it actually covers and what it doesn’t. Most believe there's an extensive list of exclusions, but the actual list is quite short.

Is There a List of 'Excluded Deaths'?

Not really. There’s no fixed or official list of deaths that aren’t covered, except for suicide under certain conditions. Nonetheless, do not go straight to believing that term insurance will exclude deaths due to natural disasters, terrorist attacks, or pre-existing illnesses. These misconceptions often stem from a lack of awareness concerning exclusions under riders' or other types of insurance policies.

Suicide: The Sole Significant Exclusion

If you go through several term insurance policies, you will figure out that suicide is the only significant exclusion, and even that is subject to certain conditions.

• First-Year Exclusion: If the insured commits suicide during the first year of purchasing the policy (or within the first year of reinstating a lapsed policy), the insurance company will not pay the entire sum assured. The nominee will instead be refunded a percentage of the premiums paid, minus taxes. But after one year, even suicide is covered.
• Saral Jeevan Bima Exception: This policy has a 45-day waiting period at the beginning. If the insured dies of an illness within 45 days, the claim will not be paid. Accidental deaths during this period are, however, covered.

Riders vs. Policy Exclusions: Clearing the Confusion

Many misconceptions about term insurance exclusions actually come from misunderstandings about riders. Let’s break it down and see the difference.

Most sites say that term insurance does not cover deaths caused by pre-existing illnesses, terrorism, or human-made catastrophes. Guess what? That's totally wrong!

So what could have happened?

What likely happened is that someone searched for the word 'exclusions' in the policy document and came across exclusions listed under the riders, not the main term insurance policy. Exclusions in critical illness riders or accidental death benefit riders were mistakenly inserted in the articles as if they pertained to term insurance itself.

It's important to note that riders come with their own exclusions if you've included the riders in your policy.

If you've included riders with your term insurance policy, it's essential to be aware that not all types of death are covered; riders come with specific exclusions you should know about. Although it does include deaths caused by intoxication, criminal acts, or reckless adventures. Due to this, it's advisable to read the fine print carefully!

Let’s look at an example to have a better understanding!

Suppose Maya purchases a Rs 2 crore term insurance plan along with an accidental death benefit rider of Rs 80 lakh. After some years, while her policy is in force, she unfortunately meets her demise while skydiving.

Now, the twist is this: term insurance pays for adventure sport-related deaths, but not the accidental death benefit rider. So her family will get the Rs 2 crore payout from the term insurance policy, but not the additional Rs 80 lakh from the rider.

This is an excellent case in point of why it's so crucial to know the difference between base policy coverage and rider exclusions!

To Wrap It Up

Ultimately, term insurance offers protection for most causes of death with only a few exclusions, such as suicide during the first year and the waiting period in Saral Jeevan Bima. The actual confusion tends to stem from confusing rider exclusions with those of the underlying policy.

That is why it is so crucial to know precisely what your policy provides for before you make a decision. Take the time to read the fine print, ask questions, and have your doubts cleared up before purchasing a term insurance plan. A bit of research upfront can leave you feeling assured that your family's financial security is truly safe.