Term insurance policies have gained immense popularity over the last few years. This is because they are easy to purchase, cost-effective, and offer a lump-sum amount in the case of a death claim. The benefits and riders offered by term plans help people and their families leverage their plans to the fullest. Purchasing a term plan is investing for one’s peace of mind as the dependents receive the benefits and coverage.
If the life insured of a certain term insurance policy passes away suddenly, the nominee or beneficiary will receive a death claim payment from the insurance company. This process is known claim settlement, and the death benefit is known as pay out.
Even though term policies cover sudden deaths, there are certain deaths falling into certain categories that are typically not covered by term plans. Mentioned below are the types of deaths that are covered and not covered by term insurance policies:
Death Caused by Accident:
If a policyholder dies in an accident (road, railway, etc.), the nominee/beneficiary receives a payout from the insurer either in installments or lump sum. This includes on-the-spot death caused by a road accident or death after a few days in the hospital. However, if the policyholder was intoxicated during the accident, or was involved in some criminal activity (during the accident), or if the death was caused by an adventurous sport like race car driving, then the insurer will not provide the payout.
Death Caused by Other Illnesses:
If the policyholder dies due to health-related issues or a specific illness like cancer, then the insurer is liable to provide the policy payout amount to the nominee.
With the establishment of the new suicide clause by the Insurance Regulatory and Development Authority of India (IRDAI), if the policyholder has committed suicide within a period of 12 months since the commencement of the policy, then the insurer will provide the applicable money to the nominee. However, this rule is applicable only to linked plans. In the case of non-linked plans, 80% of the total premiums paid will be given out by the insurance provider within a timeframe of 12 months since the commencement of the policy. Compensation of the death benefit will only be made available if the policy premium has been paid regularly for 12 months at least.
If the policyholder is murdered during the term of the policy, then a thorough investigation is conducted first in order to determine the culprit. However, if the nominee is found involved in the crime in any way, then he/she will not receive the payout from the insurer, at least till proven not guilty and acquitted. In cases like this, the payout amount is typically withheld by the insurer indefinitely till a resolution is passed.
Apart from the factors mentioned above, if the policyholder dies due to smoking, drinking, or consumption of substances, the death benefit can be withheld by the insurer, if the policyholder had not mentioned about the same during the purchase. Insurance providers are usually reluctant towards such lifestyle habits and may refrain from issuing a policy to a person with such tendencies altogether.