Life is uncertain, and an unfortunate event can wreak havoc with your family’s financial stability. Buying a term insurance plan is an affordable way to ensure their monetary security in the future in the case of your untimely absence.
A term plan is a pure life cover that pays the death benefits if an unfortunate incident occurs during the policy duration. The benefits are limited to the sum assured (SA). The insurer pays them either as a single one-time payout or a combination of lump sum and regular installments.
When you buy a term policy, read the document carefully to understand the fine print and all the terms and conditions. It is important that you read the clauses related to what types of events are covered to ensure that your family members do not face any disappointment when they file a claim in the future.
Here are six types of events resulting in your sudden absence that term insurance policies do not cover:
- Pre-existing medical conditions
If you have a pre-existing medical illness when you purchase the term plan, it is essential to disclose this fact to the insurer. Failing to conceal the relevant information can be a reason why your family’s claim will be rejected later.
If one or more of your nominees are suspected or convicted of homicide either directly or indirectly, the insurance company may withhold the policy benefits payable to them. In such a situation, the insurer will pay the claim amount to your legal heirs.
- Accident resulting from intoxication
A term plan pays the policy benefits to your nominees if the unfortunate event results due to an accident. However, if you were under the influence of either alcohol or drugs when the accident happened, the insurer will not pay the death benefits to your nominees.
- Hazardous activities
If the event resulting in your absence occurs while participating in bungee jumping, sports racing, water rafting, skydiving, paragliding, or other dangerous activities, the insurer may deny any claim filed by your nominees.
The nominees may receive only 80% of the total premium paid if the policyholder commits suicide within one year from the start of the non-linked term insurance policy. If the policyholder has a linked term plan and commits suicide within one year from the commencement of the policy, the nominees will receive 100% of the total premium paid. Remember that even if the insurance company covers such incidents, the nominees do not receive the SA but only the premium paid.
If you are pregnant while buying the policy but you hid the truth, the insurer can reject your family’s claim if a tragic event occurs during childbirth or due to other complications.
Does a term plan cover death due to natural disasters?
When trying to understand what is a term insurance plan, you may be unsure about the payout of the policy benefits if your absence results due to a natural disaster. Often, a term plan covers an unfortunate event if it is caused by a natural calamity like a tsunami, flood, earthquake, cyclone, or other “acts of God”. However, it is recommended that you find out about the same before buying the policy to avoid claim rejection in the future.
If you understand what is a term insurance plan, its inclusions, and exclusions prior to the policy purchase, it will be helpful for your nominees. Additionally, it is necessary to have knowledge about the various regulations and the term insurance tax benefits to make sure that your nominees do not have any problems while filing a claim in your absence during the future.