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Does Term Insurance Cover Disability?

Does term insurance cover disability?

Does Term Insurance Cover Disability?


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March 16, 2021

By : Bajaj Allianz Life

Purchasing a term insurance policy is one of the preferred ways to protect your family from the uncertainties of life. Not only is it easy enough to do, but is also very cost-effective. That said, many tend to equate term insurance benefits with something that is connected only with the death of the insured. However, that is simply not the case. There are several term life insurance plans that also cover other contingencies like accidents or disabilities suffered by the insured.

To understand more about this, let us first look at the fundamentals –

 

What is term insurance?

 

Also known as a term life insurance, a term insurance policy, is essentially a contract that you enter into with an insurance provider for a specified tenure. Here, the insurance provider takes on an obligation to provide your beneficiaries/nominees with a certain predetermined sum of money in the event of your demise during the policy tenure.

This "death benefit" that the insurer provides is a financial compensation which can then be used by your beneficiaries/nominees to satisfy their life goals. In exchange for receiving this coverage, you are required to make periodical payments known as premiums to the insurer. For instance, let us say that you avail a term insurance policy with a ‘death benefit’ of Rs. 20 lakhs for a tenure of 20 years. Say you would be required to pay Rs. 10,000 each year until the end of the tenure to enjoy this life cover. In the event of your death during the policy tenure of 20 years, the insurer is obligated to provide the sum of Rs. 20 lakhs to your beneficiaries/nominees as compensation. This is the most basic of term insurance benefits.

Since they are pure protective covers, term life insurance usually tends to charge a much lower amount of premium than other traditional life insurance products.

 

What is a term insurance rider?

 

Apart from the death benefit, term insurance plans often come with riders that offer other benefits to the insured or his family. A term insurance rider is an add-on to a term plan, and it offers you additional benefits over and above what the base plan offers. You can opt for these add-ons at the time of purchasing a term life insurance plan by paying an additional amount.

Essentially, a term plan with a rider allows you to maximize your term insurance benefits, since it offers you an additional cover. There are multiple different riders with various benefits for you to choose from. Some of the most common ones are –

• Accidental death benefit rider

• Critical illness rider

• Waiver of premium benefit rider

• Family income benefit rider

• Accidental permanent total or partial disability rider

Here’s some more information regarding disability coverage that can be added to base term insurance plans –

 

What is the accidental permanent total or partial disability rider?

 

Since we are trying to get to know if a term insurance covers disability, let us explore the accidental permanent total or partial disability rider.

By opting for the above rider, you can effectively expand the coverage of your term insurance policy to provide you with a monetary benefit in the event of total or partial disability due to an accident. You can then use the financial compensation provided by the insurer to take care of yourself and your family during those tough times.

Here is an example of how the accidental permanent total or partial disability rider works. For this, let us take up the previous example. Assume that you have opted for a disability rider along with the base term insurance plan at an extra cost of Rs. 53,000 per year, over and above the Rs. 10,000 premium. The sum assured under the rider is Rs. 15 lakhs.

Now, during the policy term, say you meet with an accident that causes either permanent partial or total disability. Considering the fact that you have opted for the accidental permanent total or partial disability rider, you would be eligible to receive the sum assured of Rs. 15 lakhs. You can then make use of this sum of money to tide over your expenses or even compensate for a temporary loss of income, if any.

 

What qualifies as a disability?

 

The term insurance policy and the rider’s terms and conditions dictate the definition of disability. However, generally speaking, permanent partial disability includes the loss of one eye, one leg, one arm, one foot, and one hand.

On the other hand, permanent total disability includes the loss of both eyes, both arms, both hands, one arm and one leg, one arm and one foot, one hand and one foot, one hand and one leg, both legs, both feet, and removal of the lower jaw.

That said, the rider also generally tends to come with certain exclusions, where the benefit would not be payable. Here is a quick look at certain scenarios that are typically excluded –

• Disability arising out of acts with criminal intent or acts breaching the law

• Disability arising out war, invasion, civil war, rebellions, or riots

• Disability due to the consequences of being under the influence of alcohol or drugs

• Disability due to taking part in dangerous activities such as hazardous sports or competitions

• Disability arising out of self-inflicted injuries

 

Conclusion

 

As you can see from the above, a term insurance plan can be modified to cover disabilities. In order to do so, you are required to opt for the accidental permanent total or partial disability rider by paying a nominal extra cost and get yourself an additional protection.

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.