A term life insurance is one of the preferred protection instruments because not only does it offer compensation in form of sum assured to your beneficiaries in case of your death, but may also be customised to include additional protection in case you contract any critical illnesses or disability. There are several ways your term plan can be customised, and it is important for you to understand its different components to ensure that your loved ones are taken care of.
One of the foremost ways to assess your policy is to go through the term insurance terms and conditions, which are usually referred to as the fine print of the policy document. The term insurance terms and conditions explain the exclusions to the policy. This is the section of your online term plan where you can learn about what is not covered as part of the policy.
Exclusions in an Accidental Death
Not all incidental deaths are insured under term insurance. If the death occurred because of a risky situation or illegal activities, the claim can be denied. For instance, if the person was driving with no license, in a street race or was committing a crime at the time of the accident, the insurance company may deny the sum assured. Death due to drunk driving is typically also not covered.
It’s important to read your policy document carefully to know what types of accidents are not covered. Some insurers may also exclude accidents that happen while using private aircraft, engaging in extreme adventure sports, or while under the influence of banned substances. Always disclose your habits truthfully while buying the policy to avoid claim issues later.
Exclusions Due to Lifestyle
Your lifestyle plays a big role in term insurance. If the policyholder dies due to unhealthy habits like smoking, drinking too much alcohol, or using drugs—and these habits were not declared at the time of buying the policy—the claim may be rejected. Insurance companies want to know your habits because they affect your health and life risk.
Even if you smoke occasionally or used to drink in the past, you should mention it while applying. If you lie or hide your habits, and later the insurer finds out that the death happened because of it, the family may not get the claim amount. Many policies also exclude deaths caused by diseases related to such habits if they were not disclosed. To avoid any problem, always answer lifestyle questions honestly when you apply for a term plan.
Common Exclusions in Term Insurance
Most term life insurance policies offer different kinds of customisation, based on the level of protection and coverage you are looking for. Even with the term insurance terms and conditions, there may be changes based on the individual policyholder.
These term insurance terms and conditions, otherwise referred to as exclusions, list out the situations under which your beneficiary’s claims will be rejected. While most will be customised in accordance with the insurer and the individual policyholder, there are several exclusions that remain common across most term life insurance policies.
Read on to learn about the common exclusions in term life insurance policies, which also form a part of your online term plan.
Suicide and/or Death due to hazardous activity
Cases of suicide are always listed as exclusions on term life insurance policies. In addition to this, cases where participation in dangerous activities may lead to death are also included in the exclusions. This could include adventurous sports that may commonly result in death, demonstrated by a previous track record of accidents.
Participation in Criminal Activities
This exclusion essentially states that if the policyholder’s death has been caused owing to their participation in criminal activities, their beneficiaries will not be able to claim term insurance benefits, i.e. the sum assured. This is quite a common exclusion and there are no add-ons that can offer protection to policyholders against this exclusion.
Pre-Existing Medical Conditions
Before you receive your policy, it is mandatory for you to reveal all the health conditions that you are suffering from or are likely to suffer from, owing to pre-existing conditions or even hereditary conditions. Your term insurance policy will always be drafted keeping in mind these conditions and it will affect your term insurance premium amount. However, if there is any pre-existing medical condition that was not revealed to the insurer before availing the policy, you will not receive coverage for it. This means that if you die of a pre-existing medical condition that the insurer did not know about, your beneficiaries will not be able to receive the death benefits.
Death under the influence of alcohol or drugs
Life insurance companies in India mostly refuse to provide term insurance cover to habitual drinkers and drug abusers. One cannot hide this claim from the insurer. Even if you hide your drinking problem and drug addiction, buy a term insurance plan, and die due to an accident or some other incident under the influence of drugs or alcohol, the insurance company may reject your life insurance claim as per the terms and conditions specified therein.
Inclusions and Exclusions in Term Insurance
Term insurance is known for its simplicity and clear definition of what is covered and what is not. If the policyholder dies during the term of the policy from any natural cause or illness (not specifically excluded), the nominee will receive the money. However, there are exclusions for death by suicide (within 12 months), criminal activity, and death specifically due to intoxication from alcohol. A few term plans also have added benefits, or riders, such as critical illness cover or accidental death cover to provide additional protection.
Now, let’s understand some common features that are included in most term insurance plans.
Free Look Period
The free look period is the time you get to review your policy after buying it. Usually, it’s 30 days from the date you get the policy document. If you feel the policy doesn’t match what you expected, you can cancel it and get your premium back. The insurance company may deduct a small amount for medical check-ups or stamp duty. This feature helps you decide peacefully if you made the right choice.
Grace Period
A grace period is the extra time given to pay your premium if you missed the due date. It is usually 15 days for monthly payments and 30 days for yearly, quarterly or half-yearly payments. During this time, your policy remains active. If you pay within the grace period, your policy won’t lapse. But if you miss it, your term insurance can stop, and you won’t get any policy benefit. That’s why it’s important to mark your premium dates.
Revival of Policy
If your policy has lapsed because you did not pay the premium even after the grace period, you still have a chance to get it back. This is called revival. You may have to pay the pending premiums with interest. Some insurers may also ask you to go through a medical check-up again and fulfilling any additional requirements set by the insurer. Revival helps you continue your policy without starting all over again.
Tax Benefits
Term insurance also gives you tax savings. Under Section 80C of the Income Tax Act 1961, you can claim a deduction of up to ₹1.5 lakh on the premium you pay under old tax regime. The amount your family receives after your death is also tax-free under Section 10(10D) subject to certain conditions mentioned therein. These benefits help you reduce your taxable income while also securing your family. Please note, tax laws can change, so it’s a good idea to check the latest rules before filing your return.
Nomination
Nomination is the process of choosing someone (usually a family member) who will receive the insurance money after your death. You must clearly mention the nominee’s name and relationship in the policy document. If you do not nominate anyone, the process of giving the money to your family can take more time and paperwork. You can also change your nominee later if needed. Keeping nominee details updated helps ensure a smooth claim settlement process.
Assignment
Assignment means transferring the rights of your policy to another person or organisation. People usually assign a policy to a bank when they take a loan. If something happens to you, the insurance money will first go to the bank to clear the loan. After that, the rest of the amount (if any) will be given to your nominee.. Assignment is useful when using life insurance policy as loan security.
Conclusion
Term insurance terms and conditions may differ from insurer to insurer. It is important to study your policy document in detail to understand what the exclusions are in term insurance plan before you make the purchase.
FAQs
What are the conditions of term insurance?
The term insurance conditions involve payment of premiums timely, honesty regarding your health and lifestyle, and knowing what is covered or not under your policy. These are the conditions enumerated in the policy document.
Which death is not included under term insurance?
Suicides (within the first year), alcohol or drug-related accidents, criminal incidents, or other unknown medical conditions are typically not included. Always check the exclusions clause to find out what is excluded from your plan.
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