Types of Deaths Covered and Not Covered in Term Insurance

Term insurance is one of the purest forms of life insurance coverage that provides sum assured to the beneficiary if the policyholder has a sudden demise. If the policyholder survives through the term, the insurance coverage ceases, and the insured person is not liable to receive any pay-outs.The insurance covers typically two death instances – death due to medical condition and accidental death.

• Death due to a medical condition or natural death: This is the most common type of death covered in term insurance wherein insurance company accepts to release sum assured if the policyholder dies naturally in sleep. On the other hand, if the cause of death is illness or disease, the beneficiary gets lump sum payout.
• Accidental death: Accidental demise of an insured person is defined as death due to unforeseen event caused by violent or visible force. Most term insurance companies offer this benefit as an independent rider/add-on wherein the nominee gets the extra sum assured along with the basic insurance cover.

When it comes to providing coverage in case of the death of the policyholder, the insurance policy has some exceptions. The company refrains from offering any financial assistance if the cause of death is unnatural, intentional or caused by external events. These include:

• Death by Suicide: If a policyholder dies due to suicide within the 12 months from the date of the policy, the beneficiary gets nearly 80% of total premium paid by the insured person or applicable surrender value under a non-linked plan. Alternatively, the nominee is entitled to get 100% of the total premium paid in case of linked plans.
• HIV/AIDS: There are very few insurance companies that offer compensation if the cause of death is due to sexually transmitted diseases like STDs or AIDS. Most often, this type of incidence is not covered.
• Intoxication: If the policyholder succumbs due to consumption of alcohol, drugs or any intoxicating substance, there is no financial assistance to the deceased member’s family.
• Self-inflicted injuries: The insurance company has the right to reject the claim of the nominee if the insured person dies due to self-inflicted injury or adventurous activity.
• Natural Calamity: The deaths that take place due to any natural calamity will not be covered by the insurance company unless the policyholder opts for an additional rider.
• Homicide: The insurance company rejects the claim if the death of the policyholder is due to murder committed by the nominee. If required, the company can put on hold until the nominee is acquitted.

The death reasons may vary; hence policyholders should understand the terms and conditions of the policy to avoid last-minute discrepancies during the claim process.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.