Ch. 10: Term Insurance Exclusions

You only buy term insurance once (or at a maximum, twice) in your entire life. And it is going to impact the quality of life your family will enjoy when you are not around anymore. As a long-term commitment that provides an income replacement to your family in your absence, as well as funds their big dreams and life goals - it is a super important decision to make.

The world of term insurance is riddled with misleading information and widespread misconceptions - despite it being one of the simplest forms of insurance products.

One such popular misconception is around “The list of deaths your term insurance policy won’t cover...”

Truth is - there is no such list. Our research team went through all available term insurance policies in detail and found that - except death due to suicide in the first year of buying the policy, all types of death are covered by term insurance.

Let’s have a look.

Natural death : Covered

All term insurance plans cover health-related or natural deaths that are a result of a disease or medical condition. In this case, if the policyholder dies from natural causes, the nominee of the policy will be paid the assured sum from the term plan, otherwise called the insurance payout. Death due to any critical illness is covered under Term plans. It also includes sexually transmitted diseases like HIV/AIDS. If you have an existing illness when purchasing a Term insurance plan, then it is mandatory to disclose it.

Accidental death: Covered

Term insurance covers death due to accidents too. And by accidents, we don’t only mean road accidents. Term insurance will cover accidental death irrespective of whether it takes place at home or when you are in the air travelling in a plane.

Death due to participation in an adventurous activity: Covered

Term insurance policies cover deaths due to risky and adventurous activities like bungee jumping, snorkelling, river rafting, etc.

Important Note: Riders might not cover deaths due to participation in adventurous activities. Make sure you go through the policy wordings and documents before purchase.

For example - Meena has bought a 50 lakhs term cover and an accidental death benefit rider worth 15 lakhs. She dies in a river rafting mishap, while the policy is still in force. The term insurance policy she has bought covers deaths due to participation in adventurous activities, but the rider doesn’t. Hence, her family is entitled to the Rs 50 lakhs claim and not the rider benefit of Rs 15 lakhs.

Death due to natural or manmade calamities: Covered

• Death caused by natural calamities like landslides, droughts, floods, etc. are covered under term insurance policies.
• Similarly, death due to manmade calamities like war, terrorism, etc. are covered under term insurance policies.

Important Note: Riders might not cover deaths due to war. Make sure you go through the policy wordings and documents before purchase.

Death due to intoxication: Covered

The insurance company will honour your family’s claim if you pass away due to the consumption of alcohol, drugs, or narcotic substances.

Important Note: Riders might not cover deaths due to intoxication. Make sure you go through the policy wordings and documents before purchase.

Death due to involvement in illegal activities: Covered

Term insurance policies cover deaths that happen in the course of participation in unlawful activities or violations.

Important Note: Riders might not cover deaths due to involvement in illegal activities. Make sure you go through the policy wordings and documents before purchase.

Keep in mind: This is not the complete list. Besides the deaths we’ve mentioned above, there might be a lot of other types of deaths that a term insurance policy will cover.

Remember, it is the insurance company’s responsibility to list any exceptions in the policy document. So, unless it is explicitly mentioned that your policy won’t cover a particular type of death, you do not need to assume any exceptions to this rule.

Saral Jeevan Bima

Saral Jeevan Bima is a standard term policy mandated by the IRDAI. It is standardised in its nomenclature, terms and conditions, customization options across insurance companies plus has no restrictions related to education, income, location, occupation, etc.

When it comes to Saral Jeevan Bima, is a waiting period exclusion for the first 45 days of the policy duration. During these 45 days, the policy only covers deaths due to accidents.

In the event of a non-accidental death during the waiting period, all the paid premiums will be returned to the policyholder's family (after subtracting taxes). Their family is not eligible for the Sum Assured during the waiting period.

Exclusions of Term Insurance Policy

An insurance agency can reject a claim only if it falls under this one universal exclusion:

Demise Due to Suicide and Self-harm: Not covered within first year of policy duration

Death because of suicide in the first year of taking the term insurance policy is the only type of death not covered by term insurance. Nonetheless, it should be noticed that all insurance agencies willingly return the policy premium (after deducting the taxes) if the policyholder commits suicide within a year from purchasing the policy.

Important Note: Death because of suicide is covered from the second year of the policy duration.

Term insurance plays a huge role in safeguarding the financial future of your family. Given how important it is, make sure you keep the above points in mind and choose to do the right thing. You are obligated to be open about your lifestyle choices, habits, pre-existing diseases, etc. before signing up.

Term insurance can provide peace of mind and a valuable financial safety net for your loved ones. In general, policies cover all kinds of death, for example, death due to natural causes, illness, and accidents. Still, insurers can withhold benefits in certain situations. Be sure to read your policy's fine print to understand what's covered—and what's not. Stay aware, stay protected.