A term life insurance policy helps you to financially secure your family’s future in case of your untimely demise. While you take the right step in securing your loved ones’ future, it is also a responsible act on your part to be aware of the types of deaths not covered by a term Insurance policy. Yes, you read it right. A life insurance contract does not cover certain types of deaths. These are known as ‘Exclusions’ and are mentioned in your policy contract and also in the plan brochures.
The common exclusions in most Term Life Insurance contracts are detailed below:
- Suicide – A suicide happening in the first policy year or within one year from the date of revival of the policy (whether sane or insane at that time) is not covered. This is further broken into two time periods:
- For policies issued prior to June 1, 2014, the policy was rendered null and void and nothing was payable to the nominee.
- For policies issued after June 1, 2014, 100% of the policy fund value is payable to the nominee in case of a ULIP. For a non-ULIP, 80% of the premium paid is payable to the nominee.
The suicide clause helps to protect the insurance company from the moral hazard of such acts.
- Homicide – If the life insured is murdered, the nominee cannot just claim the policy money (as is often shown in movies). The insurance company would wait for the investigation to be completed and only if the nominee is acquitted will he receive the policy money.
- Death caused by accidents is covered however if the investigation conducted by the insurance company reveals that the accident occurred because the life insured was driving under the influence of alcohol or other intoxicating substances, then the claim can be rejected.
- Death caused due to wars
- Death caused due to participation in any criminal or unlawful activities.
- Death due to self-inflicted injuries.
- Death due to HIV/AIDS or any sexually transmitted diseases.
- Death caused due to an overdose of drugs/alcohol
- Death due to tsunamis, earthquakes and other natural calamities where scores of people get affected.
- Fraud/Misrepresentation of material facts - The application form is the basis on which the policy is issued. It has questions pertaining to age, gender, height, weight, occupation, income, family medical history, profession, personal health, medical history, hobbies, smoking and alcohol consumption, area of residence, existing policies etc. The answers provided for these questions form the basis on which the insurance company determines your premium and the terms on which insurance cover is granted to you.
Most insurance companies conduct a thorough investigation in the case of an early claim (death). An early claim is one which arises within 3 years of policy issuance or policy reinstatement whichever is later. If the insurance company proves that the death claim has arisen because of incorrect information in the application form or due to non-disclosure of material facts, then the claim can be rejected.
Some illustrations regarding this crucial point where a claim can be rejected are
- A bungee jumping enthusiast and coach not mentioning about this profession in the application form and subsequently dying in an accident while performing this sport.
- A firefighter not mentioning his profession and subsequently dying while performing his duty.
- A smoker not mentioning this in the form and subsequently contracting a smoking-related ailment and dying.
- A person working in a country which is beyond the geographical coverage area of the insurance company passing away in that country.
- If a person with an existing policy withholds this information about policies already held by him while purchasing a new policy, then a claim may get rejected.
The underlying point is that every question on the application form exists for a reason and should not be considered trivial. If accurate details are mentioned, then during issuance itself the insurance company may charge extra premium wherever applicable and issue the policy (in which case the chances of claim rejection is rare).
Do not treat any question as irrelevant or trivial. Every question exists for a reason. For eg: A question on occupation lets the insurer know whether you are in a high-risk occupation. Working in a mine, as a fire-fighter, as a pilot etc are considered high risk and accordingly higher premium rates may be applicable. Similarly, hobbies such as bungee jumping, river rafting and adventure sports may attract a higher premium.
Also, when you apply for a new policy you must disclose about your existing life insurance policies if any so that the insurance company is aware of your existing coverage.
If such disclosures are not made, it may be considered as misrepresentation and the claim might be rejected.
When buying a policy equal importance should be given to understand what the exclusions in the policy are so that your nominees are not denied a claim in your absence. Also, insurance being a contract of good faith, you need to ensure that all questions are answered truthfully and accurately to prevent claim rejection.