A term life insurance policy is a cost-effective way to secure your family’s future should you meet with an untimely demise. As you buy a term plan to cover your life, it is also prudent on your part to know the situations/events when a term plan will not pay the sum assured (coverage amount) to your nominee.
Certain types of death plans are not covered and these are elucidated in the ‘Exclusions’ section of the policy documents. Read on to know what the common exclusions are in most term plans:
1. Suicide: If the life insured commits suicide within the first policy year or within one year from the revival date of the policy (irrespective of whether the insured was sane or insane during the time of the act) then the death is not covered.
The suicide clause is as follows:
- If the policy is issued before June 1, 2014, then the policy is rendered null and void and no amount is payable to the nominee.
- If the policy is issued after June 1, 2014, then for ULIPs 100% of the policy fund value is payable. For term and traditional plans, 80% of the premium paid is payable.
The suicide clause exists to safeguard the interests of the insurance company and other policyholders else some people who are planning to end their life may take a policy to financially secure their family and execute their plan.
2. Homicide: If the cause of death of the life insured is murder, then the insurance company will wait for the completion of the investigation and only if the nominee is cleared and acquitted will the policy money be paid to him.
3. If the life insured dies in an accident but if the investigation conducted by the insurance company finds that the accident occurred as the life insured was driving in an inebriated state or under the influence of drugs/intoxicating substances, then the claim can be rejected.
4. Death which has taken place due to involvement or participation in any criminal or unlawful activities.
5. Death as a result of war
6. Death which has occurred due to self-inflicted injuries.
7. Death caused by HIV/AIDS or any sexually transmitted diseases.
8. Death which has occurred due to an overdose of alcohol or drugs
9. Death which has taken place due to natural calamities such as tsunami, earthquake, flood, etc where many people have been affected.
10. Fraud or Misrepresentation of material facts: The insurance policy is issued to you based on the responses provided by you for the questions in the application form. The responses thus provided help the company determine the level of risk and whether they can accept the risk at standard rates or accept risk with an extra premium or whether the risk can be accepted at all. The questions in the application form range from age, gender, occupation, height, weight, family history of ailments, ailments suffered in the past with details, hobbies, details of smoking and alcohol consumption, city of residence, details of existing policies, etc. All of these questions help the insurance company draw a profile of the life to be insured and help them access the level of risk and the premium to be charged. Hence it is very important that you respond to the questions accurately.
If a claim arises within three years of policy issuance or reinstatement whichever is later, then such a claim is categorized as an early claim and is minutely investigated by insurance companies. In case the insurance company proves that inaccurate or incorrect information was provided in the application form or there was non-disclosure of material facts intending to defraud them, then they have the right to reject the claim.
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.