Type of Deaths are Covered by Term Insurance

Understanding the definitive types of deaths covered by insurance companies is crucial when opting for a particular plan or rider. We should make particular note of the type of deaths that require an additional rider for extra protection and financial backing to be provided to the policyholder’s family.

Here’s the list of deaths covered by term insurance plans:

  • Natural deaths
    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 death causes, the nominee of the policy will be paid the assured sum from the term plan, otherwise called the insurance payout. An example would be a policyholder who passes in his or her sleep from a stroke or heart attack, which is treated as health-related death and are covered by term insurance plans.

  • Accidental deaths
    Term insurance policies cover deaths caused by accident, defined as a sudden, unforeseen, and involuntary event, by an external, violent, and visible force such as a road accident. The named nominees in policy will be given a payout if the policyholder dies in that accident. However, bear in mind, if the policyholder was intoxicated, under drug influence, or involved in a crime or an unlawful activity, that led to this accidental death, the claim is rejected. If the death occurs independently of any other cause within 90 to 180 days of an accident or traumatic event, it will be treated as an accidental death.

  • Homicide
    In most situations, life insurance provides a payout to the beneficiaries in the event of a policyholder getting murdered. However, there is a contestability period up to two years, which is the usual contestation term in most Indian states, for insurance companies to investigate the policyholder's death to ensure the agreement’s purity is maintained. Beyond the contestability period of two years, the insurance company must pay out all death claims and cannot object. This is to protect the company from insurance fraud or unscrupulous consumers that lead to losses on the insurance company’s part. If a policyholder is murdered but the insurer finds out the nominee was involved in the murder, death benefit payouts will be rejected or withheld until charges are dropped against the nominee.

  • Suicide
    Policyholders who commit suicide within 1 year of the policy state date, will have nominees receive the death benefits. Waiting periods for some companies are much longer, going up to 2 years for some claims. Previously, no provisions were provided in payouts or refunds to beneficiaries with insurance companies outright rejecting any claim payments to the nominees in the case of suicide. The Insurance Regulatory and Development Authority of India (IRDAI) has now changed the suicide clause in July 2019 with regards to non-linked policies, wherein nominees can receive at least 80 percent of the total premiums paid till the policyholder’s death or the surrender value on the date of death, whichever is higher, if the policyholder commits suicide within 12 months of the policy’s state date of revival date. Linked claims provide nominees with 100 percent of the total premiums paid in the case of suicide.

  • Natural disaster
    Coverage on deaths in natural disasters remains uncovered despite the fact that it is accidental and unforeseen death. However, insurance companies do provide financial coverage if the policyholder opts for a rider benefit to cover that type of death due to a tsunami, flooding, and severe weather conditions. Insurers might receive clarifications from insurance companies before taking up the policy, or else nominees will not receive such benefits in the case of the policyholder’s death in a natural disaster if the plan requires the rider and the policyholder did not opt for it. This is crucial in areas that are prone to such disasters as many families who were victims of the flooding in Uttarakhand and Kerala, have been left financially devastated and unprotected by insurance policies that did not have this rider. It is option policyholders should consider opting for if they live in such regions prone to severe weather conditions.

So far, this list helps us understand the deaths that are definitely covered by your term insurance plans while the rest would require an additional rider for enhanced protection. Considering the multitude of available policy options from various companies in the Indian insurance market, the policyholder must make sure to speak to their broker about additional riders that they believe would be beneficial to have in place for their nominees in certain cases, a natural disaster for one, in regions prone to extreme flooding or severe weather conditions to avoid falling into the same situation as Sonam had faced.