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Monday, September 28, 2020

Exclusions for Term Insurance Plans

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No matter how good a driver you are, you would want your car to have airbags. Hopefully, there won’t be a situation ever where your car has to deploy them. But that is not an excuse for picking up a car that doesn’t have airbags. Simply put, they give you the confidence that should things turn against you, there is some protection available for you.

A term insurance plan is then pretty much an airbag for your life. Optimistically you should never need to claim the same, but if the worst ever happens you have a financial shield to protect your family.

The ideal scenario for a claim of term insurance is, the applicant passes away and his nominees claim for insurance. After the internal processes, the insurance company pays the nominee the sum assured as per the policy documents. That’s pretty straight forward, isn’t it? But there are lots of scenarios and situations where the insurance company might deny your claims.

This is where you as an applicant must be very thorough with your policy documents. List of excluded events and circumstances vary depending on the type of term plan chosen. And the list is quite exhaustive. However, there are few generic exclusions applicable across almost all the plans. Below are some of the exclusions-

Exclusions due to Accidental Death

There are a few cases where the death of the insured happens under abnormal circumstances. In order to process the claim, the insurance provider would usually carry out investigations from their end. The investigation process and methods followed might differ from one insurance company to the other.

They usually have a designated team of medical professionals who would carry out the investigations. In the case of accidental death or a critical illness claim, the insurance company might defer the claims for the following reasons:

  1. Accidental death while driving under the influence of alcohol or drugs
  2. Death due to participation in a hazardous activity or racing activity
  3. Any pre-existing condition that results in death.
  4. Death caused due to pregnancy, childbirth or any problems arising from the same.
  5. Taking part in any activity which is criminal by nature or a riot, etc.

Lifestyle Related Exclusions

Almost all insurance companies inquire about the smoking habits of the insured. That piece of information comes in handy in case of death caused due to a lifestyle problem. Insurance companies have the right to deny insurance claims if the insured passes away due to excessive smoking and fails to mention the same. People who smoke have lower mortality rates as compared to non-smokers. That is the reason, smokers are usually put in the high-risk pools. This, in turn, increases their insurance premium amounts.

Other Exclusions for Term Insurance Plans

A term insurance plan covers lots of events and circumstances under which the insured can claim their policies. Depending on the type of plan an applicant chooses, the list could be exhaustive. However, there are some exclusions that term insurance policies do not provide coverage for. Some of them are:

  • Suicide
    Suicide is included in every term plan’s exclusions list. The insurer will not be paid any benefits on committing suicide within one year of policy inception. However, some of the insurers may pay back all the premiums paid by the policyholder till the date of death after deducting policy-related expenses if any. Even Group insurance plans also do not accept death claims under suicide.
  • Self-Inflicted injury
    If death is due to a self-inflicted injury or involvement in a life-threatening hazardous sport without proper precaution, then the claim is not admissible for a Term Insurance Plan.
  • Sexually transmitted illness
    If death is due to a sexually transmitted illness like HIV, AIDS, etc. then, the same is not covered under Term Plans and the claim may not be admissible.
  • Intoxication or Narcotics
    If the policyholder’s death was brought about by or because of the consumption of alcohol or narcotic substances, the insurance company is not liable to compensate dependents.

Conclusion

While purchasing a term life insurance, it is important to know the features and benefits. But it is critical to read the fine prints to understand the exclusions. The last thing one would want is that their loved ones having to undergo claim denial. It is a tedious job upfront to read the policy documents line by line. But the effort put up in the initial phase has lots of rewards when it comes to claims. Failure to know these exclusions of your policy might at times lead to denial of claims.

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