A detailed guide on terms and conditions of term life insurance

Term insurance policies are the first choice of people to provide financial protection to their family members even after their demise. However, with life being so unpredictable during the current times, it is only risky to not plan for the financial support of your loved ones which is why a term plan with a high sum assured is required. Hence, the benefit amount paid by the insurer after your death goes towards supporting your family’s lifestyle and planning for a better future. But term plans have specific conditions to fulfill; failing to adhere to them will lead to rejection of insurance claims.

Now aged 40 years, Manoj Kumar had taken a term insurance policy for Rs 50 lakhs when he was 30 years of age. He was living happily with his wife and two kids in his new apartment that was recently bought on a home loan. Life was moving smoothly until he started developing breathing issues. Manoj being a chain smoker, did not pay much attention to this issue and continued with his regular works. But things worsened quickly for Manoj, as he collapsed in his office while waiting for the lift. The doctors couldn’t do much as he had suffered lung failure on the way to the hospital due to over-smoking. Shocked at the turn of events, Manoj’s wife sent a claim request for the term plan, along with necessary documentation he had availed, but the insurance company rejected it. 

The insurer stated that Manoj did not disclose his smoking habit while buying the policy, and since death happened due to over-smoking, they cannot process the claim. It was proved, through the application form, Manoj did not reveal that he was a smoker to save on premiums. This mistake made ten years ago has made life challenging for his family members after his death.

Not only does the term plan offer death benefit to your beneficiaries in case of your death, but its coverage can also be extended to protect you against accident or disability, or critical illness. Though you are looking to purchase the best term insurance plan, it is necessary to read through the terms and conditions of the plan. It is also called the fine print since it will help you get your application approved and avoid claim rejections.

Terms and Conditions of Term Insurance

With different term insurance plans available in the market, the terms of each insurer will vary, but some conditions are common among every insurance company, which have been discussed below:

• Freelook period: All policyholders are offered a 15 or 30 (if bought online) days free look period from the date of receipt of the policy document to understand the terms and conditions of the policy. If you do not agree with any of the terms, then you may choose to return the policy within the free look period stating the reasons and can expect a refund of the premium paid.
• Exclusions in accident death: The deaths caused by accidents are included under the coverage of the term insurance plan, but the insurer shall approve the claim only after a thorough investigation. No benefit will be paid in case of deaths caused by accidents while engaging in hazardous activities such as car/ bike racing, criminal activities, etc., or if there was the consumption of alcohol while driving.

• Suicide Exclusion: Death due to suicide is typically placed under the exclusion list of term plans, but certain insurers return the premiums paid if the policyholder commits suicide within the first year of the policy term.

• Lifestyle condition exclusions:  Every insurer emphasizes some common lifestyle conditions such as smoking, tobacco usage, overweight, etc., at the time of application. For example, the premium of a term plan for a smoker is different, and in most cases, it is higher than that of a non-smoker because of the risks associated with smoking. Therefore, any death due to the policyholder indulging in these activities is classified under exclusions, and claim approval will be difficult.

• Pre-existing medical condition:  Death caused by any pre-existing medical condition, which was not disclosed in the application at the time of registration, falls under the exclusion list. In such a case, the claim request filed by the nominee will also be rejected by the insurer because of concealment of facts regarding the policyholder’s health condition.

• Death due to intoxication:  If the insured person was under the influence of drugs, alcohol, narcotics, or psychotropic substance, it can be termed as death due to intoxication and is excluded from the coverage of the term plan. No death benefit is payable in such cases leading to claim rejection by the insurer.

• Death from participating in criminal activities:  If the insured is found to have participated in criminal or any act breaching the code of law that led to their death, then no death benefit is payable to the policyholder’s nominee as it is placed under exclusions.

• Death due to Sexually Transmitted Diseases: Death due to any sexually transmitted diseases such as HIV/ AIDS during the policy term is not generally covered by term insurance policies until specific riders are availed for additional protection from these conditions. As they usually are excluded from the life cover provided by a term plan, the claim request also will not get approved by the insurer.

By not paying attention to the term insurance term & conditions, you are putting your life at risk and making it challenging for your nominee or dependents to file a claim after your demise. You should take more time to read through the policy document and illustrations and assess the requirements before deciding to buy that term plan.