Understanding Term Insurance Death Benefits: What’s Covered and What’s Not

Term insurance is a type of insurance which offers financial compensation to the policyholder’s nominees for a given period. The timeframe is pre-decided at the time of issuance of the policy. The nominee will receive the death benefits after your demise. Life is unpredictable. We are not sure whether we will live through to see the next day given the hectic lifestyle. So, it is better to insure your lives with term insurance so that our dependents are not in financial turmoil in the event of your demise.  Term insurance acts as a protection plan for your family. With the death benefit they receive, they can take care of their financial needs in your absence. It is the reason as to why we suggest term insurance for everyone. Better to be safe than sorry.

The death benefit can be a lumpsum amount or monthly installments based on the choice made at the time of term insurance purchase. In this post, we will discuss the types of deaths that are covered and the classes that are not.

Health-related death

Health-related death is covered in a term insurance plan. If the policyholder dies because of a health issue, then their nominees will get the death benefit.

Accident related death

If the policyholder dies in an accident, then the nominee will receive the death benefit. All insurance policies offer death benefits for deaths due to accidents. You do not need to buy a separate accident rider for it. However, if the policyholder is found to have been under the influence of alcohol or any banned substances or was involved in a crime that resulted in an accident, the claim will be rejected. 

Accidents caused by adventurous sports like paragliding, surfing, skydiving and others will not be covered by term insurance.

Murder

If the policyholder gets murdered, then the nominee might receive the death benefit after al the police formalities. However, suppose it is found that the nominee is involved or framed in the murder. In that case, they will not receive the death benefit until the court acquits them.

Death by suicide

Suppose the policyholder commits suicide within a year of buying or reinstating the policy; In that case, the insurance company will not offer any death benefits. Some companies have a more extended waiting period for such claims. Please note that the insurance company may investigate if there are doubts if the nominee has instigated the policyholder to commit suicide.

Deaths due to pre-existing conditions

Before buying the policy, you must declare accurate information about your health conditions and habits like smoking or alcohol consumption. Suppose death occurs due to a pre-existing condition that you’ve hidden. In that case, the insurance company will not provide the death benefit.

Death due to Sexually Transmitted diseases

Death caused due to sexually transmitted diseases like HIV, Herpes, or other STDs will not be covered under a term insurance plan.

Deaths outside the country

Most term insurance policies are universal. So, if the death occurs during foreign travel, the nominee can claim death benefits after submitting valid proofs. However, if you are a frequent traveler to countries assigned as dangerous such as Africa, Gulf, or parts of South America, do not forget to mention this while purchasing the insurance. In the event of your unfortunate death there, the insurance company may reject the claim for non-disclosure of such crucial information.

Term insurance plan protects your family financially in your absence and also gives you tax benefits. However, it does not mean you can stay relaxed that the insurance company will provide death claims after your passing. You need to be well aware of the exclusions so that your family does not face death claim rejection.