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TERM INSURANCE

Types of Death Covered in a Term Insurance Plan

Inderpal Ahluwalia 30 October 2017
4.1 (9 votes)

Confused about your term insurance pay-out? Read on to know what types of deaths are covered in a term insurance plan.

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Term insurance is the purest and oldest form of insurance that provides payment of the sum assured to the nominee on the death of the policy holder. The condition is that the payment will be made if the policy is valid or within the tenure. If the policy holder survives the term then the insurance cover ceases and nothing is payable.

Term insurance should not be seen as an investment. It is just like paying premium for your vehicle, it protects you from any unforeseen financial crises. You do not get any benefit until and unless an unfortunate accident takes place.

Buying term insurance is like buying peace of mind and financial protection for your dependents. Term insurance policies offer tax benefits on the premiums paid under section 80 C of the Income Tax Act, 1961 and tax-free payment to your nominee in case of death under Section 10 (10D) of the Income Tax Act.

All proceeds towards premium are used to cover the cost of the insurance. This is the reason term insurance policy holders do not get share in profits earned by the insurer on investments. No surrender value is given in term insurance plans except single pay and limited plans. You can’t get loans against the policy.

Term insurance premium is the lowest amongst all types of life insurance plans. There are although some plans available that offer return on premiums paid if the policy holder survives the term. The premium amount for such plans may differ and might be a bit expensive than a normal plan.

So, now that we know that term insurance plan pays only on death of the policy holder. Let’s have a look at what sorts of deaths are covered under term insurance plan.

Death due to medical condition/natural death

Term insurance plan covers health related death or natural death. The death can be due to diseases or a medical condition which ultimately results in the death of the policy. Under such circumstances, the nominee of the policy holder will be paid the sum assured of the term plan. For example – If the policy holder dies suddenly in his sleep it is considered as natural death. In another instance, if the policy holder contracts any disease or falls ill which eventually results in his/her death then again it will be treated as heath related death. Such types of deaths are covered in a term insurance plan.

Accident related death

Accidental deaths are also covered in a term insurance plan. Some term insurance plans and added riders attached with a term insurance plan offer an additional sum assured on death due to an accident. Accidental death is defined as a sudden, unforeseen and involuntary event caused by an external, violent and visible force. The death from this accident occurs independently of any other cause within specific number of days mostly (90 to 180 days) of such an event or trauma, will be treated as accidental death.

Say Jayesh has a term plan of Rs 25 lakhs which pays an additional sum assured on death due to an accident. Due to an unfortunate event on the way to work, Jayesh meets with a serious accident. The situation takes a turn for the worse, when his condition deteriorates sharply. Eventually, all medical assistance proves unsuccessful and the family loses Jayesh to the accident.

The medical bills, including the many tests, surgeon’s fees and hospitalization bills amounted to over Rs 10 lakhs. The family claims the insurance on Deepak’s demise. The company pays death proceeds amount of Rs 50 lakhs as his death was caused due to an accident. This helps the family pay off the medical bills and use the remaining amount to maintain their current life style.

Few other examples of accidental death can be

  • Death due to accident involving motor vehicles or by motor vehicles
  • Death due to accident involving machinery at place or work like accidents in factories
  • Death due to fire related injuries
  • Death from accidentally falling from a building or rooftop
  • Death due to slipping in the bathroom
  • Death due to drowning in a river
  • Death due to lightning strike or earthquake or any other natural calamity
  • Death from electric shock at home or somewhere else

Different companies may have different clauses for death benefit. It is recommended to go through the clauses and get your doubts cleared from the insurance company. The same knowledge should be passed on to the nominee so that there is no confusion in the claim process.

Recommended Read: What Kind of Deaths are not Covered in Term Insurance

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4.1 (9 votes)