What are Different Types of Death Covered in a Term Insurance Plan?

Potential policy buyers looking for a no-nonsense life insurance plan will find solace in a term insurance plan. A term plan is one of the purest forms of insurances that you can buy with your money. It is a straight forward transaction between you and an insurance company. A policyholder pas the premiums for a policy and in return, the insurer will provide them with life coverage. Should anything unforeseen happen to the policyholder, the insurance company will pay the sum assured to the nominees of the policy.

Though it does not count as a proper investment, it does a world of good to your financial portfolio. It ensures that your loved ones have all the financial support that they need to proceed with their lives even in your absence. The reason why it does not qualify as an investment is that a policyholder does not directly benefit from the policy. If they outlive the policy term, there aren’t any benefits for them. You essentially buy peace of mind and financial freedom for your loved ones.

Policy Coverage

As already mentioned above, the insurer is liable to pay the sum assured only if the policyholder loses his or her life while the policy is still in effect. However, the death of the policyholder can be a grey area at times. Various reasons might cause the death of a policyholder. And insurance companies do not offer coverage for a number of those reasons. Thus, it is important that you and your nominees are aware of different types of death covered in a term insurance plan. This is to make sure that the claim does not get rejected in the future.

1. Accidental Death

Death of a policyholder due to accidents are covered as a part of term insurance plans. Most of the insurance companies providing term insurance plans even offer add-ons for accidental deaths. If opted, the insurance company will pay an additional sum assured for accidental death cases. The death of a policyholder that happens suddenly, in an involuntary event and unforeseen circumstances is deemed as an accidental death. If the insured meets with an accident and loses his or her life within 90-180 days of the accident, the policy would still consider the same as accidental death and pay the sum assured to the nominees. Some of the most common examples of accidental deaths include:

• Death caused by electric shock either in the house or elsewhere
• Death caused due to a policyholder drowning in a water body
• Death caused due to injuries incurred from fire death caused due to accidents involving vehicles
• Death caused by accidentally falling from the top of the building
• Death caused by accidentally slipping on the bathroom floor
• Death caused due to any natural calamity such as earthquakes or lightning strikes, etc.
• Death caused due to accidents at the workplace such due to involvement with heavy machinery or fire in the workplace, etc.

2. Medical Condition or Natural Death

Insurance companies offer coverage for natural death or death due to the medical conditions of policyholders. If a policyholder loses his or her life due to a medical condition or certain diseases, the insurer will honour the term insurance agreement. For such scenarios, the nominees of the policy stance to receive the sum assured of the term insurance plan. 

If a policyholder dies during their sleep, it is considered to be a natural death and the policy covers such death cases. Alternatively, if a policyholder dies due to an illness or disease, it is covered as a part of the term insurance plan.

3. Suicide

If a policyholder commits suicide and loses his or her life within 12 months of buying a term insurance policy, the insurer usually would refund 80% of the policy premiums paid. This clause was added recently by the IRDAI or Insurance Regulatory and Development Authority of India. Earlier, term insurance plans did not have any provision for refund of premiums or payouts for suicide cases.

However, if the policyholder commits suicide after the completion of one year of buying the policy, a few insurers provide coverage for such deaths. There are a few insurers that cover suicide cases after the completion of two years of the policy. At the same time, few insurers terminate the policy as well.

The above are all the types of death that term insurance plans usually cover. It is of utmost importance that a policyholder and even their nominees are aware of these. Also, it is recommended that potential buyers or existing policyholders go through the policy documents to find out the exact details of the policy. This essentially will eliminate any chances of claim rejections in the future.