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How can you deal with Exclusions in Term Insurance Plans?

Life Insurance plans are essential for safeguarding the future of your loved ones. Term insurance, one of the most common life insurance accessible today, is a worthwhile investment if made properly at the right time.

All term insurance plans (and, for that matter, all life insurance policies) require the policyholder to name a nominee who can receive the death benefit in the event of the policyholder’s unfortunate demise. However, in some cases, the policyholders and nominees are unaware that insurance companies operate under specific terms and conditions when approving a term insurance claim. If a claim falls under one of the exclusions, the insurance company might reject it. These exclusions might also vary from one provider to the other. However, there are some exclusions to which most insurers adhere.

What Are Exclusions In A Term Plan?

Most term life insurance policies allow for various levels of customization based on the level of protection and coverage desired. As a result, the insured may receive specific terms and conditions based on their particular term insurance policy.

These term insurance terms and conditions, also known as exclusions, outline the situations in which your beneficiary’s claims may get rejected by the insurance company. While most will be tailored to the insurer and the policyholder, a few exclusions are common to most term life insurance policies.

A list of the most common exclusions

These exclusions may vary from one insurance provider to another and one policy to another. Having said that, the following are some of the most common exclusions in term insurance plans:

  1. Suicide and/or death as a result of dangerous activity

Death by suicide within the first year after purchasing the policy is a common exclusion in term life insurance contracts. Furthermore, circumstances involving harmful activities resulting in death are generally excluded. This could include dangerous sports with a high risk of mortality.

  1. Involvement in criminal activities

This exclusion effectively indicates that if a policyholder dies due to their involvement in criminal acts, their beneficiaries will be unable to obtain term insurance benefits, i.e. the sum assured. This is a relatively common exclusion and there are no add-ons that can protect policyholders against it.

  1. Previous Medical Conditions

Before receiving your insurance, you must disclose any health complications you have or are anticipated to have, resulting from pre-existing or inherited conditions. Your term insurance policy will always be issued with these risks in mind, affecting the cost of your term insurance premium, which you can determine using an online term plan calculator. However, if you have not disclosed a pre-existing medical condition to the insurer before purchasing the insurance, you will not be covered for it. This means that in the event of your death due to a pre-existing medical condition that the insurer was unaware of, your beneficiaries will be unable to obtain the death benefit.

  1. Death as a result of intoxication or drug use

In India, most life insurance firms refuse to provide term insurance coverage to heavy drinkers and drug addicts.. Even if you conceal your drinking problem and drug addiction, purchase a term insurance policy, and die from an accident or other incident while under the influence of drugs or alcohol, the insurance company may deny the life insurance claim under the terms and conditions specified in the policy.

What Are Riders, And How Can They Help?

A term insurance rider is an addition to a policyholder’s base term insurance policy that allows them to extend their coverage benefits. A policyholder can opt for a term insurance rider by paying a nominal additional premium.

Which Riders Can You Opt For?

While Riders will not cover the exclusions completely, they can enhance the scope of the term insurance plan and cover various additional contingencies. Some of the most frequently offered term insurance riders are:

  1. Accidental Death Benefit Rider: If the policyholder dies in an accident, an additional sum assured specified under the rider is paid out in addition to the base policy sum assured. For example, a policyholder purchases a term insurance policy for Rs. 80 lakhs and adds an Accidental Death Benefit rider worth 20% of the sum assured. Then, if the policyholder dies in an accident, the dependents receive Rs 80 lakh plus an additional 20% of Rs 80 lakhs, or Rs 16 lakhs. As a result, they receive a total of Rs 96 lakhs.
  2. Critical Illness Rider: With this policy rider, the life assured receives a lump sum payment if they fall sick with a critical illness covered by the rider. The goal of this rider is to offer the life assured with a lump sum amount that can assist them in receiving medical care for the illness. It can also ensure that the burden of any unanticipated medical costs does not derail the policyholder’s life goals.
  3. Waiver of Premium Benefit Rider: If a policyholder cannot pay the premium owing to an accident-related contingency such as death, severe illness, or permanent total disability, a Waiver of Premium Benefit rider assures that all future premiums of the term insurance policy are waived off. This means that the term insurance policy will stay in effect until expiry, and the life assured, or their family members will not be required to pay any further premiums for the remaining tenure. It is handled by the life insurance provider, providing additional security to your life goals.
  4. Accidental Permanent Total/Partial Disability Rider: An amount is paid to the life assured under this rider in case of a total or partial disability caused by accident. Because the life assured is unlikely to be able to meet medical expenses and further reduce their earning capacity, the insurance company compensates them with a pre-agreed proportion of the total sum assured.
  5. Family Income Benefit Rider: Under this rider, in the event of a contingent event, as stated in the terms and conditions of the policy, the policyholder’s family receives a percentage of the rider sum assured each month for the remainder of the rider period, subject to a minimum of ten years. This allows your family to receive a regular monthly income in the absence of your income, assisting them in meeting day-to-day expenditures and staying on track with their life goals.

Importance Of Reading The Policy Document

Not all term insurance plans contain the same fine print, as multiple factors influence the particulars of the policy. So it is prudent to go through the policy document thoroughly during the free look period. It is a 15-day (30 days in case of online term plans) period during which it is possible to return the policy and get a refund after deducting any costs incurred by the insurance provider.

If proper attention is paid initially, the chances of a rejected claim will decrease, and adding riders will make the policy more comprehensive.

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