Term Life Insurance

WHAT IS TERM INSURANCE PLAN?

A TERM PLAN is a life insurance product where the insurance company enters into a contract with the policyholder and agrees to pay a specified amount to the nominee in the event of the policyholder’s death for which the policyholder needs to pay premiums every year.

 

 

TYPES OF TERM INSURANCE PLANS

The following are the different types of TERM INSURANCE PLANS.

1. Regular term plan – This is a regular plan where the policyholder enjoys a life insurance cover as long as he pays the premium.

 

2. Return of premium – Under this type, the insurance company returns the entire premium to the policyholder if no claim arises and if the policyholder survives till the maturity of the policy.

The premium of this product is very high as compared to the regular TERM PLAN due to this feature.

 

3. Limited payment term plan – Under limited payment TERM PLAN, the policyholder is required to pay the premium for the limited-term but his cover continues until the maturity of the policy.

E.g. For a life cover of 30 years, the premium payment term can be just 15 years. This product is very useful for individuals who do not wish to keep any liability in the later years. This product also comes at a higher cost since the payment term is limited.

 

 

IMPORTANT POINTS TO NOTE ABOUT THE TERM INSURANCE PLAN

The following are some of the important features of the TERM INSURANCE PLAN that all subscribers are expected to know.

1. Pure life cover – TERM LIFE INSURANCE is a pure LIFE INSURANCE which only covers the policyholder against the risk of death and does not offer any other benefit or returns on maturity.

 

2. Eligibility criteria – Individuals between 18 to 65 years of age can buy a term insurance plan however it can be renewed up to 99 years of age.

 

3. Grace period for premium payments –  In case of delay in renewing the policy, every insurance company usually allows a grace period of 30 days in case of yearly premium payment mode and 15 days in case of other payment modes.

 

4. Free look period – Free look period simply means that the policyholder has all the liberty and rights to refer the original policy document and cancel the policy without any cancellation charges during that period.

Every policyholder is allowed a free look period of 14 days from the date of receipt of the original policy document to review the terms and conditions of the policy and to cancel the policy if it deviates from what was committed.

 

5. Exclusions – It refers to the set of diseases and accidental injuries or treatments that the insurance company does not cover and are excluded from the scope of insurance coverage.

 

 

WHY YOU MUST HAVE A TERM INSURANCE PLAN?

Every individual must have a TERM INSURANCE PLAN for the following reasons.

1. Provides financial security to the family – The primary objective of a TERM INSURANCE is to provide financial security to the policyholder’s family.

In case of sudden demise of a policyholder, his family will not have to worry about their financial security as the insurance claim amount can take care of all their living expenses.

Most importantly, someone having a home loan but not life insurance is unknowingly putting his family at great risk in case something happens to him before repaying the loan.

 

2. Huge cover at a very low premium – The premium of term insurance policies is lower than most of the insurance products available in the market where an individual can buy a life cover of 1 crore for a few thousand rupees.

This is because there is no investment component involved in such policies and the entire premium amount is allocated towards covering the risk.

So, if the policyholder passes away during the insured term, the death benefit is paid to the nominee however, there is no survival or maturity benefit if the policyholder survives.

 

3. Tax benefits – A policyholder is entitled to tax benefits for the premium paid up to Rs. 1,50,000/- per annum under section 80C.

 

4. No indemnity clause for life cover – If the policyholder has insurance from more than one company and meets with an accident that results in his death then he is entitled to receive compensation from both insurance companies as the indemnity clause are enforced on other insurance products like health insurance, motor insurance, etc. and not the life cover.

 

5. Protects the family from losing the house – In the event of the policyholder’s death, TERM INSURANCE is the most reliable product that protects his family from losing the house if the house is taken on loan.

If the home loan provider stops receiving EMI for 3 consecutive months, then they can initiate the foreclosure proceedings on the property on which the loan is taken.

This is one of the most useful benefits that someone can ever receive out of their LIFE INSURANCE policy.

In this case, the policyholder needs to ask his insurance provider to assign his life insurance policy to his home loan account by adding the name of his home loan provider in the policy document. A copy of such documents should then be submitted to the bank.

 

6. Rising cases of accidents and health issues – With rising stress levels, the number of health issues has also increased. Working night shifts, extra hours, irregular eating and sleeping habits have deteriorated every individual’s quality of life and made them less immune to diseases.

Adding to this, the number of accidental deaths is also increasing nowadays which has fueled the need for LIFE INSURANCE in every individual’s life.

 

7. Add on covers – Besides life cover, a TERM INSURANCE plan also offer add on risk covers like critical illnesses and disabilities due to an accidental injury.

 

 

WHAT TO COMPARE WHILE BUYING A TERM INSURANCE PLAN?

Every individual, before buying a policy, must compare products across various insurance companies based on the following parameters.

1. Sum insured and premium – Sum insured is the maximum amount a nominee can claim under the insurance contract in the event of policyholder’s death whereas the premium is the price he pays to avail insurance benefits.

Individuals must always look for the highest sum insured at the least possible premium. However, though lower premiums should be preferred, the reason for the lower premium should not be ignored.

 

2. Claim settlement ratio – Claim settlement ratio indicates the percentage of claims that were honored out of all the claims an insurance company has received.

The higher claim settlement ratio depicts that either their customers are making genuine claims which are less likely to get rejected or the company is too modest in honoring the claims.

Hence, the insurance company with a higher claim settlement ratio should be preferred.

 

3. Maturity age – Maturity age refers to the maximum age that the policyholder can have the LIFE INSURANCE cover for and is one of the most important factors that should be looked at and compared before buying a LIFE INSURANCE.

Many insurance companies offer cover until the life of the policyholder.

 

4. Solvency ratio – Solvency ratio indicates the financial health of the company. The company with a good solvency ratio is always stronger financially and would be in a much comfortable position to settle claims and not find reasons to reject it.

Hence, one should not ignore this factor while comparing the products. As per IRDA, every life insurance provider must maintain the minimum solvency ratio of 1.5.   

 

 

DO NOT OVERLOOK THESE PARAMETERS WHILE PURCHASING A TERM INSURANCE PLAN

The following are some of the important points that every insurance subscriber must consider while buying a TERM INSURANCE PLAN.

1. Buy sufficient cover – Under insurance does no good for the family than having no insurance at all.

The life cover should be good enough to replace your net annual income taking into account the inflation and existing liabilities.

While buying LIFE INSURANCE, one cannot afford to miscalculate the amount of insurance required to replace the policyholder’s net annual income as any shortfall may land their family in the compromising situation later.

 

2. Buy insurance at a young age – Buying insurance early on at a very young age helps you get a higher cover at a much lower premium. The more you delay in buying LIFE INSURANCE and the older you get, the higher will be the premium.

 

3. Insist on getting the medical test done – If given an option, always insist on getting the medical test done at the time of issuance of the policy.

This will reduce the possibility of disputes at the time of claim since many times, the insurer rejects the claim on grounds of non-disclosure of certain medical conditions at the time of taking the policy.

 

4. Check claim settlement ratio – Claim settlement ratio is the ratio of the number of claims received to the number of claims settled by the insurance company. Always choose the company with a higher claim settlement ratio.

 

5. Recheck policy form and plan details – Every policyholder is entitled to receive 14 days free lookup period to go through the original policy documents and verify the details.

The 14 days starts from the day the policy document is received by the policyholder.

The scanned copy of the application form is also enclosed in the policy document and it is the sole responsibility of the policyholder to go through every detail mentioned in the form and ensure it is filled correctly.

Any misreporting of personal or health-related information can lead to a rejection of the claim.

Also, the insured must check the plan details and benefits to ensure that it includes what was promised at the time of signing up. Any error or deviation should be immediately informed to the insurance company.

 

6. Take a quick look at fine prints – It may not be practically possible to read all the terms and conditions or fine prints of the policy however, it is advisable to take some time and quickly read through the highlights of various clauses and check important details of the policy.

 

7. Check to add on covers the policy offers – Term insurance also has provision for add on covers like critical illnesses, disability due to an accidental injury, etc. which can widen the scope of coverage.

Policyholders must check and capitalize on all these benefits as per their requirements based on their lifestyle and the profession they are in.

 

 

REASONS WHY YOUR INSURANCE CLAIMS CAN GET REJECTED

The following are some of the key reasons for rejection of insurance claims.

1. Withholding or falsifying critical information in the application form – Concealing critical information like your medical history, illnesses, existing insurance policies, etc. while filling the application form can prove expensive at the time of filing the claim and may lead to rejection of the same.

A policyholder needs to ensure that every bit of information provided in the application form is correct.

Hence, they should avoid asking any 3^rd party to fill up the application form and fill it up themselves instead.

 

2. Failing to renew the policy on time – Any insurance company will give their policyholders a maximum of 30 days of the grace period if they fail to renew the policy by the due date. If the policyholder still fails to act, then the policy will get lapsed and any claim arising after that will be dishonored.

 

3. Concealing medical history – The medical history of the policyholder is of utmost importance to every insurance company as that could form a basis for their claims in the future.

Hence, anyone withholding such details, intentionally or unintentionally will be construed as a breach of the insurance contract and can lead to rejection of all future claims.

 

4. The disease was excluded from the scope of coverage – The insurance contract mentions a list of certain exclusions. If the claim is filed for any of the events mentioned in the list of exclusions, then the same will not be honored by the insurance company.

 

5. Failing to follow traffic rules – If the accident occurs as a result of breaking certain traffic rules like jumping the signal or driving without having a valid driving license can form the basis of rejection of your insurance claim.

In one of the cases, the pedestrian while crossing the road was knocked down by the vehicle and his insurance claim was rejected for not using the zebra crossing.

 

6. Providing insufficient nominee details – Nominee is the beneficiary in the insurance contract and is the authority for collecting the insurance claim proceeds in the event of the policyholder’s death.

If their complete details like the name, date of birth, the relationship as per the government-issued document like the pan or adhaar card or passport are not updated, the claim will not be rejected though however, the process is most likely to get stuck.

 

7. Causing delay in filing the claim – All claims are required to be filed within 7 to 15 days from the day the event has occurred. Any delay will call for unnecessary complications and justifications from the policyholder and there are slight chances that the claim can even get rejected.

 

 

LIST OF THE MOST COMMON EXCLUSIONS UNDER THE TERM LIFE INSURANCE

The following is the list of some of the most common exclusions under the TERM INSURANCE POLICY.

1. Pre-existing disability or injury – If the policyholder dies while taking a treatment for any of the injuries or an accident that was pre-existing at the time of taking the policy may or may not be covered.

 

2. Suicide or self-injuries – Any injury or death caused while attempting to commit suicide or performing stunts is not covered.

 

3. Influence of alcohol or drugs – Any accidental injury caused to the policyholder under the influence of intoxicants like drugs, alcohol, etc. is not covered. However, the claim will be denied only if that state is proved to be the primary reason for the accident.

E.g. If a policyholder is driving the car under the influence of alcohol and meets with an accident then he is not covered, however, if he is traveling by taxi and meets with an accident and the taxi driver is not under the influence of an alcohol then he will be covered.

 

4. Committing a criminal act or being involved in anti-social activities – If any anti-social elements like gangsters, terrorists etc. dies while in action then they will be kept outside the scope of policy coverage.

 

5. Damages caused out of an act of irresponsible behaviour – If a policyholder meets with a car accident while driving without holding a valid driver’s license or wearing a seat belt then it is indicated that he is not trained or fit to perform that job. This point will be sufficient for an insurance company to reject the claim.

 

6. Act out of suffering from a mental disorder – Any mentally unfit individual is more vulnerable to self-injuries hence such individuals are kept outside the purview of personal accident plans.

 

7. Pregnancy or childbirth – Any injuries resulting while giving birth to a child will not be covered.

 

8. Participating in adventurous or sports activities – Any injury or death caused while performing stunts or while participating in adventurous sports cannot be treated as an accident as individuals willfully indulge in such acts. Hence, these events are also excluded from the scope of the personal accident plan.