Explain death cover in term insurance

Life is uncertain. But the same need not be the case for the financial needs of your loved ones, in your absence. A term insurance policy is one of the easiest, hassle-free and quick ways to ensure that you can provide for your dependents, even when you are not around anymore. 

Meaning of Term Insurance

Term Insurance is the simplest form of the life insurance policy. These schemes upon the death of the insured person (policyholder) pay a stated amount (also known as sum assured) to the nominee or beneficiary. There are no maturity benefits under these plans. 

A Term Insurance policy remains active for a particular period of time. The premium for these policies depends on a host of factors such as age, general health or life expectancy, occupation, etc.

Unlike other life insurance policy variants, there are no savings, profit or other such components built-in term insurance cover plans. Due to their sole offering of a death cover, they are also known as pure life insurance or protection policies. Term insurance policy is a great way to financially secure your dependents’ lives in your absence, especially in an unfortunate case of untimely death.

Why term insurance is a must for everyone?

1. Affordable and higher coverage

When it comes to life insurance, it is often said that you should have a cover which is at least 10 times your income. Such high coverage, without burning a deep hole in your wallet is feasible only with a term insurance policy. The premiums for Term Insurance cover are much lesser than other life insurance plans. 

Term insurance policy, due to its simple construct, is able to provide a higher coverage (sum assured amount) at an affordable premium. This is the most economical way to offer optimum financial security to your dependents.

2. Riders

Term insurance policies also give the option to further enhance the insurance coverage with the help of additional riders. For instance, disability cover, higher coverage in case of accidental death, lump-sum payment on diagnosis of any critical illness such as cancer, renal failure, etc.

3. Tax Benefit

Premium paid towards these policies qualify for a tax deduction as per the Income Tax Act (Section 80C). Moreover, death benefit payouts made to beneficiaries are also exempt from any tax in the hands of the recipients.

Inclusions of a death cover

Death cover is the key highlight of a term insurance policy. A death cover entitles the beneficiary to receive a lump-sum payment on the insured’s demise. However, it is important to understand the type of deaths which are covered or excluded under term insurance cover. While each insurance provider may have their own terms and conditions, these are the generally accepted guidelines:

1. Natural death

Death caused by natural conditions such as health-related or medical issues, old age, etc. are eligible for payment under term insurance cover.

2. Accidental death

If the policyholder dies in an accident, the term insurance cover will be applicable.

3. Suicide

Usually, insurance providers do not accept these claims for the first 12 months of the policy. However, from the second year onwards, death due to suicide are also included in the term insurance cover.

Some of the commonly excluded deaths under term insurance policies are:

• If the insured is involved in any criminal or illegal activity which leads to his or her death.
• If the death is due to a road accident wherein the policyholder was drunk or under the influence of other narcotic substances.
• If the policyholder’s death takes place during an adventure, sports or any such hazardous activity (unless covered by an additional rider)
• Death due to self-inflicted injuries, diseases which are sexually transmitted or substance abuse
• Death due to pre-existing diseases or health conditions
• Policyholder’s death due to pregnancy-related complications or during childbirth

To sum it up in the words of a wise man, “term insurance is part of a good defensive plan”. It brings financial security for your loved ones in your absence. But more importantly, it takes care of not just tomorrow but your today too. It gives you peace of mind knowing that you have done the best you could have for your dear ones!