Most people know that term life insurance will give a lump sum death benefit to the nominee on the demise of the insured (policyholder), within the policy term. However, not many know that there certain types of death that are not covered by life insurance policies.
So, if you have a term insurance or are planning to buy one it is essential for you to know which death cases are not covered in your term insurance policy.
1. Murder of the policyholder
Case 1: If the nominee is a criminal
The insurer will not settle the claim if the policyholder is murdered and investigations reveal the nominee was involved in the crime. C.S.Sudheer, CEO, IndianMoney.com said, "The payout would be made only if murder charges are dropped or on an acquittal. The insurer withholds the payout indefinitely, till resolution of the case in favour of the nominee."
Case 2: If death of policyholder was due to involvement in criminal activity
The insurer will not settle the claim if the policyholder is murdered due to his involvement in a criminal activity. Santosh Agarwal, Chief Business Officer- Life Insurance, Policybazaar.com said that no claim will be paid to the nominee if it is found that the policyholder was involved in some criminal activity. "Death due to the involvement in any type of criminal activity as defined by the law will not be covered under the policy," she added.
"However, if policyholder has a criminal background i.e. he/she has a criminal record but dies due to any natural uncertainty, for instance, he/she dies because of some disease like swine flu, dengue, or lightning strike him/her, then in that case, the nominee will get the claim," she added.
2. Death happens under the influence of alcohol
If policyholder's death is due to driving under the influence of alcohol or narcotic substances, the insurer will reject the claim.
Sudheer said insurers rarely issue life insurance policies to those who drink heavily or consume narcotic substances. If the policyholder had not disclosed these habits when availing the term insurance policy, the insurer will withhold the death benefit. "Therefore, if you drink too much, most likely you won't get term insurance," he said.
Sunil Sharma, Appointed Actuary and CRO, Kotak Mahindra Life Insurance said, "If you consume alcohol you can avoid claim rejection by providing a correct declaration of history of alcohol consumption (type and quantity consumed) in the proposal form at the time of underwriting stage."
3. Not disclosing the habit of smoking
If you are a smoker, disclose the habit before availing the term insurance plan. Smokers may have a higher level of health risk and insurers add an additional amount (load) to the premium.
Sudheer said that failure to disclose the habit of smoking could lead to denial of the claim if death was due to smoking-related complications. "Therefore, you must avail term insurance only after going through the policy documents. Proper knowledge of the inclusions and exclusions of term insurance prevents disappointment during claim settlement," he said.