Nuances of Term Insurance: Types of Deaths Not Covered


Term Insurance policies are the most common life insurance products. As simple as this sounds, there are many nuances attached to it. Therefore, this article covers everything about term insurance and the types of deaths that are not covered under this product.

What is Term Insurance?

As the name suggests, term insurance is a life insurance policy for a specific period ‘term’. It provides financial protection to your loved ones in case of contingencies, generally, the death of the insured. A person can purchase a term plan between the ages of 18 and 65 years. Let’s understand the basic terminologies of term insurance:

  • Insurer: The insurance company that provides the policy is called the insurer.
  • Insured/Policyholder: The person who buys the insurance policy is called the insured/policyholder.
  • Beneficiary: The person you nominate to receive the benefits of your policy is called the beneficiary. You can select more than one beneficiary for the same policy.
  • Sum Assured: The value of your policy is called the sum insured.
  • Policy Term: The period for which you buy a policy is called the policy term.
  • Premium: The amount you pay to the insurer every year is called the premium.
  • Claim: In case of the death of the insured, the beneficiary can raise a claim with the insurer to get the sum assured.
  • Riders: You can purchase add-ons with your term insurance. These add-ons can include accidental death benefit packs or critical illness packs to fund the treatment of a terminal illness.

What Term Insurance Benefits does the Beneficiary Get?

In case of the death of the insured, the beneficiary can lodge a claim with the insurer. The insurer, after checking the legitimacy of the claim, will pay the sum assured to the beneficiary. If you purchase riders, the term insurance benefits can be more than the sum assured.

If the insurer lives through the policy period, no sum is paid to the beneficiary. However, if the policy is a return of premiums policy, the premium paid is refunded to the policyholder at the end of the policy term.

 What are the Term Insurance Tax Benefits?

Section 80C of the Income Tax Act, 1961 provides a deduction for the term insurance premium paid by the policyholder from the taxable income of up to Rs. 1.5 lakh in a financial year. From the financial year 2020–21, this deduction is available only if you opt for the old tax regime. Under the new tax regime, this deduction is not available.

The amount received by the beneficiary in case of the unfortunate demise of the policyholder is exempt from tax under Section 10(10D) of the Income Tax Act, 1961; this exemption is available in both old and new tax regimes.

Types of Deaths Not Covered Under Term Insurance Policies

Do all term insurance plans cover all types of deaths? The answer is no. Death under certain circumstances is excluded from the coverage under regular term insurance policies. Let’s discuss them in detail.

  • Policyholder commits suicide

The rules of IRDAI state that if a policyholder commits suicide within the first year of the policy, no benefits are given to the beneficiary. However, this period differs from policy to policy. Moreover, many insurers provide coverage for suicide after one year.

  • Death due to a natural disaster

Death of the policyholder due to natural calamities, viz. earthquakes, hurricanes, tsunamis and floods are not covered under a term insurance policy.

  • Death due to drug overdose

If a policyholder dies in an accident while driving in a drunken state or under the influence of drugs, the claim is rejected. The claim is also rejected if the policyholder dies due to an overdose of non-prescription medication.

  • Death during hazardous activities

If the policyholder indulges in activities such as bike or car racing, paragliding, skydiving, mountain climbing or similar activities that can cause life-threatening injuries or even death, he/she has to disclose this when taking the policy. If the person fails to disclose it, no claim can be made by the beneficiary.

  • If the beneficiary murders the policyholder

In this case, the claim is delayed until the court decides on the case. If the beneficiary is guilty, no claim is allowed. If the beneficiary is acquitted, he/she can claim the amount.

  • Death due to an undisclosed medical condition or other details

If the policyholder dies due to pre-existing medical problems or a hazardous workplace, which he/she didn’t disclose at the time of taking the policy, then the claim is not allowed by the insurer. However, insurers allow the claims if the deaths happen after two years of taking the policy.

  • If the policyholder is involved in illegal or criminal activities

The insurer can deny the claim if the policyholder dies due to his involvement in criminal activities. However, if the death is natural, then the insurer may allow the claim.

These are the nuances linked to a term insurance policy. You must check the terms and conditions thoroughly before applying for term insurance. You must also refer to online websites for understanding term insurance, the plan and its benefits.