Will a Term Insurance Plan Cover Accidental Death?

2024-08-02

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In today's unpredictable, fast-paced life, no one knows what might happen at the next moment. This makes it imperative to think about your loved ones' future. For the safety of your family and securing their life, it is important to buy the best term insurance plan, which will act as a financial cushion in the future. A term insurance plan provides the policyholder with financial coverage for the term of the policy and financial security for their beneficiary in case of the policyholder's demise within the policy term. The monetary amount to be received by the beneficiary will be according to the plan that you select.

A popular alternative to term insurance plan is an endowment plan, which means that your insurance policy will also have a savings avenue. The insurance company will invest a share of your insurance premium. The returns generated from this investment shall be paid back to you as well as the insurance benefits. However, term insurance plans provides pure life cover without any savings or investment component which means that a term plan will provide a comparatively higher life cover at lower premium rates.

What Type of Deaths are Covered and Not Covered by a Term Insurance Plan?

The payout and benefits of every life insurance policy you buy depends on the cause of the policyholder's death, among other things. These conditions may sometimes vary according to the company in question or the chosen plan.

All these details are clearly stated in your policy, and this is why you should always read the papers stating the terms and conditions before buying a life insurance plan and also share all these details with your nominee so that at the time of claiming the insurance payout, they are saved from any hassle and confusion.

The following list is an overview of the types of deaths that a typical term life insurance plan does and does not cover:

Deaths Covered in a Term Insurance Plan

The following are the causes of death that are typically eligible for a term insurance payout:

1. Death Caused by Health Issues or Natural Deaths

If the policyholder dies a natural death, like dying in one's sleep, or a death caused by health-related issues except for sexually transmitted diseases within the policy term.

2. Death Due to a Natural Calamity

If the policyholder passes away due to a natural disaster such as a tsunami or an earthquake within the policy term, the death benefit will be paid out to the beneficiary.

3. Accidental Death

Accident is defined as any unforeseen, involuntary, and sudden event, and if death occurs within 90 to 180 days of an accident by causes distinctly related to the accident, it is called an accidental death. Suppose the policyholder dies an accidental death during the policy term. In that case, accidental deaths are covered in most Term Insurance Plans, and if a plan doesn't cover them, it will have a rider available for the same. Here, accidental death can have several implications.

Some examples of such accidents are road accidents involving motor vehicles; slipping on a wet floor like in the bathroom; falling down the stairs; drowning in a river; getting an electric shock, falling accidentally from a great height; and fire-related accidents.

Deaths due to accidents that take place while the insured person takes part in adventure sports like skydiving etc., or has knowingly put themselves in a dangerous place or situation are exempted from Death by Accident by insurance companies, and no payout is given in such cases unless a specific rider has been applied covering the sport or activity.

Deaths Not Covered in a Term Insurance Plan

The following are the causes of death that are typically not eligible for a term insurance payout:

1. Homicide by the Beneficiary

If the policyholder is murdered and proved that the beneficiary was the one responsible.

2. Death Due to Sexually Transmitted Diseases

If the policyholder's death is caused by a sexually transmitted disease such as HIV AIDS, then the death benefit is not paid out.

3. Death by Overconsumption of Intoxicating Substances

If the policyholder's death is caused by an overdose of any intoxicating substance like alcohol or drugs, then death benefit will not be paid to the nominees of the term plan.

Some plans offer an insurance payout on deaths by suicide but only if the death occurs within 12 months of buying the term insurance plan. At the same time, others offer no payout at all for deaths by suicide and self-inflicted injuries.

What are the Benefits of Buying the Best Term Insurance Plan?

There are numerous ways in which term insurance plans prove to be beneficial. Here are some of the benefits of buying a term insurance plan for the financial security of your loved ones:

1. Term Insurance Riders

When buying a term insurance policy, you get the option to choose riders or additional clauses to go with it in exchange for a slightly increased premium. To better understand riders, think of how you order a pizza. You get the option of selecting additional toppings at different prices on the already existing recipe. Similarly, you can add a rider(s) of your own accord to the already existing policy with its predetermined list of benefits.

For Example, you can add a cover for Critical Illness Rider to your term life insurance plan so that in case you get diagnosed with a critical illness during the term of your plan, the insurance company offers you a certain amount of money to meet the treatment expenses and save your family from the financial setback.

Another example can be a rider for disability resulting from an accident so that in case an accident takes place which results in dismemberment or any other kind of disability; a certain amount will be paid to you by your insurance company to cover the costs of treatment and as well make up for the lost income.

2. Protection Against Mishappenings

Especially in a country like India where most families depend upon a single breadwinner, it is of the utmost importance to ensure the rest of the family's financial security in case something occurs. Even in households with more than one earning member, if one is no more, it will be necessary to supplement that person's income for the family to maintain its lifestyle. Buying a term insurance plan will enable you to continue taking care of your family, even if you are no longer with them.

3. Tax Benefits

Under Section 80C of the Income Tax Act of 1961, you can avail of tax benefits of up to 1.5 lakhs on premiums paid in favour of your term insurance plan.

4. Multiple Payout Options

If you feel that your beneficiary may not be able to manage a lump sum insurance payout or might fall prey to someone looking to scam them. You can choose from multiple payout options and select them to get the whole amount at once or in instalments paid to them at regular intervals.

Four Important Points to Keep in Mind Before Buying a Term Insurance Plan

1. Assess the financial needs of the people for whom you are buying the Insurance Plan. For example, if there are children, you need to consider the number of children and the major costs like expenses on education that they will face. Also, consider the total number of dependents and their needs, it is very important to think of the needs that may arrive in the future. For example, if there are elders or people well on their way to old age, consider their medical requirements.

2. Calculate the premium you will have to pay annually and decide according to your spending capacity. Factoring in the benefits you want, the payout amount you wish your beneficiary to receive, and the riders you want to attach along with the base plan offered by your insurance company.

3. Study the Claim Settlement Ratio (CSR) of the company before making your purchase. An insurer's CSR is calculated as the percentage of claims that they have settled during a financial year. While considering your options, you should always look at a company's CSR for at least the last five years because you want to ensure that your family doesn't face any difficulties in claiming their rightful payout.

4. Lastly, selecting riders is another important thing you need to think carefully about before buying a Term Insurance Plan. The Basic Plan is always generic, but the needs of the people vary. This is why these riders exist in the first place, to give you a more customized experience based on your needs and wishes.

Life is unpredictable and unreliable, but we, at Canara HSBC Life Insurance, strive to be the opposite. We understand your needs and offer term insurance and many other plans that act as saving instruments for you so that you can ensure your family's future and ensure their happiness.