What are the Different Types of Death covered by Term Insurance?
Term insurance is a pure and simple form of insurance that provides a guarantee to the nominee of a lumpsum payout in the event of the policyholder’s death. However, the payment will only be made if the policy is valid, and the claim is made within the policy’s term. If the policyholder survives the term of the plan, the insurance coverage ceases, and nothing is paid to the policyholder or the nominee.
Term insurance is not an investment that gives you returns on maturity. You can compare it to the paying of premium for your vehicle’s coverage. The only benefit that you will have from it is that it will be a financial safety net in the case of an unexpected financial crisis. If there is no reason to make a claim, you will receive no benefits.
How is term insurance different?
All of the premium received from a policyholder are used to cover the cost of insurance. This means that there are no savings or investment aspects of the policy, unlike other types of life insurance. This is the reason why term insurance policyholders do not get a share of the profit earned by the insurance company on any investment. Moreover, surrender value is not provided in term insurance plans, except for single pay and limited plans.
Term insurance premium is the simplest of all types of life insurance plans. One can determine the premium values by using an online term insurance premium calculator. However, there are some plans available that offer a return on the premiums paid on the policyholder’s survival. The premium amount for such plans may vary and may be slightly higher than the regular plan. Hence, the only scenario the insurance company will give a payout is in the case of the policyholder’s death. Even in that scenario, you need to know the kind of deaths that term insurance covers.
Types of deaths
- Death due to medical condition
Term insurance plan covers death caused by health issues. It is also known as a natural death. This type of death occurs due to diseases, or any other related event. The differentiating point is that there are no external factors that are included in the cause of death.
For example, if the policyholder dies suddenly in his sleep, it is considered a natural death. In another case, if the policyholder is infected or develops a disease that proves fatal, it is considered a health-related death. Does term insurance cover natural death? Yes, such deaths are covered by term insurance plans. In such cases, the sum assured of the term plan will be paid to the nominee of the policyholder.
- Accidental death
Accidental deaths are also covered under term insurance. Some term insurance plans add riders, which provide an additional guarantee on death due to an accident. Accidental death is defined as a sudden, unexpected, and involuntary event caused by an external, violent, and visible force. Accidental death that occurs within certain days (90 to 180 days) of such event or injury regardless of other causes, is considered accidental death.
For example, a policyholder has a term plan and additional accidental death coverage. Due to an unfortunate incident while going to work, the policyholder is in a critical condition. The situation worsens when his/her condition deteriorates rapidly. Eventually, if all medical help fails, the death will be considered an accidental death.
Now, the family will make a claim in the case of the policyholder’s death. Due to the accidental death coverage, the family will receive the death benefit, accidental death benefit, and the coverage for all medical costs. The payout will help the family cover any liabilities and still have enough money left for financial security.
Here are some examples of accidental death:
- Death due to a road accident
- Death due to accident in a workplace (such as a factory)
- Death due to fire or fire-related injuries
- Death due to accidental fall from a building or a roof.
- Death due to drowning
- Death due to lightning, earthquake, or any other natural disaster
- Death by an electric shock at home or elsewhere
Different companies may have different terms when it comes to the cause of death and the coverage offered for them. It is recommended that you review the terms and conditions and resolve your doubts with the insurance company. The nominee should be provided with the same knowledge so as not to cause any confusion in the claim process.