What is the 3-Year Rule in Term Insurance?

When you buy term insurance, you are buying a promise for your family’s financial future. But what happens if the insurance company later finds a mistake in your application? This is where the 3-year rule in term insurance, governed by Section 45 of the Insurance Act, 1938, comes in to protect you. In simple terms, the term insurance 3 year rule is the ultimate safeguard that ensures your family receives the payout, providing complete claim security.

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What is the 3 year Rule in Term Insurance?

The 3-year rule in term insurance, also called moratorium or incontestability clause, is a legal provision under Section 45 of the Insurance Act, 1938, designed to protect policyholders and their nominees from disputes or claim rejections after a certain period. Simply put, the 3-Year Rule states that once a life insurance policy (including term plans) has been active for three continuous years, the insurance company cannot challenge or deny the claim on any grounds.

The Incontestability Period: The law gives the insurer a limited three-year window (the contestability period) to investigate the details you provided.

After 3 Years: Once this three-year period is over, the policy becomes incontestable. The insurer loses the right to reject the claim based on misstatement, non-disclosure, or suppression of facts.

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What is Section 45 of the Insurance Act?

Section 45 of the Insurance Act is a rule that protects your family's insurance payout. It states that after your life insurance policy has been active for three continuous years, the insurance company cannot reject the claim for any reason, even if they later find a mistake or omission in your application details. Essentially, once those three years are up, your policy becomes completely secure, and the company cannot challenge its validity.

This provision was introduced to bring transparency, reduce term insurance claim disputes, and protect the interests of policyholders and their families.

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How the 3 Year Rule in Term Insurance Works?

Initial investigation period: During the first three years of the policy, the insurer has the right to investigate any claim to check if the details given in the application were correct.
Claim denial within 3 years: In this period, a claim may be rejected if the insurer finds that important information—like a pre-existing illness or lifestyle habit—was hidden or stated incorrectly.
Protection after 3 years: Once the policy completes three years, the insurer cannot question disclosures or deny claims on the basis of misrepresentation or non-disclosure.
Fraud exception: This protection does not apply if the insurer can prove that the policyholder intentionally committed fraud.
Revival and rider addition: If the policy is revived after lapsing, or if a new rider is added, the three-year period restarts from that date.

Why is the 3-Year Rule Important for Policyholders?

The 3-year rule offers security and peace of mind to policyholders and their families. Here’s why it matters:

Guarantees Claim Security

The primary benefit is peace of mind. If your term insurance claim arises after the policy has crossed the 3-year mark, your family can rest assured that the insurance company cannot reject the claim even if minor inconsistencies are later found in your medical history or documents.
Prevents Harassment and Delays

Without this rule, insurers could potentially drag out investigations for years. The 3-Year Rule prevents nominees from being put through lengthy, stressful investigations or legal hassles during an already difficult time.
Promotes Insurer Accountability

The rule forces insurance companies to be extremely vigilant and thorough during the initial policy issuance process. They have to complete their due diligence and verify all facts within the 3-year period, promoting fair sales practices.

Claim Rejection Scenarios: Before and After the Rule

The rule completely changes the insurer's power to reject a claim based on when the death occurs.

Scenario	Claim Made Within 3 Years	Claim Made After 3 Years
Non-Disclosure/Misstatement	Claim can be rejected. The insurer can investigate and deny the claim if material facts (like a pre-existing health condition) were hidden.	Claim cannot be rejected. The policy becomes incontestable, and the insurer loses the right to question the policy's validity.
Suicide	Usually, the claim is rejected, but 80% of premiums paid are refunded (per the standard suicide clause).	The full death benefit is paid. The 3-year rule supersedes the suicide clause after this period.
Fraud	Claim can be rejected, and premiums may be forfeited if deliberate fraud is proven by the insurer.	The insurer generally cannot contest the policy "on any ground whatsoever." This legally safeguards the policy, even if evidence of past fraud emerges later.

When Can a Policy Still Be Challenged After Three Years?

Even after the three-year window, insurers have limited rights to challenge a policy, but only under specific, serious circumstances such as:

Fraudulent Intent: If the policyholder deliberately provides false information or hides material facts (e.g., concealing a major illness).
Proven Misrepresentation: If the insurer can produce evidence that the insured knowingly provided false statements at the time of policy issuance.
Forgery or Fake Documentation: If the documents used to purchase the policy were falsified.

However, these exceptions are rare and must be supported by strong, verifiable proof.

Final Thoughts

The 3-year rule in term insurance acts as a safety net for policyholders, ensuring that genuine claims are honoured and disputes are minimized. It strikes a balance between protecting insurers from fraudulent claims and safeguarding families from unnecessary claim denials. As a policyholder, your best approach is to be completely transparent while buying your term plan, disclose all health conditions, habits, and financial details honestly. Doing so ensures a smooth claim process and allows your loved ones to receive the financial protection you intended for them.

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FAQs

Is 3 years ITR mandatory for term insurance?

No, submitting 3 years of Income Tax Returns (ITR) is not mandatory for buying a term insurance policy. However, insurers may ask for your latest ITR or other income proofs (like salary slips or Form 16) to assess your eligibility and determine the right coverage amount. This helps the insurer ensure that the chosen sum assured aligns with your income and financial profile. Generally, salaried individuals can provide recent salary slips, while self-employed applicants may be asked for ITRs for the past 2–3 years.
What is the 3 year rule in term insurance?

The 3-year rule in term insurance comes from Section 45 of the Insurance Act, 1938 (amended in 2015). It states that once a policy has been active for three consecutive years, the insurer cannot question or deny the policy on any grounds, including misstatement or suppression of facts. This means, after completing 3 policy years, your policy gains full legal protection, and the insurer must honour any valid claim.
What is Section 45 of the Insurance Act 3 years?

Section 45 of the Insurance Act, 1938 provides protection to policyholders after three years of continuous coverage. As per this section, no life insurance policy can be called into question by the insurer after it has been in force for three years—whether from the date of issuance, policy revival, or rider addition—whichever is later. The intent is to safeguard policyholders from claim rejections due to alleged non-disclosures once the policy has matured in good faith over time.
What is a death claim within 3 years of a policy called?

A death claim that arises within the first 3 years of the policy is often called an “early claim” or “early death claim.” Such claims are subject to more detailed scrutiny by the insurer to verify the cause of death and ensure that there was no fraud, non-disclosure, or misrepresentation at the time of policy purchase. Once the 3-year period has passed, claims are typically processed with less investigation under the protection of Section 45.

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˜The insurers/plans mentioned are arranged in order of highest to lowest Sum Assured(SA) offered by Policybazaar’s insurer partners offering term insurance plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI.

Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in

Rs. 400/month is starting price for a 1 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

Rs. 400/month (Rs.13/day) is starting price for a 1 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 230 is starting price for a 50 lakhs term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

+Rs. 8/day is starting price for a 50 lakhs term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

+Rs. 12/day is starting price for a 75 lakhs term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

+Rs. 497/month is starting price for a 1.5 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 487/month is starting price for a 2 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 626/month is starting price for a 3 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 905/month is starting price for a 5 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 1,267/month is starting price for a 7 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

*The full refund of premium is available on availing the one-time option of refund of premium. Total premium paid for policy (paid for add-ons) will be the special exit value, payable on availing the one-time option of refund of premium if you wish to completely exit the policy.

+Rs. 447/month is starting price for a 1 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs.679/month is starting price for a 2 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 910/month is starting price for a 3 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 1,374/month is starting price for a 5 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 1,924month is starting price for a 7 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

Women

+Rs. 400/month is Starting price for a 1 crore term life insurance for an 18 year-old Female, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

Rs. 461/month is the starting price for a 1 crore term life insurance for an 24 year-old female, non-smoker, with no pre-existing diseases, cover upto 54 years of age.

1,642/month is the starting price for a 1 crore term life insurance for an 44 year-old female, non-smoker, with no pre-existing diseases, cover upto 74 years of age.

Prices offered by the insurer are as per the approved insurance plans | #All savings and online discounts are provided by insurers as per IRDAI approved insurance plans | Standard Terms and Conditions Apply | **Tax Benefits are subject to changes in tax laws.| Policybazaar Insurance Brokers Private Limited

We will respond in the first instance within 30 minutes of the customers contacting us. 30-minute claim support service is for the purpose of giving reasonable assistance to the policyholder in pursuance of the claim. Settlement of claim (including cashless claim) is the responsibility of the insurer as per policy terms and conditions. The 30-minute claim support is subject to our operations not being impacted by a system failure or force majeure event or for reasons beyond our control. For further details, 24x7 Claims Support Helpline can be reached out at 1800-258-5881

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