What is Death in Term Insurance?

Suppose Ramesh, a 40-year-old with a term insurance policy for Rs. 2 Crores. If he were to pass away during the policy term, his family would receive the 2 crore amount as a death benefit, helping them cover expenses, pay off debts, and maintain financial stability.

How Does Death Benefit Work in Term Insurance?

The primary benefit of term insurance is providing a death benefit to the policyholder’s beneficiaries. Here’s how it works:

• Immediate Payment: Upon the policyholder’s death, the insurer pays out the sum assured (the death benefit) to the nominated beneficiaries. This amount is typically tax-free and is intended to provide financial support to the policyholder’s family.

• Claim Process: To receive the death benefit, the beneficiaries need to file a claim with the insurance company. This usually involves submitting a death certificate and a claim form, along with any other required documentation. The insurance company then reviews the claim, and if everything is in order, the benefit is paid out.

• Beneficiaries: It’s essential to designate beneficiaries when purchasing the policy. Beneficiaries can be changed at any time, but it’s important to keep the insurance company informed to ensure the payout goes to the intended recipients.

What are the Types of Death Covered in Term Plans?

Term insurance typically covers most types of death, including:

• Natural Death: Death due to natural causes such as illness or old age.

• Accidental Death: Death resulting from an accident, such as a car crash or other unforeseen events.

• Death Due to Critical Illness: If the policyholder dies due to a covered critical illness, the death benefit is paid out.

What are Some Common Exclusions in Term Insurance?

While term insurance covers many types of death, there are some common exclusions:

• Suicide: Most term insurance policies have a suicide clause, usually for the first 12 months of the policy. If the policyholder commits suicide within this period, the insurer may not pay the death benefit but may return 80-90% of the premiums paid.

• Death Due to Pre-existing Illnesses: If the policyholder suffers an unfortunate death due to an undeclared pre-existing illness, the insurer may not payout the term insurance claim.

• Death Due to Criminal Activity: If the policyholder dies while engaging in illegal activities, the claim may be denied.

• Death Due to Risky Activities: Some policies exclude deaths resulting from high-risk activities, such as skydiving or extreme sports, unless the policyholder has disclosed these activities and paid an extra premium.

What are Some Term Riders That Can Enhance Death Benefits?

Term plans often come with optional term insurance riders that can enhance the death benefit. These include:

• Accidental Death Benefit Rider: This rider provides an additional payout if the policyholder dies in an accident.

• Income Replacement Rider: In case the policyholder is the main income earner of the family, then the insurer will replace your income for your family in your absence.

• Waiver of Premium Rider: If the policyholder becomes disabled and unable to work, this rider waives future premiums while keeping the policy active.

What Happens After the Death Benefit Is Paid?

Once the death benefit is paid, the term insurance policy comes to an end. The beneficiaries can use the payout in various ways, such as:

• Covering Living Expenses: To replace the income of the deceased and support the family’s day-to-day living expenses.

• Paying Off Debts: To settle any outstanding debts, including mortgages, loans, and credit card balances.

• Funding Child’s Education: To provide for the higher education of the policyholder’s children.

Final Thoughts

Understanding how death in term insurance works is essential before choosing the right term policy and ensuring that your loved ones are protected. Term insurance provides a safety net that can replace lost income, pay off debts, and help maintain your nominees' living standards. By choosing the right coverage amount, designating beneficiaries, and considering additional riders, you can tailor your term insurance to meet your specific needs and provide lasting financial security for your family.