Life insurance plan is a legally binding contract under which you propose the insurer to protect your family financially if you lose your life within the duration of the policy. If your proposal is accepted by the insurer then you become the insured and your life is covered under the policy.
Insurance companies have legal teams that take care of the contract and make sure it has no loopholes. As a consumer you should also make the effort to understand the terms and conditions before and after buying a term insurance plan.
To do this you need to read the policy document and understand the terms provided there. This will help you to better understanding your policy and use it correctly.
Also Read : What is the meaning of Term Insurance
Basics of Term Life Insurance Contract
Term insurance is a type of life insurance policy in which the insurance company provides you coverage for a specific period. If you die within the specified period, your family is given the sum assured.
However, if you survive the policy, no benefits are payable to you, but some policies do offer you to return the premiums paid by you at the maturity of the term.
The following three are the primary term insurance conditions you should understand. These will also prove useful in understanding any other life insurance policies:
Premium is the payment you make to your insurer to keep your policy running. Various options are provided to you in which you can pay your premium. These are
a. Regular Modeb. Single paymentc. Limited payment mode
2. Sum Assured
This is the sum you are covered for. Sum assured is the amount insurer will pay to your nominee/nominees upon your death. This is the fixed amount that is decided at the time of buying the policy.
These are the additional benefits that can enhance your basic term policy’s scope. These provide cover for certain events that are not generally covered by the general policy. Critical illness rider, accidental death rider are some of the examples.
Exclusions in a Term Life Insurance Policy
These are the term insurance conditions which define the criteria when your policy may not be eligible for a claim. These cases are known as exclusions:
a. Suicide Clause
In case you or your spouse dies from suicide within 12 months from the commencement of the policy then you are not liable to receive the sum assured. In this case, your nominee will only receive a higher of
i. Up to 80% of the total premium paid by you before your deathii. Surrender value at the time of death
b. Exclusions for Accidental Death
The accidental death benefit is provided when the death is directly due to an accident. Following things are excluded from the accidental death benefit, that is under these cases, the accidental death benefit will not be provided.
i. If you have been diagnosed with any injury-related condition and are receiving treatment within 48 months before buying the policy.ii. If you die due to suicide or any self-inflicted injuryiii. If you are flying in a plane other than as a passengeriv. If you die during a war (declared or not both) or in midst of a strikev. Death arising due to consumption of drugs not prescribed and alcoholvi. Involvement in military, air-force or paramilitary forcesvii. If the cause of your death is exposure to nuclear radiation or any other biological reactionviii. Taking part in an activity that is criminal or illegalix. Taking part in adventure sports such as sky-diving, rock-climbing, mountaineering is considered risky.
c. Accidental Permanent and Total Disability
Accidental Permanent and Total Disability, also known as ATPD, refers to the severity of injury from an accident. The term insurance conditions define the disability as loss of any body part that can restrict your ability to work.
The cover only comes into play when:
I. The condition is confirmed by a specialistII. Disability should result from an accident III. The disability must be for at least 6 monthsIV. Loss of 2 or more limbs
- Permanent loss of both the eyes
- Loss of hearing from both the ears
- Loss of speech
The exclusions are the same as in the case of accidental death.
There are some other terms and conditions of term insurance that you should know about. These are the following:
a. Grace Period
To keep the policy active, you are required to pay the premiums, If you don’t pay the premiums before the due date then your policy can be canceled. But sometimes due to circumstances, you may forget to pay the premiums. To cater to this problem, grace periods were introduced.
i. Grace period is the extra window given to you after the due date in which you can pay your premiums without canceling your policy.ii. In policies such as the iSelect Smart360 Term Plan, a grace period of 30 days is provided for yearly and quarterly payments.iii. 15 days grace is provided for monthly payment.
b. Free Look Period
This is a small window provided to you when you buy the policy. This is a trial period wherein you can make sure that this policy is right for you.
i. The Free-look period is generally 15 days.ii. If during this period you feel that you do not want the policy, then the policy will be canceled.iii. The premium paid by you will be reimbursed.iv. Some charges are deducted such as maintenance and stamp duty.
c. Tax Benefits
Tax benefits are available as per the Income Tax Act 1961. However, these are subject to change with the changes in the act.
In policies such as the iSelect Smart360 Term Plan, the following tax deductions are applicable:
1. Deductions of up to Rs 1.5 lakh on the premium paid in a year, as per the rules of section 80C of the Income Tax Act.
2. The amount received on maturity can be exempt from tax u/s 10(10)D of the Income Tax Act.
d. Minor As A Nominee
If the nominee appointed by you is a minor, then you have to name an appointee which will keep the money till the minor becomes an adult.
Knowing the term insurance terms and conditions is useful as it will help you to use the policy more effectively.
Click to use : Term Insurance Calculator