A term life insurance policy is much different from any regular life insurance policy. They are the most basic type of life insurance with the simplest and least policy terms and conditions. If you plan to purchase one for yourself, there are two major factors you must know. They are inclusion and exclusion. Read on to know more about them in detail to ensure that you have the best term plan experience.
Inclusions In a Term Life Insurance Policy
Inclusions of term insurance refer to the facilities and features provided to the policyholder. These include the direct and indirect benefits of term insurance. Below are some of the major inclusions in a term life insurance policy.
Sum Assured as Death Benefit
The sum assured as the death benefit is the first major inclusion that provides direct monetary gains to the nominee. The sum assured is the total amount that the insurer and life insured agree upon when purchasing a policy. This sum has underwriting in the policy papers as well.
Modes And Options of Premium Payments
The modes and options of premium payment refer to the facilities the insurer provides to pay the premium. There are three major term life insurance policy types based on payment frequency, regular payment, limited payment, and single payment. In regular payment, the policyholder can have insurance and pay for it as long as they are eligible to hold an insurance policy. Currently, the maximum age limit is 70 years.
In a limited period, the term insurance is only for a limited term of 5 or 10 years. And after this term, the policyholder will have to renew the policy. And in a single payment, the policy is valid for a pre-decided amount of time. The best term plan allows paying the premium in months, quarters, annually, or even in a single payment based on the policy type.
Rider benefits is an inclusion that insurer give their customers. Through the rider facility, insurers can choose any extra plan for any extra coverage and their insurance plan. This helps them have the same plan but with multiple covers as per the requirement. These rider plans are cheaper than separate plans, which is why people often have a rider plan in their basic insurance plan. Term insurance only allows two riders, accident benefits cover, and permanent disability benefit rider in their policies.
All types of life insurance have tax savings against premium payments. According to section 80 of the Income Tax Act, the maximum relaxation in income tax is INR 1,50,000 every year. These tax relaxations are included in term insurances also. So you can enjoy this indirect monetary gain even while investing in the best term plan.
Exclusions In a Term Life Insurance Policy
Exclusions in a term life insurance policy refer mainly to the occasions under which the insurer rejects the claim. To ensure you have secure term insurance, knowing these exclusions well in advance is necessary. It will spare the policyholder or their nominee any unwarranted surprise in case of any exclusion event. Below are the common direct and indirect exclusions valid in a term life insurance policy.
Suicide is the only directly mentioned exclusion in term life insurance policy. If the policyholder commits suicide, there are no death benefits to the nominee. There would be a repayment of all the paid premiums if the death was within 12 months of policy commencement. But there are some deductions in them. The insurer only refunds 80% after deducing valid charges for regular and limited premium payments. And for a single premium payment, they refund 90% of the premium.
A policy can become void due to several reasons. One major reason for life insurance is the false submission of documents and personal details. Hiding medical conditions is also a reason for a void policy. Another occasion is when the nominee dies before the policyholder, and the policyholder does not update the nominee’s name.
A waiting period is the initial 45 days from the beginning of the term insurance. During this waiting period, the insurer can reject all claims raised due to the policyholder’s death. However, death due to an accident is not considered during the waiting period. So, if the policyholder dies due to an accident during the waiting period, the nominee can still get the death benefits.
Even though a term life insurance policy is the best term plan and provides a death benefit, there is no maturity benefit. In case of survival at the policy term ends, the policyholder will not get back the payments made to term insurance.
There is also no loan facility available to term life insurance policyholders, which is present in regular life insurance policies. The same is the case for partial withdrawal.
Knowledge of these inclusions and exclusions will help you understand what to expect from the term life insurance policy in the given situations.
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