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Inclusion and Exclusion in Term Insurance

TeamAckoSept 25, 2024

Term Insurance is an essential part of financial planning for individuals and families in India. It provides protection and financial security for loved ones in case of an unforeseen event. However, many people in India are hesitant to discuss or plan for their mortality due to cultural and religious beliefs. In this article, we will explore the various Inclusion and Exclusion clauses commonly found in Term Insurance policies. We will also explore their implications, and what factors to consider when choosing a policy that meets your specific requirements

Inclusion

Contents

What are the general inclusions and exclusions of a Term Plan?

Inclusion and exclusion are terms used in Term Insurance policies to define the scope of coverage provided. Inclusion refers to the factors considered for coverage, while exclusion refers to those not covered. Let’s understand each.

Let's look at the table below for an example.

Suppose Raj is a family man with a wife and two children. He has made a term insurance coverage plan of ₹50 lakh with his wife as the beneficiary. His plan includes an accidental death benefit.

In an unfortunate event, Raj faces a massive truck accident and loses his life. Since his death occurred due to an accident, and based on the Inclusion in his term plan, his wife will receive the death benefit amount.

If Raj takes his own life in an act of suicide, then his wife and family will not receive any coverage or death benefit from the insurance company since suicide is an Exclusion in term plans.

3 Types of Inclusions in Term Insurance

Here are general inclusions of a Term plan.

Accidental death

Term Insurance policies typically provide coverage for accidental death, which means that if the policyholder dies due to an accident, their beneficiaries will receive a death benefit. For example, if the policyholder dies in a car accident, the insurance company will pay out a death benefit to their beneficiaries.

Death due to illness

Term Insurance policies also cover death due to illness. If the policyholder passes away due to an illness covered by the policy, such as cancer, heart disease, or stroke, their beneficiaries will receive a death benefit. For example, if the policyholder is diagnosed with cancer and passes away due to the illness, their beneficiaries will receive a death benefit.

Coverage for disabilities

Some Term Insurance policies also cover disabilities. This means if the policyholder becomes disabled and cannot work, they may receive a monthly income from the insurance company to cover their expenses. For example, if the policyholder becomes disabled due to an accident or illness and can no longer work, they may be eligible for disability benefits from the insurance company.

Factors that affect the coverages of a term plan

Here are the factors that may help your insurer decide the coverages of your policy.

Medical history

The medical history of the insured person is one of the most important factors that determine inclusion in Term Insurance. The insurance company will consider any pre-existing conditions, such as heart disease or cancer when determining coverage.

Occupation

The occupation of the insured person can also determine Inclusion in Term Insurance. High-risk occupations, such as construction workers or pilots, may have higher premiums or lower coverage limits.

Lifestyle

The insured person's lifestyle can also be considered for Inclusion in Term Insurance. For example, a smoker may have higher premiums than a non-smoker.

Note that the specific inclusions and terms of a Term Insurance policy will vary depending on the insurance company and the policy itself. It's important to carefully review the policy and understand what is covered before purchasing Term Insurance.

5 Types of Exclusions in Term Insurance

Here are general exclusions of a Term plan.

Suicide

Most Term Insurance policies have a suicide Exclusion clause that states that the policy will not pay out if the policyholder dies by suicide. This Exclusion is typically in place for the first few years of the policy, after which it may be lifted.

War or terrorism

If the policyholder dies due to an act of war or terrorism, the Term Insurance policy may not cover it. This Exclusion is typically in place to prevent insurers from paying out for events beyond their control.

Criminal activities

If the policyholder dies due to criminal activities, the Term Insurance policy may not cover it. This Exclusion is in place to prevent insurers from paying out for events caused by illegal behaviour.

Intoxication

If the policyholder dies under the influence of alcohol or drugs, the insurer may not cover it. This Exclusion is in place to prevent insurers from having to pay out for events caused by reckless behaviour.

Factors that determine the exclusion in Term Insurance

Some coverage may be excluded from your Term plan based on the following factors.

Pre-existing Conditions

Pre-existing conditions, such as cancer or heart disease, may be excluded from coverage in a Term Insurance policy.

High-risk activities

High-risk activities, such as skydiving or bungee jumping, may also be excluded from coverage.

Dangerous occupations

Dangerous occupations, such as mining or logging, may have limited coverage or higher premiums.

It is essential to carefully read and understand the policy's terms and conditions to know the exclusions and limitations of coverage. If you have questions, you should always consult your insurance company for guidance.

Choosing the Right Term Insurance Plan

Inclusions and Exclusions play a major role in deciding the right term plan for you. It is essential to compare different policies to see which works for you and which does not. Although Inclusions and Exclusions are usually the same for all prominent insurance companies, minor alterations can make a big difference. Some factors to consider during this process are:

Consider Financial Dependants: When buying term insurance, it's essential to understand the needs of your financial dependents such as spouse, children, or parents. Understanding their needs and how they would be affected in your absence is crucial in determining the policy's appropriate coverage amount and duration.

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Assess Financial Situation: Evaluate your financial situation, including existing debts, future expenses, and the income replacement needs of your dependents. By clearly understanding your situation, you can choose a policy that fits your needs and provides coverage.

Claim Settlement Ratio: A vital metric to consider when evaluating insurance providers. It represents the percentage of claims settled by an insurer against the total number of claims received in a specific period. A high claim settlement ratio indicates better reliability.

Importance of understanding inclusion and exclusion in Term insurance

Understanding the inclusion and exclusion clauses in term insurance is crucial for anyone purchasing a policy in India. Inclusions are the events or circumstances under which the policy will pay out, while exclusions are those under which the policy will not pay out.

By understanding the inclusions and exclusions, policyholders can make an informed decision and avoid any surprises when it comes time to file a claim. For example, if a policyholder has a pre-existing medical condition excluded from coverage, they may need to seek a policy covering that specific condition.

Additionally, understanding the exclusions can help policyholders avoid engaging in activities that could potentially void their policy, such as participating in dangerous sports or activities. It is important to carefully review the policy documents and ask questions to the insurance provider to ensure a clear understanding of the policy's coverage and limitations.

The following table lists the advantages of understanding and risks of not understanding term insurance coverages.

ADVANTAGES	RISKS
Understanding inclusion and exclusion in Term Insurance can help insured persons make better decisions when choosing a policy.	Failure to understand Term Insurance inclusion and exclusion can lead to limited coverage and financial loss.
Understanding the factors that determine inclusion and exclusion in Term Insurance can help accurately calculate premiums and avoid surprises.	Insured persons may pay higher premiums if they fail to understand the factors that determine inclusion and exclusion in Term Insurance.
Understanding the coverage provided can help avoid claim rejections due to exclusions.	Insured persons may face claim rejection due to exclusions they were unaware of.

Wrapping it up

Before making any decisions regarding term insurance, individuals must thoroughly understand the inclusions and exclusions outlined in the policy. This understanding helps policyholders make informed choices and avoid unexpected complications during claims. It's essential to review the policy documentation meticulously and, if required, engage with the insurance provider to seek clarification by asking pertinent questions.

Frequently Asked Questions

Here are the answers to the most asked common questions related to the inclusions and exclusions in Term Insurance Policy.

Can inclusion and exclusion clauses change over time in a Term Insurance policy?

Yes, Term Insurance policy inclusion and exclusion clauses can change over time. The insurance company may periodically review and adjust the policy terms and conditions. This is based on factors such as changes in the insured person's medical history, occupation, or lifestyle.

Can a pre-existing condition be covered by a Term Insurance policy?

It depends on the type and severity of the pre-existing condition. In some cases, a person with a pre-existing condition may still be able to get coverage in a Term Insurance policy but at higher premiums or with limited coverage. It is essential to disclose any pre-existing conditions to the insurance company when applying for coverage.

What’s the maximum coverage I can get for an Accidental Death Benefit rider?

As per the IRDAI, you can purchase an Accidental Death Benefit Rider with coverage up to three times (3x) the base sum assured of your life insurance policy.

Are all high-risk activities and dangerous occupations excluded from Term Insurance coverage?

Not necessarily. The types of high-risk activities and dangerous occupations excluded from Term Insurance coverage vary by the insurance company and policy. Some insurance companies may offer coverage for certain high-risk activities or dangerous occupations, but at more expensive premiums or with limited coverage.

What happens if a claim is denied due to an exclusion in a Term Insurance policy?

If a claim is denied due to an exclusion in a Term Insurance policy, the beneficiary may not receive the death benefit. It is important to carefully review the policy terms and conditions and understand the exclusions before purchasing a policy. This is to avoid claim rejection.

Can an insurance company deny a claim due to a pre-existing condition not disclosed by the insured person?

Yes, an insurance company can deny a claim due to a pre-existing condition not being disclosed by the insured person. It is essential to disclose all pre-existing conditions when applying for coverage to avoid claim denials.

What new options do I have for adjusting my premium?

As per the IRDAI, you have the option to decrease the premium amount or sum assured of your life plan after 3 years instead of the previous restriction of 5 years.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.