Term Insurance – Introduction and Coverage Offered

Posted on Jan, 2021

If the current pandemic has taught us anything, it is that we live in a rather uncertain world. There is no telling when one can be diagnosed of an illness and succumb to it. If a bread-winner of a family succumbs to an illness, it can leave the dependents in financial limbo. As such, it is vital to always be prepared. One way to ensure your family’s financial security in your absence is to invest in term insurance. Let’s find out what is term insurance.

Term insurance meaning and definition

Term insurance is defined as a life insurance product that offers the policyholder financial coverage for a predefined period or ‘term’. It is exclusively a ‘death benefit’ policy. As such, the insurance policy provides financial coverage to the policyholder’s nominee (also known as the beneficiary) in case of the policyholder’s demise during the policy term. Moreover, a few insurance providers also cover partial or permanent disabilities with term plans, in situations when the policyholder’s regular income gets disrupted.

Term insurance coverage

Having explained what is a term insurance plan, let’s understand what is covered under this insurance policy. As mentioned above, a term insurance policy can be encashed by the policyholder’s nominee or beneficiary, in the event of the latter’s death. As per policy guidelines, one can file a claim only under two conditions.

  1. In the event of a natural death

    The beneficiary may encash a term insurance plan if the policyholder dies of a natural death and/or death due to illness. Natural death is defined as death that occurs due to natural causes such as old age or as a result of declining health conditions, or death due to diseases, as opposed to death caused due to violence, suicide, or other such undeterminable causes. In such a situation, the insurance company pays the beneficiary of the policy the sum assured as per the terms of the policy.

  2. In the event of an accident

    The term insurance plan also offers coverage against accidental death. An accidental death is beyond the policyholder’s control. Examples of accidental death include death caused due to vehicular crashes or fire-related injuries, death due to machinery in factories, death from falling off a building, slipping in the bathroom, or drowning, as well as death resulting from natural calamities.

Accidental rider clauses in term insurance

Accidental disability rider: In case an accident leads to partial or complete disability, then the insurance provider pays a fixed percentage of money to the policy holder for the next few years. This is because accidents leading to disability can result in loss of employment. As such, the add-on rider serves as a source of income for the policy holder. Note that the tenure of payment is mentioned in the terms and conditions section of the policy document and is typically five to ten years.

Hospitalisation and accidental death rider:Term insurance plans also come with additional riders that also cover the cost of hospitalisation if the accident leads to the policyholder’s death. The additional rider associated with the term insurance coverage plan helps pay for the policyholder’s medical treatment. It also includes a sum that covers the policyholder’s beneficiary.

Example:Let’s say a policyholder has a term insurance plan with a sum assured worth Rs. 5,000,000. He is injured in an accident, and his medical bills stack up to Rs 1,000,000. Despite receiving treatment, he succumbs to the accident. In such a situation, the term insurance provider pays the medical bills of the entire amount of the hospital bills, while the remaining Rs. 4,000,000 is paid as the sum assured to the policyholder’s beneficiary.

Final note: When compared to a standard life insurance policy, the term insurance policy offers the highest life coverage against a comparatively lower premium. Individuals who are the sole bread-winners of their families must consider investing in term insurance as a means to safeguard the financial future of their dependents. To know more about term insurance or buy term life insurance coverage, reach out to PINC Insurance.