Jagoinvestor

September 26, 2010

9 most asked questions about Term Insurance

How does claim settlement work in case you have more than one term insurance policy? Does term insurance provide cover outside India? What if I suffer from some major illness or start smoking after buying a term insurance policy? How easy is it to get a claim from a private insurance company as compared to the state-owned Life Insurance Corporation of India (LIC)?

I am sure you must be concerned about all these questions if you have a term insurance policy or planning to buy one.

Today, I will answer some of the most asked questions, which an individual has in his mind, about term insurance. These questions if left unanswered would not only lead to fear, but may also delay one from taking the right decision.

term insurance

Please note: The following questions and answers are only for term insurance policy and are generally true for any company’s term plan. However, very rarely these questions and answers may differ across insurers.

1. Do Term Insurance pay in case of Accidental Death?

Yes, term insurance pays in case of an accidental death. The sum assured or cover taken under the term plan will pay the claim if the death has occurred due to any reason, be it natural or accidental death, or death due to some illness.

There are certain riders (additional benefits) such as accidental death benefit, permanent disability rider and critical illness rider. By buying/adding these riders to the policy, a policyholder can ensure that his nominee will get an amount over and above the basic sum assured (due to any of the rider-related incidents).

2. Does Life Insurance covers death outside India?

Yes, term plans cover death outside India provided the policyholder has updated this fact with the insurance company. He needs to mention that he now lives outside India. Just like change of phone number, address or nominee, there is a facility in the policy service form where the policyholder has to mention that he is going abroad.

However, if he is going to a country that is marked as unsafe like Pakistan, Burma, Somalia etc., then the company will decline this facility. Otherwise, this cover will be valid in other countries like US or UK.

3. To what extent Pvt Insurance companies investigates death compared to LIC?

There is a difference between early claim and normal claim. If a claim arises within the first two years of buying the policy (This period varies from company to company), the company investigates extensively before settling the claim.

You can very well understand if someone has a cover of Rs.50 lakh by paying Rs.7,000 annually (And he has taken this policy on monthly basis, i.e. paying around Rs.600 monthly), then the company is at a great risk. Hence, the company will doubly check everything to settle the claim.

In normal claim, premiums are paid regularly and the policy is in force for a long period, say 12 to 15 years. In these cases, there are not much issues in getting a claim, be it LIC or any private company.

4. If I buy a term insurance policy today, can its premium change in the future?

Unless and otherwise it’s mentioned in the policy document. Premium of a term insurance remains the same throughout the term of the policy provided everything remains the same with the policyholder. That is, the policyholder has not developed any illness or any smoking/drinking habit.

On declaring any such thing, company might apply loading and thus the premium amount changes.

5. What if a person becomes a smoker after some years of taking the policies?

If the policyholder has developed any habit, like drinking or smoking, after buying the policy, he generally does not have to disclose this fact to the company at all, unless it’s clearly mentioned in the policy document

6. What if a person was a smoker long back but not at the time of taking the policy?

Depends on the policy, but just for example, the Kotak Life Insurance proposal form mentions that the client has to declare whether he was a smoker or drinker earlier also even if he has left that habit long ago. Please see page 4, question 10.3 of this document . However, I am not sure about other companies. Also, it depends on the company whom they consider as a non-smoker at the time of issuing a policy.

For example: Max New York Life Insurance, for its Platinum Protect (term insurance), considers people, who have left smoking more than three years ago, as non-smokers. So please check the company’s rule 🙂

7. What kind of deaths are not covered in term insurance?

Some important facts, which most of the people are unaware of, are that most companies exclude “Death due to Terrorist Attack”. Although such claims are settled on humanitarian grounds later on when the nominee approaches Insurance Regulatory and Development Authority (IRDA) but such exclusion is there in most companies.

Other important fact, which public at large is unaware of, is that insurance companies do not cover death due to war or natural disaster like earthquake/tsunami. Because in these cases, death toll is high and the claim to be settled runs in crores of rupees which is difficult to settle by the company all of a sudden.

Therefore, these facts should also be kept in mind while buying a term insurance.

8. How to take care of claim settlement in case of more than two policies?

The very first thing, in these cases, is to declare in the proposal form that you already have a policy from an XYZ company. (There is a column in every company’s proposal form, which a client has to fill if he has an insurance policy from the same company or any other company).

Once such information is provided, then at the time of claim, the usual practice is to submit the Death Certificate to the insurance company with whom the policy is running for the longest period. Other companies are then informed of the procedure due and an acknowledgment from the FIRST Company is provided to them which are accepted by other companies.

Moreover, of late, it has been reported that generally insurance companies do not ask for an original death certificate to settle the claims, even a photocopy of the certificate will do. So be alert while filling the form and provide all the information about your previous policies to prevent even a minor problem later on.

9. Can NRI’s buy Term Insurance?

They can, but there is a catch. As a general rule, a person has to be resident in India to take up insurance policy from an Indian Company, reason being the documents required by the company like Address proof/age proof are to be for some place in India.

Moreover, if the Sum assured required is more than 50 lakhs or so, customer is required to submit his financial papers such as last 3 years ITR or Form-16 which again should be done in India only. Last thing, medical tests would be done at some medical center affiliated to the insurance company near the address of the client which again should be in India.

So these are reason why insurance might have been declined to some NRI.

So one way which might work is this , If a NRI wants to take Insurance, then on his/her next visit to India he should submit his proof of residence, age, last 3 years ITR etc. and get his medical done at his Indian address. This way he can get his policy issued very easily.

However, there is no need to complicate it and in-case you are out in some country and plan to be there for next couple of years, the best thing would be to take term insurance from your country of residence and later when you come back to India, you can buy term insurance that time.

Watch this video to know some more FAQ’s about term plan:

Comments Do you have any other doubts in Term Insurance which are not covered here? Which one out of the above 9 did surprise you most?

The inputs are provided by Dhawal Sharma, who is an agent for Kotak and Max Bupa.

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Suresh
Suresh
6 years ago

Excellent article, thanks for your time!

Jagoinvestor
Jagoinvestor
Reply to  Suresh
6 years ago

Thanks for your comment Suresh .. Please keep sharing your views like this..

Manish

ram
ram
7 years ago

Hi Manish,

I have already read your 10 financial principles book. It was really useful. Now, I have a query regarding term insurance.
I am planning to buy a term insurance for 1 crore cover. I used to smoke for like 6 months (not heavy) and I quit recently. now, my query is if i mention that i am a non smoker , will the insurance company conduct any medical examination to have it proved?
P.S. I dont know if history of smoking can be detected under medical test. Pardon my ignorance.
Thanks.

Raghav
Raghav
7 years ago

Hi Manish,

I think this is 1000th comment of the post. Congrats and Thank you for helping people like me with their financial decisions.

I am working in Public Sector. I have 25L LIC Offline Term Plan which was through an agent. I am not sure what agent has written in the form. I also have 5L Postal Insurance (Endowment). I want to get rid of both policies but should take at least 50L Term Plan before that. I have been analyzing Online Term Plans. I was stuck between ICICI, HDFC & Max Life. I came to know that HDFC & Max are going to be merged. I also see fall in HDFC Claim settlement ratio etc.

Meanwhile, my father & colleagues are suggesting me to take LIC Policy as it is a Govt. undertaking. I am also concerned with Terror Attacks, War, Natural Disasters etc.

Below are my queries:

1) Does Private Insurance companies cover Terror Attacks, War, Natural Disasters etc. Most of them not mentioned anything about these in “Exclusion List”.

2) One of the Bloggers mentioned that there is chance of scam like “Sathyam” in case of Private Insurance companies even though they are governed by IRDA. (I think he is not against any Private firm)

3) Is it safe to take One Term Plan from LIC and other from Private.

4) HDFC or Max Life, which one do you suggest keeping Merger in view.

Please understand I am more concerned about my family as I am the only person earning.

Thanks & Regards,

Raghav

PankajSinha
PankajSinha
7 years ago

Hi Manish,

Thanks for such a nice article.
I have bought one ICICI Pru term insurance policy in July 2016. While purchasing it i had mentioned that i am a smoker and also consume alcohal which they had filled in their application form and i also do have a soft copy of that.But in the bond paper they haven’t mentioned anything on that and they have neither conducted any medical test. When i called them and asked to understad the reason then they said that since i had already mentioned about my consumption of tobacco/ alcohal and my age is also under 30 so medical test was not required here. But i am just thinking that will it cause any issue when actual need will come ? Can you please tell me whether i should be worried about it or not ?

Regards,
Pankaj SInha

Munesh
Munesh
7 years ago

Hi Manish

Do you advise to take a term Insurance with Riders like Critical Illness benefits.? or buy seperate policy for CI.

please advise

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7 years ago

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kumaravelu
kumaravelu
7 years ago

Can we change nominee.

vijay
vijay
7 years ago

Hi Sir,

I have a term policy with AVIVA. I want to take out one more term policy to cover my home loan now. Is it ok to have 2 or 3 different term policies?

Rajesh
Rajesh
7 years ago

Hi Manish
I have a LIC amulya jeevan term insurance plan for 40Lacs for which the premium is 12K+
but other insurance companies they give for 1cr and premium is 7K across only.
2nd question – does the term insurance cover natural death too or only accident death or any medical related death.

thanks

obaidahmad
obaidahmad
7 years ago

do a deutch insurance company cover medical and hospital expenses outside the country like india?do they settle death claim if person dies at india?

obaidahmad
obaidahmad
7 years ago

whether an insurance company(if a deutch) cover medical nd hospital expenses outside the country?if a person took a life insurance policy from a deutch company and took the pateint to india where the policy holder dies then will they settle the claim of outside deaths??plz suggest asap

Leesha
Leesha
7 years ago

i want to purchase two term plan from two different company is it possible?
should i go for with disclose option / non-disclose option with the second company?
which is better in terms of claim settlement ?
one is LIC and other is private company.

raju
raju
7 years ago

Lets say some X Person bought insurance policy with two nominees Y AND Z with share split of 50% and 50% to each of them. If X and Y died in the same accident does Z person get the 100% Insured amount or only 50% amount please clarify

Mubasheruddin
Mubasheruddin
7 years ago

Hello,
My cousin has died in KSA, I am also working here, can I get policy to my cousin children of 15 yrs with LIC, is there any plan like that.
Pls. explain
Thanks

kamal kant
kamal kant
7 years ago

i want to purchase two term plan from two different company so please sugguse to me is it possible?
and there will be no problem in future and claim settlement ?
one is LIC and other is private company.

Ashutosh
Ashutosh
7 years ago

Hello,

How will disclosure of myself being overweight but non-smoker and non-drinker will affect m premium.

Thank you

Dharmender
Dharmender
7 years ago

Hello Manish,
Pl I want rider with one of kotak policy, is there any rule for no rider for Nigeria or like country.

Rashmi
Rashmi
7 years ago

Hi Manish,I read your blog, it’s very informative.. My husband is shifting DRC(Democratic republic of Congo) in next twenty days. Before that he was in Nigeria for four years.right now he is on in India. He wants a term insurance plan from Indian company. Can you pls suggest a plan or company who covers risk across the globe ..urgent..

Vik
Vik
8 years ago

I am 38 yrs old and underwent Angioplasty in 2007. Does any life insurance company in India provide life insurance to persons like me? Which one is more suitable

Rajganesh
Rajganesh
8 years ago

Dear Sir, Whether income tax is applicable for payout amount in case of death to the policy holder ?