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)? You must be concerned
about all these questions if you have a term insurance policy or planning to buy one.

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 its 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 has
to disclose this fact to the company as now he belongs to a different risk pool. The company may
levy loading(increase in premiums) on the existing premium or even cancel the policy. This is
necessary as violation of this term can result in decline of the claim in extreme cases.

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. 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 companys 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 companys 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 is 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 NRIs 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 incase 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.

By Chetan V. Oswal
CFP