In India, life insurance has long been an emotional decision for families. It remains a push product rather than a pull (self-bought) product in our country, leading to frequent mis-selling.
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Life insurance should be seen as pure protection for the family’s breadwinner, ideally purchased as a Term Life Insurance product. Term Life insurance is offered by all life insurance companies, with variations in clauses and riders. This article highlights unknown clauses you should be aware of before buying a term life plan.
Planning to Buy a Life Insurance Policy?
Especially a term plan? Or already bought one? Here are some crucial clauses to watch out for:
Disclosures
You must accurately disclose your health status and your family’s health history. This includes ailment history, ongoing medication, family members’ health history, and causes of death, if applicable. Non-disclosure is a common reason for claim rejection, so it’s better to disclose and declare correctly when purchasing the policy. If you’ve already bought the policy without full disclosure, email customer service to update your information and keep a printed copy with your policy to avoid issues during claim settlement.
Claim Settlement Ratio
Life insurance companies often market themselves with high claim settlement ratios, typically between 97% and 99%. For new customers, this can be a marketing gimmick. The number of repudiated claims and the breakdown between group insurance and retail policy claims are not considered. Therefore, do not base your decision solely on the claim settlement ratio.
Misrepresentation
Be aware of the misrepresentation clause. This includes hobbies like adventurous sports (bungee jumping, skydiving, parasailing, hiking), smoking, drug and alcohol habits, and family health history. Proper representation is essential when purchasing life insurance policies.
Insurance Intelligence Bureau
Before issuing a life insurance policy, the insured’s data is shared with the Insurance Intelligence Bureau, a central repository of insurance policies across insurers. This means you cannot lie about existing policies. Applying with multiple insurers simultaneously will highlight any misrepresentation, so honesty is crucial.
Female Lives
In many business families, spouses or daughters are shown as partners or stakeholders in the business but declared as housewives or non-earning members when buying life insurance. This incorrect declaration can lead to claim rejection. Females need a term cover when their income significantly contributes to the family’s income.
Critical Illness Rider
When opting for term life insurance, consider adding a critical illness rider. However, understand that in some policies, the base sum insured and critical illness rider are treated separately. For example:
- Mr. R buys a term life policy of Rs. 2 crores with a critical illness rider of Rs. 50 lakhs.
- If diagnosed with a critical illness, Rs. 50 lakhs is paid as a lump sum, and the term life cover continues. Upon death, Rs. 2 crores is paid to the nominee.
- In some policies, the critical illness payout reduces the sum insured to Rs. 1.50 crores (Rs. 2 crores term life minus Rs. 50 lakhs CI).
Misunderstanding this clause can lead to issues, so read the policy wordings carefully.
Onus on Customer
Insurers now place the responsibility on customers for disclosure, declaration, and accurate representation of income, health condition, medical history, family medical history, past ailments, family members’ death reasons, and hobbies. Insurers can reject claims for any deviations on the proposal form and during claim settlement. Therefore, customers should fill out the proposal form themselves and not rely on others.
One buys a term life cover for mental peace and to ensure sufficient financial backup for the family in unforeseen events. Understanding these clauses is vital to making an informed decision and securing your family’s future effectively.
