Many people buy term insurance to ensure their families remain financially secure in the event of their untimely death. A term insurance policy is an agreement between the insurance company and the policyholder for a fixed period, typically ranging from 10 to 40 years, during which the insurer pays the death benefit to the beneficiaries if the policyholder passes away.
For example, a person with a ₹50 lakh home loan, ₹30 lakh car loan and future expenses such as their children’s education may opt for a term insurance policy with a ₹2 crore cover. This can help ensure that their family has the financial support to handle outstanding debts and expenses in their absence.
While term insurance sounds like an appealing insurance product, certain factors can lead to a claim being rejected. This could leave your family without the financial support they were counting on from the policy.
Why your term insurance claim can get rejected
Term insurance rejection can take place because of many reasons, with it more likely to happen if you provide incomplete or inaccurate information, according to a blog post by HDFC Life. Here are some common reasons:
- Deaths resulting from activities such as paragliding or racing are not covered if they fall under the policy’s exclusions.
- Deaths due to excessive alcohol or drug consumption is also generally excluded, depending on the policy terms and circumstances.
- If relevant information about a pregnancy was withheld when required, it could complicate claim settlement in the event of the policyholder’s death during childbirth.
Hence, it is crucial to give the most accurate information at the time of filling the application form and if you are not sure of something, it’s better to undergo a full health assessment before applying for a term insurance plan.
How much term insurance do you need?
A term insurance cover of 10 to 15 times annual income can provide a starting point, but it should not be treated as a universal formula.
For example, a person earning ₹15 lakh a year could arrive at a basic cover of ₹1.5 crore to ₹2.25 crore using the income-multiple approach. However, the actual requirement could be higher depending on the person’s liabilities, future expenses in the person’s absence and dependents.
It also must be noted that individuals below 18 years of age are not eligible for purchasing term insurance. Though an age requirement is applicable for the majority of insurance companies, the limits may vary.
