11 Most Frequently Asked Term Insurance Questions
- 1- Who is term insurance appropriate for?
- 2- What kind of deaths are not covered by term insurance?
- 3- How much term insurance cover should I buy?
- 4- Can I upgrade my term insurance sum assured after the policy is issued?
- 5- Can I change my nominee after the term insurance policy is issued?
- 6- Can I extend the tenure of my term insurance policy after issuance?
- 7- What are the reasons for a term insurance policy to get rejected?
- 8- What are the reasons for a term insurance claim to get rejected?
- 9- Do I need to inform the insurer about any changes in health issues, smoking habits, etc. after getting the policy?
- 10- How many days will it take for the insurer to settle my claim?
- 11- What happens if I outlive my term insurance policy?
We recently did a survey with people who explored term insurance in the last couple of years and found out that 24.6% of the respondents (almost one out of every four) spent over a year in term insurance research and many dropped out mid-way, because they were worried about going wrong, and making a mistake that could cost their family in the long-term. People have many questions and doubts when it comes to term insurance - and this article aims at answering some such common questions - so they’re put to rest once and for all.
So, this is our first set of some of the most common questions about term insurance that you might have!
Eleven Common FAQs related to Term Insurance
A term insurance plan is appropriate for anyone who has -
- Family members who depend on your earnings for their expenses.
- Taken a large loan that might burden your family, in case you die.
- Major unfinished responsibilities like children's education, weddings, etc.
- Not saved enough wealth for your family’s present & future financial needs.
There’s a major myth that there are ‘several’ types of death that won’t be covered by term insurance. This is not true at all. In fact, except for suicide in the first year of purchasing the policy, term insurance covers every type of death - accidental, because of disease, and any other circumstance.
In case you die due to suicide within one year of taking the policy, no death benefit is paid to your family. However, all premium payments made to the insurer in the first year will be returned to the nominee. (minus the taxes)
You should not go by the '20x annual income' thumb rule when calculating your term insurance cover because you might end up buying either a higher or a lower cover for your family. While buying a higher cover won't be a problem, if you buy a lower cover, your family will be left with insufficient funds in the future. Therefore you should account for all your financial commitments, living expenses, liabilities, and existing wealth to arrive at an appropriate cover amount.
You can upgrade your term insurance sum assured in the following three ways -
- Manual Upgrade: It involves buying a separate policy when you realize your responsibilities have increased. For this, you’ll have to go through the entire documentation and undergo new medical tests again. There are high chances of the policy getting rejected or the insurer charging expensive premiums if you buy the policy at an older age or have developed a disease.
- Increasing Cover: Unlike manual upgrades, increasing covers do not require any manual intervention, documentation, or medical tests. With this option, your cover amount will increase automatically at regular intervals until it reaches a maximum limit.
- Lifestage Benefit: With this feature, your term cover will get upgraded at various life stages - such as marriage, having a kid, etc. However, before you opt for life stage benefit, make sure you read the fine print in detail as it comes with a lot of restrictions concerning age, features, riders, waiting periods, etc.
Yes, in fact, you can change, add, remove names - any number of times during the policy term. You’ll have to contact the insurer and ask them about the process to do so. Mostly, all you’ll have to do is fill out the nomination form and submit it to the insurer at the policy renewal.
No, you cannot extend the duration of the policy after it is issued. If you want to buy a policy with a longer duration, purchasing a fresh policy is the only option you’ll have.
Generally, insurers issue a term insurance policy after evaluating some important things such as -
- Quality of life (through indicators like city, education, occupation, etc.)
- Health, lifestyle, habits
- Income, age, gender
In case you turn out to be high risk in any of these categories, the insurer can reject your proposal or charge higher premiums. Besides this, the insurer can also decline your policy proposal if you've made any representations that cannot be validated through documentary proof.
As per Section 45 of the Insurance Act, a life insurance company cannot reject a death claim that arises after three years of issuing the policy for any reason. Hence it's almost guaranteed that once your policy has completed three years, your family will get the payout, as long as you pay your premiums on time.
However, in case you die during the initial three years of purchasing the policy, the insurer can reject your family’s claim. One of the top reasons for the insurers to reject a claim is intentionally hiding or providing incorrect details in the proposal form. Especially those details that would muddle the insurer's view with respect to the risk they are covering.
We, therefore, recommend that you fill the proposal form yourself and declare everything truthfully - do not depend on any advisor or seller.
As per the terms & conditions of the policy, you are not required to inform the insurer about any such change after the policy is issued. However, if these changes happen after you submit the proposal form and before you receive the policy document - then you must inform the insurer about it.
The claim settlement procedure varies from insurer to insurer. As per IRDA guidelines, every insurer must settle the claim within 30 days of receiving all the required documents. However, still, some insurers take many months, even years to settle the claim in reality. Some insurers even guarantee a one-day claim settlement but that too comes with many terms and limitations.
You can compare insurance companies on Beshak⭐Ratings and find out which insurance company will settle your family’s claims quickly, without any hassles.
If you survive the policy duration, your term insurance cover will terminate and you won’t get anything back. Term insurance policies only provide a death benefit - not a maturity or survival benefit, except for Term Return of Premium (TROP) plans.
So, this brings us to the end of the article. If you have any further questions, you can post them on the Beshak Insurance Forum & get curated answers from insurance experts!
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- You must take a term insurance policy if you have financial dependents, have taken a large loan, have major unfinished responsibilities, or haven’t accumulated enough wealth.
- Except for suicide in the first year of buying the policy, term insurance covers every type of death.
- To calculate the right cover amount, you should consider your financial commitments, living expenses, liabilities, and existing wealth.
- Increasing cover is the best option to choose if you want to increase your term insurance sum assured.
- After a term insurance policy is issued, you can change, add, remove nominees any number of times.
- Once your term insurance policy is issued, you cannot extend its duration.
- The insurer can decline your term insurance proposal if you turn out to be high risk for them to cover or if you make any disclosures that cannot be validated through documentary proof.
- As per Section 45 of the Insurance Act, a life insurance company cannot decline a term insurance claim after a policy has completed three years - for any reason.
- You don’t need to inform the insurer about changes in health issues or lifestyle habits after the policy is issued.
- Although every insurer is required to settle the claim within 30 days of receiving all required documents - some insurers take many months, even years to settle the claim in reality.
- Except for TROP plans, term insurance policies do not provide any survival or maturity benefits. They only provide a death benefit.
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