Rajesh had bought a term insurance plan for INR 2 crores as he had a wife and a young daughter to support. While on vacation in Goa, he went for watersports and unfortunately the cables snapped while he was parasailing and he fell deep into the ocean and died. It was a huge shock for his wife, but at least she was assured of getting the life insurance claim with which she could clear the home loan and pay for her child’s education. Sadly, the claim was rejected as watersports is considered to be a dangerous activity and it is a life insurance exclusion.
Life Insurance Exclusions
There are some common life insurance exclusions that you must be aware of. Here is a list:
- Death due to suicide -
Most life insurance plans do not allow the nominees to file a claim if the policyholder dies by suicide within the first policy year. However, 80% of the premium or the surrender value, whichever is higher would be payable if the insured suicides within one year of policy inception or revival, provided the policy is in force.
However, in general, death by suicide or death due to self harm is considered to be an exclusion in life insurance.
- Death due to substance abuse -
If the policy dies because of substance abuse, the nominees cannot make a life insurance claim. This includes drunk driving, drug abuse, alcohol overdose, etc. If the policy meets with an accident in an inebriated state and dies because of that, or is hospitalised and then dies due to complications from the abuse, no claim can be made.
- Death due to involvement in war -
Another important life insurance exclusion is death due to war. If the policyholder dies while participating in a war or any war like activity, the nominees cannot make a life insurance claim. This is clearly stated in all the policy documents.
- Death due to hazardous activity -
When the policyholder dies after participating in an adventure sport or hazardous activity, the insurance provider is not liable to pay out the life insurance claim amount. These include racing, deep sea diving, bungee jumping, paragliding, etc. This is another common life insurance exclusion that every one must be aware of.
- Death due to man-made calamity -
Man-made calamities include riots, vandalism, nuclear activity, ect. If the death of the insured person happens due to involvement in any man-made calamity, or even as the result of any such event, the beneficiaries will not be able to raise a life insurance claim as this is an important exclusion found in almost every life insurance policy.
- Death due to criminal activities -
Criminal activities include gang wars, theft, armed robberies, stabbing, murder, etc. If the policyholder dies due to any such event, the life insurance claim may not be accepted. However, if an investigation is carried out and it is found that the policyholder was an innocent victim of a criminal activity, the insurance company may pay out the death benefit to the nominees.
- Death due to maternity complications -
Death resulting from pregnancy or childbirth related complications are a permanent exclusion in life insurance. If the death of the policyholder happens due to any reason related to maternity complications, a life insurance claim cannot be made by her nominees.
- Death due to pre-existing illnesses -
And finally, the nominees cannot make a claim if the policyholder dies due to complications related to a pre-existing health condition. Many policies have provisions for pre-existing conditions but after a waiting period. If the death happens within the waiting period, no claim can be made.
These are the important life insurance exclusions that you must be aware of when you look to buy any kind of life insurance plan. Whether you buy term insurance, endowment insurance or even a ULIP, some exclusions will always be applicable to your policy.
However, each and every policy might not exclude all types in their plans. Some plans might cover some common exclusions. Thus, it makes most sense to read the policy document well ahead of time and know the exclusions properly.
A Word of Caution
While there are some common life insurance exclusions that you will find in most life insurance plans, the different companies have their own sets of exclusions. This is why you should read the terms and conditions very carefully before you buy any plan. Ideally you should buy a plan that has the fewest exclusions, but do go over the clauses very carefully to identify any hidden clauses that can cause problems later on.
Choosing the Best Life Insurance Plan
You will never find a life insurance policy that has no exclusions! In fact, if you do come across such a plan, you should be very careful and check whether it is a fraud scheme or not. Take a look at the list of exclusions and opt for a plan that has fewer exclusions. But also look at other factors such as the cost, the coverage, the insurer, etc. Your ideal policy should be affordable, should have comprehensive coverage and should be from a good and dependable insurance provider. Once you ensure these factors have been checked, you will surely have a very good life insurance plan with you.
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