If you are planning to purchase a term insurance policy, this article is for you!

Term insurance plans are considered a smart financial buy - they slip into the role of your income replacement in the event of your unfortunate absence. The policies are crafted so as to make sure that your loved ones can meet their life-stage goals without any financial hiccups, even in your absence.

Now, consider this - what if you are the sole breadwinner of the family, supporting a spouse, 2 sons, and a parent and suddenly pass away, unfortunately? Imagine the emotional and financial distress that your family would have to endure. Unfortunately, we don’t have much of a solution for the emotional loss that they would experience. However, when it comes to the financial aspect, a term insurance policy can be just the perfect solution.

If you are wondering, “How?” well, it involves a term called “death benefits” that forms the centrepiece of a term insurance plan. Let’s take a quick look at some of the best term insurance policies that come with high death benefit options. Then we can deal with what are term/life insurance death benefits, what is covered & not covered under death benefits, the tax benefits involved, and a few other unknown facts about death benefits!

Best Term/Life Insurance Plans with High Death Benefits

# HDFC Life Click2Protect Super Bajaj Allianz Life Smart Protect Goal ICICI Prudential iProtect Smart TATA AIA Maha Raksha Supreme
Death Benefits ₹2 crores or more ₹50 lakhs - no cap on the maximum cover amount
  • Life (minimum ₹50 lakhs - maximum no cap)
  • Critical Illness (minimum ₹5 lakhs - maximum ₹1 crore)
₹50 lakhs - no cap on the maximum cover amount
Other Features
  • Critical Illness Benefits
  • Total and Permanent Disability Rider
  • Zero Cost Option
  • Smart Exit Option
  • Waiver of Premium
  • Critical Illness Benefit
  • Total Permanent Disability Benefit
  • Zero Cost Option
  • Waiver of Premium
  • Critical Illness Benefit
  • Return of Premium
  • Whole Life Cover
  • Inflation Protection
  • Accidental Death Benefit
  • Waiver of Premium
  • Smart Exit Benefit
  • Accelerated Critical Illness Benefit
  • Accidental Death Benefit
  • Terminal Illness Life Stage Benefit
Drawbacks No top-up option to boost your cover as per the inflation rate Pricier than the other plans in its category
  • No terminal illness benefit
  • No zero-cost option
  • No top-up to boost your term cover
Poor operational proficiency
Heads Up: It takes an average person up to 5 hours to read & analyze a term life policy, and 10 hours or more to compare different plans and make a decision.
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What is a death benefit in term/life insurance policies?

In term/life insurance plans, the death benefit is the sum disbursed by the term insurance provider upon the policyholder’s death. This amount is pre-decided between the insured and the insurer during the time of policy purchase, and there are two factors that need to be considered when finalising the death benefit amount -

  1. Your ideal death benefit: Contrary to popular belief, the ideal death benefit amount differs from one policyholder to another. Since term insurance plans are supposed to act as income replacements in the event of your unfortunate absence, you can use a free tool to calculate the ideal death benefit amount. The tool will consider your age, ideal policy tenure, monthly expenses, and outstanding loans.
  2. Your eligibility: Now, even if you know your ideal death benefit amount, your eligibility is the final step in deciding if you can avail yourself of the sum you requested (ideal cover amount) for your term insurance policy. Since term insurance policies offer access to a substantial sum assured against a nominal premium, they are very particular about the required eligibility criteria. These criteria include submitting answers to questionnaires on your age, income slab, educational qualification, lifestyle, habits, occupation, and medical history. Provided you match up to their pre-set eligibility criteria and your background is checked and approved by the insurer’s underwriting team, you may very well get access to the ideal death benefit amount.

Now, term insurance death benefits are supposed to be offered to policyholders who pass away during the policy tenure. However, depending on the reason why the policyholder passed away, the death benefits may/may not be offered to the beneficiaries. Let’s get a quick check about what is and isn’t covered under death benefits in term/life insurance policies -

What is covered under death benefits in term/life insurance plans?

  1. Natural Death - Whether it’s a sudden health condition, a critical ailment (one of the listed diseases provided by the insurer and as mentioned in the policy wording), or a terminal illness (if the policyholder is diagnosed with a terminal ailment that leaves the individual with only a few months to live) - these are considered natural deaths and are covered under the death benefits in term/life insurance policies.
  2. Natural Disaster - Any deaths caused by a natural disaster are covered under death benefit in term insurance plans.
  3. Accidental Deaths - If the policyholder's death is caused by an accident, insurers offer the death benefit to the beneficiaries. Additionally, if you have opted for a term insurance rider like Accidental Death Benefit, you can get a surplus amount that is over and above the base sum assured. However, please remember that such riders make sense only if you are a frequent flyer or an entrepreneur who travels often.
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What is not covered under death benefits in term/life insurance plans?

  1. Undisclosed Health Conditions - When applying for a term insurance policy, you will need to fill in the questionnaire regarding past medical history. In the case of any pre-existing medical issues, your premiums may spike slightly. However, to avoid paying a slightly higher premium if you think of not disclosing your medical issues, then here’s what might happen - if an undisclosed pre-existing medical condition causes the demise, the insurer can reject the claim application altogether.
  2. Suicide - Term insurance plans do not cover deaths by suicide if they occur within a year of purchasing the plan or reviving a lapsed policy.
  3. Death during war - Since war is a man-made event that leads to massive casualties, insurers do not cover deaths caused by wars. Additionally, there is also the issue of such a massive number of deaths taking a toll on the financial health of the life insurance provider in question.
  4. Death due to participation in hazardous activities/adventure sports - In the questionnaire that you fill in when applying for a term insurance policy, you are required to answer if you practice any hazardous activities (like bungee jumping) as a hobby or as a major occupation. If you do, you are marked as having a risky profile and may also be denied a term insurance plan. However, even if you have availed of a term insurance plan and then pass away due to participation in any hazardous activities/adventure sports, your beneficiaries won’t be able to avail of the death benefit.
  5. Death during a terrorist attack (perpetrator)/homicide - If the policyholder’s death is a homicide, the policyholder was a homicide perpetrator, or if a terrorist attack causes the policyholder’s (who is the perpetrator) disability or death, no death benefit is extended to the beneficiaries.
  6. Death when under the influence of intoxicants - If the policyholder passes away due to an accident or any ailment that is a result of intoxication, the insurer doesn’t offer any death benefits.

What are the tax benefits on death benefits in term/life insurance policies?

Term insurance policy death benefits are free from any tax deductions - and here’s why!

  1. There is an increased effort to boost insurance penetration in India. A tax-free death benefit surely helps the cause.
  2. Term insurance plans are supposed to be effective as financial aid (an income replacement) and support families during emotional and financial distress. Under such circumstances, a tax deduction on the death benefit would prove to be extremely insensitive. Thus, under Section 10(10D) of the Income Tax Act 1961, the death benefits are completely exempted from any tax deductions.

3 things to know about death benefits in term/life insurance plans!

  1. The death benefit can be paid out partially/entirely before the policyholder's death - Say you have a cover amount of ₹2 crores and an Accelerated Critical Illness Rider (where the amount is a part of the base sum assured) of up to ₹1 crore. In case you are diagnosed with a critical ailment (from the pre-decided list as offered by the insurer), the insurer will disburse ₹1 crore from your base sum assured, leaving your beneficiaries only ₹1 crore (previously ₹2 crores) as a death benefit when you unfortunately pass away.
  2. Death benefits and cash value - In case you have opted for a type of life insurance policy called an Endowment plan, you will have heard of the cash value component - this is when a section of the premiums paid towards the plan is set aside in a savings account. In case you need some cash on an emergency basis, you can withdraw this cash amount (subject to certain conditions, which vary based on the insurer you have approached). While this reduces the death benefit that could have been gained in a pure term insurance plan (against the same premiums), in the case of cash value, if you surrender the plan, you can get this amount immediately, while you will lose out on the death benefit completely.
  3. There are multiple types of death benefit payouts - When purchasing a term insurance policy, you have to choose the type of death benefit payout you want your beneficiaries to avail. There are multiple types of death benefit payout -
  • Lump sum – The entire death benefit paid out in one go, when the policyholder passes away (during the policy tenure)
  • Monthly income - The death benefit is paid out on a monthly basis over a pre-decided period.
  • Lump sum+ monthly income - A portion of the death benefit is paid out as a lump sum, while the residual portion is disbursed over a monthly basis (across a pre-specified span)
  • Increasing monthly income—The entire death benefit is paid out monthly, and the amount/month increases by a pre-decided percentage annually.
  • Lumpsum + increasing monthly income - A section of the death benefit is paid out as a lump sum. The other section is paid out on a monthly basis, where the sum/month increases by a certain % annually.

What is the claim application process for death benefits in term/life insurance policies?

STEP 1: Intimation of the Claim

Visit your insurer’s official website and click on the death claim/claim registration tab. Download the Death Claim Form/fill it out online and submit it with relevant ID details, address proof, contact details, the reason for the death, and the birth and death day - as required. This will send out the relevant claim intimation to the term insurance provider in question.

STEP 2: Submit the relevant documents

Based on the type of death, the beneficiary will need to submit a few documents -

  1. Mandatory documents - original policy document, cancelled cheque, death claim form, and address proof.
  2. Documents in the case of accidental death - autopsy report and police reports.
  3. Documents in the case of natural causes/ailments leading to death - written declaration from a doctor, treatment/hospitalisation/medical records, and certification of the hospital where the policyholder was being treated

STEP 3: Claim Settlement

The insurers review and cross-check the documents submitted and then, within a pre-specified time limit, disburse the death benefit amount to the policy nominee.

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Conclusion

Purchasing a term insurance plan is always a smart financial move, considering the financial peace of mind it fetches to a policyholder’s family in the unfortunate absence of the sole breadwinner. However, the entire policy functions on its death benefit perk, which, although, is the most basic offering, has a few nuances that you need to acknowledge to ensure that you make the most out of it.