Life Insurance Fine Print: 3 Clauses you absolutely need to know
Fine print. No other combination of 2 words can strike so much fear in us, with the exception of “price hike”.
While we cannot do anything about water being more expensive, we certainly can demystify and clarify Life Insurance’s top 3 clauses. We dissect them in this article, to make them more transparent, and aim to let you understand their purpose in various policies.
Magnifying glass not necessary.
The most famous clause of them all, since Life Insurance is often a matter of life – and death.
If the Life Assured dies by suicide, while sane or insane, within one year from the date of issue of this Policy or from the date of any reinstatement, whichever is later, the pOlicy will be rendered void and the Company will refund all premiums paid to the Policyowner or to the legal personal representative of the estate of the Policyowner if the Policyowner and Life Assured are the same person regardless of any assignment of this Policy.
In plain English:
(The Insurer) will not pay out a death benefit if you commit suicide within a year of policy commencement. They will just refund your premiums.
Purpose of the Clause:
Eliminate moral hazard – and prevent people from viewing insurance as a quick way to raise money for their families.
Where is it relevant:
In plans with Death cover – that is to say, most of the insurance plans out there.
Definition of Total and Permanent Disability
This is not so much a clause in itself but rather a definition of what constitutes Total and Permanent Disability (TPD). There are 2 prevalent definitions of TPD.
Sample text: Presumptive TPD
The Sum Assured will be payable in one lump sum and the policy will terminate if TPD is caused by total and irrecoverable loss of:
•Sight in both eyes
•The use of two limbs at or above the wrist or ankle, or
•Sight in one eye together with total and irrecoverable of the use of the one limb at or above the wrist or ankle
Sample text: Occupational TPD
The disability is total and permanent only if the Life Assured suffers from a state of incapacity which is total and permanent and which is such that there is not at that time, nor at any time thereafter, any work, occupation or profession which the Life Assured can ever perform or follow sufficiently to earn or obtain any wage, remuneration or profit.
In plain English
Presumptive TPD – The payout is given if you lose any 2 combined functions of your eye(s), hand(s), and leg(s). Any permanent loss of any of 2 out of these 6 body parts and you are presumed to be Totally and Permanently Disabled.
Occupational TPD – The payout is given if you are unable to do any work to earn an income. Laziness is not a reason, obviously.
Purpose of Definitions
Between the two, occupational TPD is seen to be a more “relaxed” condition. Typically, companies cover Presumptive TPD across the whole policy term, while the Occupational TPD condition is only covered till up to age 65.
Where is it relevant:
In policies covering TPD for a long period, usually Whole Life plans or Term plans with a long tenure.
Material (Mis)representation Clause
Arguably the most important clause you can find within any policy. It is certainly one of the top reasons why policy claims are rejected.
We may declare your policy void if the information given or any written statement you provided to us before the Cover Start Date of the policy (or at any application for reinstatement) is untrue in any respect; or any material fact affecting the risk is incorrectly stated or represented to us or is omitted from any of the documents you submitted to us. If no claim has been paid, we will refund the total premium paid to you.
It is so important that you will usually find it in the application form as well, even before you purchase the policy.
If a material fact is not disclosed in this application, any policy issued may not be valid. If you are in doubt as to whether a fact is material, you are advised to disclose it. This includes any information which you may have provided to the insurance adviser but was not included in the application. Please check to ensure you are fully satisfied with the information declared in this application.
In plain English:
Your policy will be ineffective if you are not truthful. It doesn’t get much clearer than this. Worse case, you just get your premiums back without interest.
Where is it relevant:
Every. Life. Insurance. Policy. Think twice if you want to conceal your risk factors like BMI, smoking status, and existing health complications.
Other notable clauses
Given the immense legal and financial ramifications of Insurance, there are of course numerous other clauses other than the three we have highlighted.
Illegal Activities clause – no cover paid for death or injuries sustained while robbing a 7-11.
Terrorism clause – Many Life Insurance policies cover acts of terrorism these days, but some travel insurances may not.
Survival Period – plans with critical illness cover only pay out the claims provide the person survives for a minimum period after diagnosis of the illness, usually 30 days. It may vary between insurers.
The right approach to all these Clauses
You might think that the clauses are overly restrictive and unfair to you as a policy owner. These clauses (or Insurance fine print), are actually well highlighted in the policy documents and are always printed in normal font. In many cases, they are actually highlighted.
These terms are actually meant to allow the Insurer to be subject to the proper amount of risk, and that directly benefits you as an owner of the policy – because a bankrupt insurer is of no use to you.
Are there any clauses or Life Insurance questions you may want to know more about? Leave them in the comments below or visit our forum!
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.