The coronavirus (COVID-19) pandemic that has led to more than 3.8 lakh deaths in the country has led to a new worry among policyholders. It is whether the term insurance plans will pay a death benefit for COVID-19 death claims. However, both Life Insurance Council of India, as well as insurance companies, have clarified that death claims by COVID-19 will be cleared without delay. A term life insurance is a type of life insurance policy. It provides coverage for a specified period of time. If the policyholder passes away during this time period, the beneficiary or the nominee appointed by the insured are paid a death benefit, provided that they meet all the conditons specified in the policy. One should note that it is important that the policy is active during the death of the insured. Hence, policyholders buy term plan online for the benefits it provides to your loved ones when you are not there to take care of their needs and wants.
As several insurers had the word ‘Force Majeure’ mentioned in their policy terms and conditions, there was a chaos amid policyholders that this clause would be invoked to reject COVID-19 claims. If you are someone new to term life insurance, let us explain it in layman terms.
What is Force Majeure?
Force majeure clauses are contractual clauses that alter parties’ obligations and/or liabilities under a contract when an extraordinary circumstance or event which is beyond their control prevents one or all of them from accomplishing those obligations. Typically, force majeure events include natural disasters, also known as Act of God, labour unrest or strikes war or war-like situations, pandemics, epidemics etc.
Originated as a term in French law in the 1880s, the ‘Force Majeure’ clause was used to absolve companies of liabilities from unprecedented events that were beyond the control of the entities.
Events which are capable of constituting Force Majeure:
The “test” for force majeure generally requires the satisfaction of 3 distinct criteria:
- the event or the circumstance must be beyond the reasonable control of the affected party;
- the affected party’s ability to execute its obligations under the contract must have been prevented, hindered or impeded by the event; and
- the affected party should have taken all reasonable steps to seek to avoid or mitigate the circumstance or its consequences.
Are you worried that your insurance company will reject your COVID-19 claims? Fret not. According to a press release by the Life Insurance Council, the clause of Force Majeure would not be applicable in the case of COVID-19 death claims.
This step was undertaken to assure customers who had reached out to life insurance companies to seek clarity on this clause as well as to dispel rumours to the contrary. In fact, all life insurance companies have communicated to their customers individually in this regard as well. Both term insurance and savings plans cover death claims related to COVID-19 during the policy term. However, some rumours circulated on social media that the ‘Force Majeure’ clause would be invoked to not pay death claims. The industry has classified these reports as inaccurate.
The secretary general of the Life Insurance Council said that the life insurance industry is trying to take every measure to ensure the disruption caused to policyholders due to the nationwide lockdown is minimal. They are aiming to provide policyholders with constant support digitally — be it honouring death claims related to Covid-19 or servicing their policy.
Measures taken by IRDAI
The regulator of life insurance policies – Insurance Regulatory and Development Authority of India (IRDAI) has offered additional time for payment of renewal premium in case of motor third party insurance and health insurance policies. The regulator has issued intructions to life insurance companies to provide an additional 30 days grace period to policyholders for paying their premiums.