Ch. 7: What Are The Exclusions and Inclusions of General Annuity Plans

Retirement is an ultimate reality that happens to all working professionals. It is a new chapter of your life, and you should relish it. You should enjoy, be independent, pursue your passion, and cross dreams off your bucket-list. However, an RBI report¹ has forecasted that even in 2031, over 50% of Indians above age 65 are seen depending on children instead of their own wealth.

But being retired doesn’t mean you have to become an economic burden on your loved ones. By making provisions for a post-retirement income, you can be independent and even contribute to your family. And General Annuity Plans are a great way to go about this. They help you systematically accumulate funds while you’re still earning, and then convert those savings into an annual income once you retire. They also provide Death Benefits to your nominee (your spouse), and make sure they don’t face any financial trouble, in your absence.

In this article, we’ll examine the types of deaths that are covered and not covered under a General Annuity Plan.

Let’s start with -

There is just one exclusion you should know about.

• Death by suicide in the first year of buying the policy

  The insurance company can deny the claim request only if the death happens by suicide within the first 12 months of the policy. In this case, the insurer will pay your nominee whichever is greater between -

  • 80% of the total premiums you’ve paid up to this point, or
  • The surrender value of the policy

Please note:

• Suicidal death is covered from the second year of a policy.
• All general annuity plans may not have this exclusion

For instance, Mrinal, 40-year-old, starts investing Rs. 1 lakh annually in a General Annuity Plan for the next 20 years. He plans to retire at 60 and receive the annuity payout immediately. However, six months after buying the plan, he commits suicide. In this unfortunate situation, the insurer shall pay to his spouse 80% of Mrinal’s 1,00,000/- premium, after deducting relevant taxes.

• Death due to natural causes

  Natural deaths mean deaths due to an illness, serious disease, or health conditions. Under a General Annuity Plan, such types of deaths are covered. Deaths due to HIV/AIDS and other sexually transmitted diseases are also covered.
  
  Please note: If you are suffering from any existing health condition, you must disclose it to the insurer when purchasing the plan - to avoid any claim settlement hassles later.




• Death due to accidents

  Accidents can happen anywhere, and with anyone. All kinds of accidental deaths are covered under a General Annuity Plan, irrespective of where they occur - on the road, at home, or in public.
  
  For example, Reeta, 37-year-old, starts investing Rs. 50,000 annually in a General Annuity Plan. However, one unfortunate day, she falls down the stairs and passes away due to fatal head injuries. Her nominee shall receive the death benefit.




• Death due to natural calamities

  General Annuity Plans cover deaths caused by natural disasters, like a tsunami, earthquakes, landslides, floods, among others.




• Death due to man-made disasters

  Deaths resulting from man-made catastrophes, like war, terrorism, invasion, riots, protests, civil commotion, military intervention, etc., are also covered under a General Annuity Plan.
  
  Please note: Riders do not cover war-related deaths.




• Death due to intoxication

  Deaths caused by excessive consumption of drugs, alcohol, and narcotics are covered.
  
  Please note: Riders added to your plan may not cover alcohol or drug-related deaths.
  
  For instance, Virat, 40-year-old, starts investing Rs. 2 lakhs annually in a General Annuity Plan, and also purchases an Accidental Death Benefit Rider worth Rs. 50,000. He was driving under the influence of alcohol and crashed into a tree. Unfortunately, he died on the spot. Since the policy is still active, his nominee shall receive the death benefit. But the added rider won't provide any coverage as it does not cover deaths caused by intoxication. Therefore, his nominee will get the death benefit under the General Annuity Plan, but not the Rs. 50,000 rider benefit.




• Death due to participation in hazardous activities

  A General Annuity Plan covers deaths caused by engaging in risky, adventurous activities, like skydiving, parachuting, kayaking, mountaineering, skydiving, snorkelling, scuba diving, etc.
  
  Please note: Riders do not cover deaths caused due to such activities.
  
  

• Deaths due to involvement in illegal/criminal activities

  If a death happens due to participation in an action that’s considered illegal or unlawful, it will be covered.
  
  Please note: Riders added to the policy may not cover deaths that occur as a result of such activities.

As we saw, all kinds of deaths, except suicide in the first policy year, are covered under a General Annuity Plan. However, some add-ons, like riders, may not be applicable in certain circumstances. It is, thus, important to read the policy wordings and ensure you understand the plan inside out. We hope you live a beautiful, stress-free retirement life, and make the most out of it.

Reference
¹https://www.business-standard.com/article/economy-policy/77-indians-don-t-save-for-retirement-most-depend-on-children-for-support-117100400154_1.html