Ch. 7: What Are The Exclusions & Inclusions of Pension Accumulation Plans

Pension Accumulation Plans are designed to help you build a retirement savings fund in a systematic manner. While it is important to know what these plans cover, i.e., the situations in which your nominee receives the benefits - it is equally pertinent to know what they don’t.

Being aware of such nitty gritty details will help your nominee avoid any unfortunate surprises during the claims process. If your case happens to fall within the ‘exclusions’ specified by the insurance company, they will be left in financial straits - because the claim will get rejected! And you definitely don’t want that.

This article will take you through various situations and whether they are covered by the plan or not.

As you already know from our previous articles, Pension Accumulation Plans are of two types -

• Linked Pension Accumulation Plans
• Non-Linked Pension Accumulation Plans

There are some differences between these plans when it comes to exclusions, and so, we’ll be looking at them separately.

There is one exclusion you should be aware of -

Death by Suicide
Suicide is the only cause of death that is excluded under a Linked Pension Accumulation Plan. Such deaths, if within the 12 months of policy purchase, are not covered by the plan.

So, the nominee will be eligible to receive just the Fund Value available on the day of death.

Keep in mind that since this is the first policy year and the Fund Value fluctuates with the fluctuating NAV - it may be lesser than the paid premium. Not to mention the charges levied on your policy. They are significantly higher in the initial years, so, the Fund Value will be even lesser in the first year.

These factors will cause a huge loss and might be financially stressful for your nominee.

Please note that death by suicide is covered from the second policy year.

Example Meenal purchased a Linked Pension Accumulation Plan for a period of 30 years and will need to pay an annual premium of Rs 1.45 Lakhs. She appointed her husband as her nominee. Unfortunately, she commited suicide 7 months after purchasing the policy.

Let’s assume that Rs 5000 was deducted as charges. Investable Amount = 1,45,000 - 5000 = 1,40,000

Assuming that the NAV of the units was Rs 700 on the date of policy purchase -

Total units = (Amount invested - Charges)/Net Asset Value
= 1,40,000/700
= 200 units.

Meenal’s nominee will receive the Fund Value as calculated on the date of death intimation - since she passed away due to suicide within the first policy year.

Fund value = NAV x Total Owned Units.

Let’s assume that the NAV on the day of death is Rs 500.

Therefore, Fund Value = NAV x Owned Units
= 500 x 200
= Rs 1,00,000

Note: All charges, except the Fund Management Charge, that have been recovered after the date of death (if any) will be added to the fund value.

Therefore, Meenal’s nominee will receive a Fund Value of Rs 1,00,000.

There is one exclusion you should be aware of -

Death by Suicide
Suicide Similar to Linked Plans, suicide is the only cause of death that is excluded under a Non-Linked Pension Accumulation Plan. Suicidal deaths are not covered by these plans within the first 12 months of policy purchase.

Hence, your nominee will not be eligible to receive the death benefit, i.e., the total paid premiums with any accrued bonuses of 105% of the total paid premiums - whichever is higher. However, they will receive the higher of either -

• 80% of the total premiums paid, or
• Surrender Value of the policy

In this case too, the amount payable to the nominee will be lesser than the paid premium. This may result in a financially stressful future.

Please note that death by suicide is covered from the second policy year.

Example
Shoaib purchased a non-linked Pension Accumulation Plan for a period of 25 years and will need to pay an annual premium of Rs 1 Lakh. He appointed his brother as his nominee. Unfortunately, he commited suicide 5 months after purchasing the policy.

In this case, his nominee will receive 80% of the premium he has paid, after deducting the applicable taxes.

So, Shoaib’s brother will receive Rs 80,000 - minus any taxes.

These plans cover deaths caused by -

• Natural Causes
  Natural deaths, including deaths due to illnesses, serious diseases, health conditions, HIV/AIDS, other STDs, are covered.
  
  Note: Ensure you disclose any underlying health conditions to your insurance company during policy purchase to avoid claim settlement complications.


• Participation In Risky Activities
  Deaths caused by risky or adventurous activities such as kayaking, river rafting, skiing, snorkelling, scuba diving, parachute jumping, etc. are covered.
  
  Note: Riders may not cover deaths due to such activities.
  
  For example, Arnab went scuba diving and unfortunately died due to asphyxiation. He owned a Linked Pension Accumulation Plan, and hence, his nominee is entitled to receive the death benefit. This will be either the Fund Value on the date of death or 105% of the total premiums he has paid - whichever is higher.


• Accidents
  Accidental deaths, regardless of the place of occurrence, are covered. They may happen on the road, at home, in public, etc.
  
  For example, Beena slipped and hit her head on her bathroom floor. Unfortunately, she died on the spot. She owned a Pension Accumulation Plan and so, her nominee will receive the death benefit.


• Natural Calamities
  Deaths caused by natural disasters, like landslides, floods, earthquakes, hurricanes, etc. are covered.
  
  For example, Karan’s house got torn apart because of a huge earthquake. He, unfortunately, died due to this. He owned a participating non-linked Pension Accumulation Plan.
  
  Hence, his nominee shall receive the higher of either -
  
  • Total Premiums Paid with Accrued Bonuses
  • 105% of the Total Premiums Paid


• Man-made Disasters
  Deaths because of man-made disasters like war, terrorism, riots, civil disturbances, military intervention, etc. are covered.


• Intoxication
  Deaths due to excessive use of alcohol and narcotics are covered.
  Note: Rides, however, may not cover deaths caused by alcohol or drugs.
  
  For example - Mihir, while driving under the influence of alcohol, crashed into a shop, and died on the spot. He owned a participating non-linked Pension Accumulation Plan with an Accidental Death Benefit Rider. His nominee will receive the death benefit, but won’t receive any money from the rider’s coverage, since it doesn’t cover deaths due to intoxication.


• Involvement in Illegal Activities
  Deaths due to unlawful actions or crimes are covered.
  
  Note: Riders, however, may not cover these deaths.
  
  So, this was all about exclusions in Linked and Non-Linked Pension Accumulation Plans. To understand all the deaths covered and excluded, read the policy wordings of both the plan you're buying and the riders you'll be opting for.