Affordable Life Insurance Protection for Your Family

What Does Life Insurance Cover You For?

Life insurance covers most forms of death, which means the death benefit will be paid out if the insured person dies as a result of a covered cause of death, not specifically excluded in your life insurance policy. 

The death benefit from your insurance policy can be used to cover any expenses needed by the beneficiaries. In cases of criminal activity or fraud, the death benefit may be withheld. 

Life insurance covers most causes of death and will pay out a death benefit to provide financial protection to your family in cases of natural death, accidental death, suicide, or murder. There may be exclusions for suicide if it occurs within one or two years of starting your life insurance policy. 

The death benefit will cover any expense that the beneficiary needs it for, like mortgage, college savings, or funeral expenses. The beneficiary may use the proceeds from a death benefit payout for any purpose the choose.

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What Does Life Insurance Coverage Mean?

Life insurance is a contract between an insurance company and a person. The individual agrees to pay premiums to the insurer, in return the insurer agrees to pay out a death benefit to the insured’s beneficiary upon the death of the insured person – subject to the terms, conditions and exclusions stated in the insurance policy.

 

What Does Life Insurance Cover?

Life insurance policies pay off when you die. However, an insured person’s death may come in one of several different forms, and your policy may not cover all of them. Different policies offer different durations and types of life insurance coverage, and some offer coverage in addition to death. Make sure you understand what coverage you're buying before you purchase a policy.

 

Duration of Coverage

Life insurance comes in two primary forms: Term and Permanent. Term life covers you for a set period of time, usually up to 30 years, then expires. 

Permanent life insurance covers you until you die – for your entire lifetime, as long as you pay your premiums on time. You pay the same premiums on whole (permanent) life insurance every month. 

Term life insurance is more complicated – with some policies you pay the same premiums during the entire term, but with "annually renewable" term life, the premiums go up each year you renew your coverage.

Term life gives you no coverage if you die after the policy expires, and it has no cash value. 

In addition, after you reach retirement, your family may not need coverage to replace your lost income, to pay off your home mortgage loan, or to put your kids through college.


Amount of Life Insurance Protection

Your policy covers your life for whatever amount you are approved for coverage. 

If you want your policy to support your family, one common rule of thumb is to take out an amount of life insurance equal to at least 7-10 years of your income. 

For example, if you make $50,000 a year, $350,000 is the minimum you want. 


Life Insurance Policy Exclusions

A typical life insurance policy doesn't cover all deaths. If you commit suicide, for example, some insurers won't pay, if suicide occurs within the first 1-2 years you are insured. 

Other life insurers will reimburse a suicide's family for the insurance premiums paid on the policy and maybe interest on those premiums paid, but no more. 

If you're killed during a war or a terrorist attack, or while performing extreme sports or other high-risk activities, your life insurance policy may not cover you. 

If your life insurance carrier discovers you concealed a pre-existing condition such as terminal cancer, your family may not get any death benefit paid out from your policy.


Life Insurance Policy Riders

For a price, you can add riders to your policy, special clauses guaranteeing you extra coverage. 

A "Double Indemnity" clause gives your family double the policy value if you die as a result of an accident. 

Other riders added to life insurance policies provide coverage before you die, such as if you become permanently disabled, you need long-term care or you're terminally ill with less than a year to live. Child life insurance coverage pays off if your child dies.

 

What Life Insurance Covers

 

What life insurance covers can be answered two ways: the Types of Death it Covers and the Type of Expenses it Covers, and.

 

Types of Death Covered by Life Insurance

Standard life insurance policies cover almost all cases of death due to illness, accident or natural causes, with a few potential caveats.

 

  • Natural Causes: Your beneficiaries will receive the death benefit if you die of a heart attack, illness, or old age - the latter only if your policy is still active and hasn't expired yet.
  • Accidental Death: Life insurance pays out if you die from natural causes, but will also pay in the case of accidents. Some types of life insurance policies, known as accidental death and dismemberment (AD&D), only pay out a death benefit in the case of covered types of accidents, and if death occurs within a specific timeframe after the accident leading to death has occurred.  
  • Murder: Life insurance will pay out if the policyholder is murdered, but most states have a "Slayer Statute" that prevent beneficiaries from receiving a life insurance payout if they murder the insured person, or intentionally caused or played a role in the policyholder's death.The slayer rule, in the common law of inheritance, is a doctrine that prohibits inheritance by a person who murders someone from whom he or she stands to inherit (e.g., a murderer does not inherit from parents he or she killed).
  • Suicide: Most policies contain a clause stipulating a beneficiary’s claim will get rejected if the policyholder dies within two years of their coverage's start death and their death is ruled a suicide. NOTE: This suicide exclusion is limited to one year in some states.

 

Types of Expenses Covered by Life Insurance Policies

 

Expenses Covered by Life Insurance

People typically purchase enough life insurance to cover most or all of the following types of expenses: 


Monthly Bills & Everyday Expenses

Whether you’re a primary, secondary or sometimes money earner, you're covering food, home and/or auto insurance, monthly rent or mortgage payment, utilities – cable, phone, water, gas, electric, trash collection, and basic household expenses like groceries and cleaning supplies. 

A life insurance policy death benefit payout can help you pay those monthly living expenses and allow your family to maintain their current standard of living.


Co-Signed Debts

If you signed a mortgage, credit card, private student loan or other financing alongside a loved one, that debt won'y die with you.  

Your co-signer on a loan is still responsible for paying off any outstanding balances on those loans. 

Even if they aren’t an official co-signer on a loan, your loved ones may want to cover certain types of loans upon your death; such as, the mortgage on the family home, or an auto loan on the family car.


Dependent Care or Child Care

If you are a caretaker for your aging parent(s) or special needs adults, life insurance can cover the expense of their care. 

A life insurance policy can help cover any child care expenses, including daycare, after-school programs, tutors, in-home aides, and more.

These costs are important to consider whether or not you’re currently reliant on them. 

If a sole breadwinner dies, a spouse who is caring for the children would probably need to return to work. And if the stay-at-home parent passes away, the working spouse would need to pay for the needed family-related services their spouse previously provided. 


College Tuition Expenses

Yes, life insurance can cover future expenses your family may expect down the line, like the cost of sending your children to college. 

Make sure you factor in the cost of college if you have or plan to have children, given how high education costs have risen over the years. 


End of Life Expenses – Burial, Funeral and Hospital

The unexpected death of a loved one creates an immediate financial burden for the family of the departed: the cost of a funeral, burial and related final expenses can exceed $7,500.  

Many policyholders work end-of-life expenses into the amount of life insurance coverage they select, so their beneficiaries can use the death benefit payout to cover the cost of their burial. 

 

Not Sure How Much Life Insurance to Buy?

It’s simple, just use our life insurance calculator to help you determine your specific insurance needs  

 

What Does Life Insurance Not Cover?

 

Situations When Life Insurance Won’t Payout

It is uncommon, but in cases of fraud, an expired policy, criminal activity, or specific exclusions, your beneficiaries may not receive a death benefit payout from your life insurance policy.

 

Fraud

If you die within your life insurance policy’s contest ability periods - a period of time (usually two years) after your policy goes into effect when the insurer can review your application for fraud - and your insurer discovers you misrepresented something on your application, your beneficiary’s claim can get denied or reduced by the amount of money you should have been paying in premiums. 

Contestability periods exist primarily to protect insurance companies from Fraud. 


They generally only come into play when the Policyholder’s Death is Suspicious, but there are two big things about contestability periods to note:


  1. Material Misrepresentation Can Cause Denial of a Claim – It doesn’t have to relate to your cause of death. If your insurance carrier investigates your death due to lung cancer and discovers you didn’t disclose a past smoking habit, they could deny your beneficiary’s claim.
  2. Contestability Can Affect Active Life Insurance Policies – If your insurance discovers you misrepresented something on your application within the first two years you are insured, and you haven’t died, they can cancel your insurance policy or increase your premiums to account for whatever was discovered. These premium increases are usually retroactive to the start date of your life insurance coverage. 


An Expired Life Insurance Policy

Term life insurance ends after a specific number of years stated in your life insurance policy. This is called your policy "Term". Once the policy expires, your coverage is no longer In Effect. You are uninsured.

This is fine for most people, since they outgrow large expenses like their mortgage and children over time as they get older. 

For those who want life insurance that never ends, consider permanent life insurance, which is active your entire lifetime, for as long as the premiums are paid on time.

 

Criminal Activity

Almost all policies contain a clause excluding death related to a policyholder's willing participation in any crime. 

So, for instance, if someone robs a bank and gets killed during the bank robbery, their policy would not pay out any proceeds (death benefits) to their beneficiaries. 

 

Specific Exclusions in Your Policy

Some life insurers may write insurance policies that exclude specific causes of death; such as, a high-risk activity the policyholder is known to engage in. 

The most common of these activities involves flying, piloting a private plane, skydiving, mountain climbing, B.A.S.E. jumping, or other hazardous hobbies.

If the policyholder dies from the excluded activity, the beneficiary won't receive a death benefit payout from the insurance policy. 

However, life insurance companies are more likely to charge the policyholder a higher premium to have the specific high-risk activity covered, or the insurer may just deny the applicant a policy, choosing not to insure someone who takes part in such hazardous activities.

 

Life Insurance Benefits Covered While You are Alive

 

If you're sick but haven't died, the full life insurance death benefit won't pay out. 

However, you may be able to get some insurance coverage from your policy with specific riders for life insurance plans:

  1. Long-Term Care: People may not be able to care for themselves as they age. A long-term care rider (or standalone LTC policy) provides coverage for services like in-home aid for elderly people.
  2. Accelerated Death Benefit: Covers end-of-life care when a life insurance policyholder is diagnosed with a terminal illness, usually if the insured has a life expectancy of one year or less to live. The money paid out to the insured person is deducted from the total death benefit proceeds, as needed, and there are usually maximum limits on how much money can go to these accelerated expenses. For example, up to 25% of your life insurance policy death benefit amount.
  3. Critical Illness: Covers treatment for certain illnesses that are likely to limit how long you may live. The exact illnesses covered for payout from your policy are specified in the life insurance critical illness rider, but may include heart attack, stroke, cancer, kidney failure, coma, ALS or AIDS, among other health issues. 
  4. Disability: Some life insurance policies may provide financial protection to a family when a policyholder dies while the coverage is In Force. Disability insurance provides income protection to a policyholder if they can’t work due to a covered injury or illness. Some life insurance policies provide riders for a disability income benefit, but it's often more cost-effective to buy a separate disability insurance policy, rather than adding this coverage by rider to a life insurance plan.


How Life Insurance Coverage May Be Voided


There are several common reasons that may void a life insurance policy.

A life insurance policy would be voided during the discovery period, usually the first two years of the policy’s inception, if any information on the application was intentionally inaccurate. This includes fraud or misrepresentation of a material fact

After the 2-year discovery period, the insurance company must typically pay any death claim for benefits covered by the policy.

Death benefits from a life insurance policy may be denied in the if the insured person was determined to have put themselves at intentional risk of bodily injury or death.

Life insurance also does not generally provide benefits in the event of an insured committing suicide within the two-year discovery period – one year in some states.

However, death benefits are typically paid out to the beneficiary in the event of an insured person’s suicide taking place after the discovery period expires.

Life insurance doesn’t cover any death if the premium is not paid in a timely manner and coverage is no longer In Force. 

Policies can be cancelled for "Non-Payment of Premiums" with a relatively short notice, usually within 10 days of a late payment, depending on the type of policy you purchased. If your insurance premiumisn’t paid on time, you may not be leaving any benefits behind to your family.

  

When Does a Life Insurance Policy Pay Out?

Your beneficiary will have to file a claim, but once it’s processed, they should receive your life insurance payout within 10-14 days. 

They will receive the payout (proceeds from your life insurance plan) as a lump sum, or in monthly or annual installments, if you set your up policy that way. 

The payout could get delayed if you die within the contestability period and your death was suspicious. 

Delays can lengthen the death benefits payout period to as long as 30-60 days, assuming the death claim is approved by the insurer.

Each state's insurance department has a "Prompt Payment of Claims" statute that determines how long an insurance company has to pay a covered claim.

 

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What Does Life Insurance Cover You For?

 


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