Affordable Life Insurance Protection for Your Family
When it comes to buying a life insurance policy it’s good to know what is covered by your life insurance.
However, you should also know what is not covered by a life insurance policy before buying your coverage.
Life Insurance Policy Exclusions
A typical life insurance policy doesn't cover all types of deaths. If you commit suicide, for example, some insurance carriers won't payout a death benefit, if suicide occurs within the first 1 or 2 years you are insured. It varies by state.
Other life insurers will reimburse a suicide's family for the insurance premiums paid on the policy and maybe pay some interest on those premiums.
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 insurance company finds out you concealed a pre-existing health condition such as COPD or terminal cancer, your family may not receive any death benefits paid out from your life insurance policy.
Murder: Life insurance will pay out if the policyholder (insured person) is murdered, but most states have a "Slayer Statute" that prevents a beneficiary from receiving a life insurance death benefit payout if the beneficiary murdered the insured person, or intentionally caused or played a role in the insured person’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 (for example, a murderer does not inherit from parents he or she killed).
Suicide: Most insurance policies contain a clause stipulating a beneficiary’s claim will get turned down if the insured person dies within two years of their coverage's start date, and their death is ruled a suicide.
NOTE: This Suicide Exclusion is limited to one year in some states.
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.
If you die within your life insurance policy’s Contestability Period - 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:
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.
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 Listed in Your Life Insurance 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:
How a Life Insurance Policy May Be Voided
Here are some of the most 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 premium isn’t paid on time, you may not be leaving any benefits behind to your family.
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