Life insurance is one of the most affordable and dependable types of insurance. If you take up a life insurance policy, you can count on it. There is a high probability that the insurance company will pay your family if the unfortunate occurs. But nothing is perfect. Despite its broad coverage, there are circumstances that life insurance does not covers. So, here is a complete guide on what does life insurance not cover and what it does.
Let’s see, one by one, all the situations you need to be aware of.
What Does Life Insurance Not Cover?
#1: Risky Activities
Life insurance does not include coverage for risky activities like bungee jumping, sky diving, etc. But that does not mean that you cannot continue your hobby with peace of mind. If you disclose your risky hobbies in the application, you can get coverage for them with a little extra premium.
But if you do not disclose these hobbies beforehand, you might not get any payout. Your policy might get canceled altogether. But, you can enjoy both your peace of mind and your favorite pastime with a small extra payment.
#2: Smoking or other health-related issues
Again it is essential to disclose that you smoke or used to smoke once. Even if you do not smoke anymore, you must mention details in your application. The application might ask whether you smoke currently. If not, how long back did you quit? Asking this is essential if you see it from the insurance company’s side. The effects of smoking are long-lasting.
Another thing to be cautious about is health-related issues. If you have health issues like blood pressure and cholesterol, you need to disclose them. Because even if the death does occur due to, say, a car crash, and you did not inform about the blood pressure issue, they might say that it had a role to play in the death. And they can deny you of the claim.
Therefore, if you hide anything to increase your application’s chances of getting accepted, it might hit back. Why? There is an incontestability clause. This clause can be one to two years long, depending on your state laws. This clause allows the insurance companies a set span in which they can investigate and deny the claims.
For example, you do not disclose that you have high blood pressure. But the company investigates and comes to know of it during this span. They have all the rights to cancel your policy.
Now, the next clause that can affect your payout is the material misrepresentation clause. This clause states that if you do not inform all the details in your application, they can cancel your policy. A thing to note here is that this is a permanent clause.
Thus, it is advised to be always honest with your application.
Another typical example of what does life insurance not cover? Suicide is a common reason why the company can deny your payout. But there is good news too. After the contestability period, which is one to two years, you will get the payout.
They did this to stop people from misusing the policy’s death benefits. You may wonder how a person can misuse a life insurance policy until dying to get the death benefits. However strange, this is the scenario the authorities wanted to put an end to. Many people purchased huge policies and committed suicide to improve their family’s financial situation.
Yes, that might sound bizarre, but many such cases were reported before the advent of this clause.
#4: Illegal Activities
Now this one is obvious. If you are drunk driving, you cannot expect the insurance people to pay you. Similarly, other illegal activities like an overdose of drugs not prescribed by a doctor will also have a similar outcome.
The above examples are quite obvious. But there are a few not so obvious examples too. Like, say you are strolling and unintentionally trespass a property. Here you are chased by a dog, and you die of a heart attack. Now, trespassing is an illegal activity. Thus, you will not receive any death benefit in this case.
#5: Act Of War
Another example of what does life insurance not cover is war? Wars or acts of war are also outside the scope of most policies. But please do not misunderstand that this will keep soldiers out of the coverage. This exclusion means that journalists that need to go into the war fields are not covered. Also, people who routinely go to countries with active war or war-like situations are not covered.
You are at high risk during such circumstances, and thus insurance companies avoid such coverages.
#6: Living Outside Of The United States
This one is a not-so-popular clause. What this means is that say you buy a policy while living in the United States. And you eventually leave the US and move to some other country, like the Philippines. Now your old policy will not cover you. You will have to buy a new policy in your new country.
Not all insurance companies have this clause. So, do remember to check the fine print for this clause. And especially if you think you may be moving from the US in the future.
#7: Fraud Or Lying
As we said in the above points, lying about your medical conditions or risky hobbies can eliminate your chances of getting the death benefit.
For example, if you smoke or even if you vape, you must mention this in your application. Similarly, if there is a medical history or a family history of any disease, do say it. All of these might seem like small white lies, but the insurance companies do not see them as such. According to them, it is a fraud. And they might not pay you the death benefit when you need it the most.
Thus, it is always better, to be honest with your application. It may mean that you have to pay a little more premium. But it is totally worth it. At least you can rest assured that your family will get the death benefit when it is required.
Have you ever heard about the “The Slayer Rule”? Due to this rule, if your beneficiary murders or assists in the murder, he will not get the payout.
So, what will the insurance company do about the payout? Would it not pay at all? No, the insurance company will instead pay the amount to the insured’s contingent beneficiaries.
#9: Lapsed Premium Payment
Lapsed Premium Payment is quite an apparent reason for the denial of the death benefit. Your policy can lapse if you do not make the monthly payments.
Sometimes we group insurance premiums as a non-essential expenditure and keep it as the lowest priority. And although there is a grace period in which you can pay the premium. This should not mean that we frequently depend on this grace period.
Because it might happen, your family’s financial condition is not right, and the unfortunate happens. They lose you. And do not receive the death benefit as well. Thus, it is always better to pay your premiums on time and set them as a priority.
#10: Your Term expires
Term expiry is our last situation in our what does life insurance not cover guide. It is the most apparent reason why your death benefit will be denied. Term insurance or life insurance is taken for a particular term, say, 10, 15, 20, 30, etc. If this term is over, you will not get paid anything.
But usually, people complete their responsibilities by the end of this term. Like mortgage and children’s college, etc. Although you may want a longer-term and whole life insurance can provide it to you.
Whole life insurance remains active until you pay the premiums. But the catch here is that the premiums of whole life insurance can be 15 times the premiums of term insurance.
What If I Do Not Mention A Beneficiary In My Life Insurance Policy?
Well, here is where things get tricky. There can be two situations where you can be denied or delayed death benefit. First is where you do not mention a beneficiary or contingent beneficiary. The second is where your beneficiary predeceases you. Let’s see what happens in both of these in detail:
#1: When you do not mention a beneficiary!
A beneficiary or contingent beneficiary is mandatory. He is the one who will receive the money. But if you somehow miss mentioning one, all your payout will go to your estate.
And who will get the money eventually becomes a matter of the court. Now the court will have the final say on whom to give the death benefit. This scenario may deprive your family of the money they are in dire need of. Thus, it is of utmost necessity to mention a beneficiary or contingent beneficiary.
Your family may even need to pay the estate taxes if the money goes to your estate.
#2: Your beneficiary predeceases you
The same hierarchy of events occurs in this case as above. The money will again go to the estate and not your loved ones.
Thus, it is always advised to be extra careful and update your beneficiary on events like deaths and births in your family, i.e., whenever necessary.
Are The Chances Of Payout Of Death Benefit Slim?
With so many reasons why your death benefit might be denied, are the chances of payout actually slim? Please don’t worry. According to the stats, companies reject only 1% of the term insurance claims.
This statistic shows as long as you are truthful in the application and are paying premiums, your family will get the payment. Be it an old health issue, smoking, or risky activity; you can rest assured. Insurance companies don’t leave you stranded in the middle of nowhere.
All you have to do is be utterly truthful in the application and pay your premiums on time. Also, remember to mention your beneficiary. And when you do mention. Write in detail, like, their name, their Social Security Number, their relation to you, and the method of payout to them.
What Does Life Insurance Cover?
Life insurance is a very dependable policy. As we said, companies deny only 1% of the claims. Therefore, almost all types of requests like natural deaths, suicide (after two years), etc., are considered.
Here are a few cases when you can receive the death benefit:
- You die a natural death.
- If you already have a policy, and a pandemic like COVID-19 happens, you will get the cover. But if you buy a policy during such a pandemic, the death benefit depends on your policy.
- Suicide after the contestability period also receives the death benefit.
- Death due to pre-informed problems like smoking, drinking, risky hobbies, etc., also receives the payout.
- Suppose you die due to an accident. Though, there is a separate accidental death rider too. This rider will add to your base payout.
- The company also pays out in case of murder as long as your beneficiary is not involved in it.
There are many other situations but rest assured that you need not worry as long as you are clean.
Also read: What type of travel insurance will you need?
Concluding we will like to add that please do check the fine print of your policy. Also, cross-question your agent thoroughly. Although we have tried to make a very comprehensive list, there can be no list covering it all.
A lot differs from policy to policy. You should check your policy beforehand as you do not want to miss anything and be devoid of your proper payout.
Lastly, we will again like to specify that please be truthful with your application and pay premiums on time. If you are righteous, no one can deny you your right.
So that was all in our guide about what does life insurance not cover? We hope you liked it and it was informative. Although we have tried to include all the possibilities, if you have something up your sleeve, mention it in the comments box. Also, please pop your questions there. We will be glad to answer them.