When Can Life Insurance Policies Be Restricted?

Life insurance is a financial safety net that provides peace of mind and protection for your loved ones after you pass away. However, it's essential to understand that not all deaths are covered by life insurance policies. Certain exclusions and restrictions apply, and these vary by state and insurance company. The main reason for these exclusions is to protect insurance companies from fraud and excessive risk. This article will discuss the restrictions on life insurance policies and when benefits may be denied or reduced.

Suicide clause

A suicide clause is a standard provision in most life insurance policies. This clause is in place to prevent individuals from purchasing a life insurance policy when they are struggling with mental health issues or planning to commit suicide. The clause typically applies for the first one to two years after a policy is issued, depending on the insurer and state regulations. During this period, if the policyholder dies by suicide, the insurer may limit or deny the death benefit payout. Instead, the insurer might only return the premiums paid up to that point. After this exclusion period ends, the life insurance policy generally covers suicide, ensuring the beneficiaries receive the full death benefit as outlined in the policy.

The suicide clause is intended to protect the insurance company from financial risk by preventing an individual from taking out a policy with the intention of ending their life shortly afterward. The exact duration of the suicide clause can vary. While most states enforce a standard two-year period, some, like Missouri, Colorado, and North Dakota, have shorter periods of one year.

It's beneficial for policyholders to be aware of this clause because it directly affects whether their beneficiaries will receive the intended financial support or not. The suicide clause is distinct from the incontestability clause, which focuses on the accuracy of the information provided when the policy was purchased.

If a policy does not include a suicide exclusion clause, the insurance company is required to pay the full death benefit if the insured dies by suicide, premeditated or not. However, if the policyholder dies by suicide within the exclusion period, the life insurance company will usually refund the premiums paid on the policy.

Acts of war

Life insurance policies are a form of protection for your loved ones in the event of your death. However, it is important to understand that there are certain restrictions and exclusions to these policies, including acts of war.

An "Act of War exclusion" is a common clause in life insurance policies, which specifically excludes coverage for damages and deaths resulting from warlike acts. This includes invasions, insurrections, revolutions, military coups, and terrorism. The reason for this exclusion is that insurance companies cannot accurately calculate the premiums to cover the high risk of war, and the potential cost of claims could be astronomical, leading to bankruptcy.

The "War exclusion clause" became particularly important after the September 11, 2001 terrorist attacks, which resulted in the expansion and standardisation of these clauses in insurance policies. The clause now covers a broader range of war-related events and is considered standard, regardless of whether terrorism is insured or excluded in the policy.

If you are an individual or company with a significant risk of encountering acts of war, such as those located in politically unstable countries, it is possible to purchase a separate war risk insurance policy. This type of insurance is commonly purchased by companies in the aviation and shipping industries and includes two components: War Risk Liability, covering people and items, and War Risk Hull, covering the aircraft or ship itself.

While life insurance policies may exclude acts of war, it is important to carefully review the specific terms and conditions of your policy, as there may be arguments for coverage in certain circumstances.

Aviation accidents

Life insurance is an important financial safety net that provides peace of mind and security for individuals and their loved ones. However, it's essential to recognise that life insurance policies have exclusions and limitations. Engaging in aviation activities, such as piloting, is generally considered high-risk and often results in exclusions or restrictions in life insurance policies. These exclusions are crucial to understand to ensure that you have adequate coverage for your needs.

Aviation accident insurance is a specialised type of coverage that provides protection for injuries resulting from aircraft accidents. This type of insurance covers both pilots and travellers, and the coverage typically includes accidental death and dismemberment (AD&D). While the likelihood of sustaining an injury during a flight is low, the potential for accidental death or injury exists, and individuals can insure themselves against this risk.

The demand for aviation accident insurance is relatively low compared to other types of insurance, such as general liability or life insurance. As a result, only a small number of insurance companies offer this type of policy. Aviation accident insurance policies generally have higher premiums for pilots and other aircraft personnel due to their increased exposure to hazards.

Some life insurance policies may exclude injuries sustained while aboard an aircraft, particularly if it is not part of a regularly scheduled airline. Additionally, individuals who regularly engage in aviation activities may need to disclose this during the life insurance application process to avoid any potential coverage gaps. Failure to do so could result in the insurer denying a claim related to an aviation accident.

Flight accident coverage is an add-on feature to a trip insurance policy and provides a lump-sum benefit in the event of death or dismemberment while boarding, flying, or disembarking. This type of coverage is limited to death, dismemberment, and blindness, and it is important for individuals without adequate life insurance coverage. Lengthy investigations and delays are common following aviation accidents, and flight accident insurance can provide upfront money for immediate expenses.

Criminal activities

Life insurance companies can deny a death benefit payout if the policyholder dies while engaging in criminal activities. This is because life insurance is based on risk factors, and criminal activities are considered high-risk. The insurance company will usually deny the claim, and beneficiaries will not be paid.

Types of Crime

The type of crime being committed can influence the likelihood of a denial of coverage. Certain types of crimes, such as insurance fraud, are more likely to lead to a denial. Crimes involving larceny or assault may be less of an issue for insurers than drug or alcohol-related crimes.

Severity of Crime

The severity of the crime also matters. Some insurance companies may deny coverage for serious felonies such as rape and murder, regardless of how long ago they occurred. Shoplifting, on the other hand, is less likely to impact your coverage.

Repeat Offenses

Repeat offenses can also contribute to application denial. If you have multiple convictions or recent charges, this will raise flags for insurers, and they may be more likely to deny coverage.

Time Since Crime

The amount of time that has passed since a conviction can also impact your coverage. Underwriters want to see positive lifestyle changes sustained over time. The more time that passes since a conviction, the better your chances of getting approved for life insurance.

Exclusions

Depending on the crime and the insurance company, you may have the option or be required to have certain exclusions placed in your policy. For example, an exclusion might state that the life insurance would not pay out if death results from repeating the crime you were convicted of. While this can be a disadvantage, it can also allow some people who were otherwise uninsurable to get approved, subject to these exclusions.

High-Risk Policies

If you have a criminal record, you may still be able to secure life insurance coverage through high-risk policies. These policies are often more expensive and may have lower coverage limits, but they can provide an option for those who cannot qualify for traditional life insurance.

Specific hobbies

Life insurance providers consider a range of factors when assessing your survival prospects and calculating your premiums. These include age, health, family history, and whether you engage in "dangerous activities".

Hobbies that are considered risky or hazardous include:

• Scuba diving
• Skydiving
• Rock climbing
• Mountain climbing
• Vehicle racing
• BASE jumping
• Bungee jumping
• Helicopter skiing
• Power racing
• Competitive boxing
• Martial arts
• Big wave surfing
• Deep-sea diving
• Cliff diving
• Hang gliding
• Paragliding
• General aviation

If you engage in any of these activities, your life insurance premiums will likely be affected. The impact on your premiums will depend on factors such as the frequency of participation, your level of expertise or certification, safety equipment used, and whether you participate alone or with supervision.

It is important to be honest about your hobbies when applying for life insurance. Failing to disclose hazardous hobbies may result in your claim being denied or your policy being voided if you pass away during the policy's contestability period.

Frequently asked questions