Life Insurance: Death Causes And Payouts

Life insurance provides financial protection to your loved ones in the event of your death, but policies don't pay out in every situation. Generally, life insurance covers death due to natural causes, accidents, suicide, and homicide. However, certain circumstances may prevent your beneficiaries from receiving their payout. For example, if you lie on your application, engage in risky behaviours, or fail to pay your premiums, the insurance company may deny the claim. Additionally, there is usually a suicide clause that excludes coverage for suicide within the first two years of the policy. It's important to understand the specific terms and exclusions of your life insurance policy to ensure your beneficiaries receive the intended benefits.

Suicide

The length of the suicide clause period can vary between insurers, with some policies spanning up to three years. It's important to carefully review the terms of your specific life insurance policy to understand the details of any suicide clause. During this period, if the insured's death is due to self-inflicted injury, the insurer can deny the claim and refuse to pay out the benefit. However, all premiums paid will be refunded.

Once the suicide clause period has ended, life insurance policies typically cover suicide, and the death benefit will be paid out as long as no other terms of the policy have been violated. This means that if someone commits suicide after the specified period in their policy, their beneficiaries will generally receive the insurance payout.

It's important to note that group life insurance, such as coverage through an employer or organization, may treat suicide differently and might not include a suicide clause. Similarly, military life insurance policies generally do not have a suicide clause, but it's essential to review the specific plan details as they can vary.

If you or someone you know is struggling with mental health issues or having suicidal thoughts, it's crucial to seek help. Resources like the Suicide & Crisis Lifeline (988) are available 24/7 to provide confidential support and assistance.

Homicide

Life insurance policies generally cover homicide, including murder and manslaughter, as long as the beneficiary was not involved in the act. However, there are some important details and exceptions to be aware of.

The Slayer Rule

In most cases, life insurance policies will pay out to the beneficiaries of the deceased if the cause of death is homicide. However, under the "slayer rule", the beneficiary will not receive the death benefit if they are found to have committed or been involved in the murder. This rule prevents anyone who murders or is closely tied to the murder of the insured from receiving any funds. In such cases, the insurance company will pay the benefit to the insured's contingent beneficiaries or their estate.

The Contestability Period

If the policyholder is murdered during the first two years of the policy, also known as the contestability period, the insurance company has certain rights. They are entitled to launch their own investigation into the murder and review application documents to rule out any material misrepresentation. They may request medical records, toxicology reports, and autopsy reports to determine the exact cause of death. The claim will be delayed until the investigation is complete or the beneficiary is cleared by the police.

Criminal Activity

Some insurance companies will deny claims if the policyholder was murdered while taking part in criminal activity or illegal behaviour. This includes activities such as drug dealing, breaking and entering, trespassing, robbery, or gang activity.

Life Insurance Fraud

Insurance companies will investigate cases of suspected fraud, which may result in a delayed payout. If fraud is found, the claim will be denied. This includes cases where the insured or their family plot the insured's death to gain early access to policy proceeds. If the insured survives the murder attempt, the company will cancel the policy.

Civil Court

Even if the beneficiary is found innocent in criminal court, if the insurance company believes there is strong evidence of their guilt, they can take the case to civil court, where less evidence is required to determine guilt. If the civil court rules the beneficiary guilty, the claim will be denied.

Illegal activity

However, it is worth noting that the specific definition of "illegal activity" can vary between insurance companies. For example, some insurers may deny a claim if the insured was killed in an accident and found to be under the influence of drugs or alcohol. Other insurers may consider certain traffic violations, such as driving under the influence, as illegal activities that could void the policy. In addition, insurers may also deny claims if the insured was involved in drug-related offenses or gang-related activities.

It is crucial for individuals to carefully review their life insurance policies to understand the specific exclusions listed. These exclusions are typically outlined in the policy documents, and it is important to ask questions and seek clarification from the insurance agent if needed. While illegal activity is a common exclusion, the specific activities covered under this exclusion can vary, and it is important for individuals to be aware of the boundaries of their coverage.

Furthermore, the contestability period of a life insurance policy, which typically lasts for the first two years, also plays a role in how illegal activity can affect the payout. During this period, insurance companies can investigate the application and deny claims if they find any inaccuracies or misrepresentations. If the insured dies during this period and the insurance company determines that illegal activity was involved, the coverage may be voided, resulting in no death benefit payout.

To summarize, illegal activity can indeed affect life insurance payouts, but the specific activities covered and the circumstances surrounding the death can vary between insurance companies and policies. It is essential for individuals to carefully review their policies, understand the exclusions, and be aware of the contestability period to ensure they have adequate coverage.

High-risk activities

Some sports and hobbies fall into the category of high-risk activities. For example, boat racing, flying a private plane, rock climbing, and abseiling are often considered dangerous and high-risk. Life insurance companies are concerned about participation in activities that could lead to an early death, as this would result in them having to pay out the death benefit early and losing cash flow from premiums.

If you engage in high-risk activities, you have two main options:

• Increased premiums: Life insurance companies may charge higher premiums to compensate for the increased risk. The amount of the increase will depend on the activity and the insurer's perception of its danger level.
• Policy denial: Some companies may decline your application altogether due to the potential for an early claim. In this case, you would need to find an insurer that takes a more liberal view of the specific activity.

It is important to disclose any high-risk activities during the application process. Non-disclosure may result in the denial of a payout when your loved ones need it most. Additionally, life insurance companies may conduct background investigations and check your medical history, so it is better to be transparent from the start.

If you are involved in high-risk activities, it is beneficial to shop around and compare quotes from multiple insurers, as the level of risk associated with each activity may vary between companies.

Fraud

Life insurance fraud occurs when an insured, policyholder, or beneficiary is deceitful or falsifies information to benefit from a life insurance policy. Fraudulent activity can result in canceled coverage, denied claims, or even criminal charges.

Types of Life Insurance Fraud

The Coalition Against Insurance Fraud estimates that life insurance fraud costs the US around $74.7 billion every year. The following are some common types of life insurance fraud:

• Faked deaths: The insured pretends to have died to collect the death benefit, either for themselves or a beneficiary. This often involves fake documents or staged deaths and is, therefore, a serious crime with significant legal consequences.
• Pocketed premiums: Dishonest agents may engage in premium diversion by pocketing payments instead of forwarding them to the insurance company. To avoid this, always ensure your payments are made directly to the insurance company and check your policy status regularly.
• Bait and switch: An agent may sell you a policy with lower benefits or different terms than what was initially offered. The agent typically earns a higher commission at your expense.
• Application fraud: Misrepresenting details on your life insurance application, whether intentionally or not, is a common type of fraud. This could include omitting health conditions or other important information that affects your risk level. Insurers may deny claims or cancel the policy if they discover significant misinformation.
• Upgrade churning: Agents may try to convince you to upgrade or purchase additional policies you don't need to earn extra commissions.
• Forgery: Forgery occurs when someone unauthorized, like a family member or acquaintance, alters your policy without your knowledge. Changing beneficiaries is a common target in these situations.
• Fake policies: Scammers posing as legitimate agents can offer fake life insurance policies, often providing convincing documents and bills. To avoid falling victim, verify that any agent you work with is licensed and check their credentials through your state's insurance department.

How to Prevent Life Insurance Fraud

• Take your time when filling out any life insurance application and be as accurate as possible.
• Work with a licensed insurance agent and verify their credentials through their employer or the state's Department of Insurance website.
• Read your entire policy thoroughly and do not sign anything unless you clearly understand the terms.
• Always make checks payable to the insurance provider, not the insurance agent.

Resources for Victims of Insurance Fraud

If you suspect you're a victim of life insurance fraud:

• Gather documentation, including your insurance policy, receipts for premium payments, and any communication with your agent or provider.
• Contact your insurance company and ask if they have a fraud investigation team.
• File a complaint with your state insurance department, which can be located through the National Association of Insurance Commissioners (NAIC).
• Report to the Insurance Fraud Bureau (IFB), which specializes in investigating and addressing insurance scams.

Frequently asked questions