Life Insurance: Does It Expire Or End?

Life insurance is a contract between an insurance company and a policy owner, where the insurer agrees to pay a sum of money to one or more named beneficiaries when the insured person dies. However, life insurance policies do not pay out in every situation.

In general, life insurance policies cover deaths from natural causes, illnesses, and accidents. For instance, if the insured person dies of a heart attack, cancer, an infection, kidney failure, stroke, old age, or another natural cause, their beneficiaries will receive the insurance payout. Similarly, death from a motor vehicle accident, drowning, poisoning, or a fire will also be covered by the policy.

However, there are several reasons why a life insurance policy might not pay out. These include:

- The policyholder stopped paying premiums, causing the insurance policy to lapse.

- The policyholder lied on their application or withheld important information, such as pre-existing medical conditions or lifestyle choices.

- The policyholder died during the waiting period, which is usually between 12 and 24 months.

- The policy was a term life insurance policy that expired before the insured person's death.

- The policyholder died while engaging in illegal or criminal activities.

- The policyholder's beneficiary was involved in their murder.

Life insurance fraud

• Concealing information: Policyholders may hide pre-existing medical conditions, lifestyle choices, or dangerous activities that could affect their eligibility or premium rates.
• Staging deaths or accidents: Insured individuals may fake their own death or an accident to make it appear as though they have passed away.
• Forging documents: Fraudsters may provide forged or altered documents, such as medical records or policy details, to support false claims or applications.

Insurance companies employ various measures to counter life insurance fraud, such as enforcing thorough underwriting processes, investigating suspicious claims, and collaborating with law enforcement agencies. When there is evidence of deliberate fraud, the insurance company will deny the claim.

• Premium diversion: This is the most common form of insurance fraud, where an insurance agent embezzles insurance premiums. They may send fake documents to make the scheme look legitimate.
• Fee churning: An agent convinces a policyholder to withdraw cash value or take the surrender value of their permanent life insurance policy to buy more expensive life insurance or switch policies, earning the agent a higher commission.
• Forgery: An agent forges a policyholder's signature to make changes to their policy, such as naming themselves as the beneficiary, or takes out a policy without the policyholder's knowledge to collect commissions.
• Ghost brokers: These are fraudsters who pose as insurance agents and sell fake insurance policies, often requesting cash or direct payments.
• Bogus contacts: Scammers pose as insurance agents or company representatives and contact policyholders to inform them of a problem with their policy. They may ask for money or personal information.
• Beneficiary scam: A scammer contacts a policyholder, claiming they are the beneficiary of a life insurance policy from someone who has passed away, but an outstanding premium balance prevents them from receiving the payout. The scammer requests that the policyholder pay the balance.
• Policy misrepresentation: A fraudster provides false information on a life insurance application, such as lying about their health history, to qualify for coverage or lower premiums.
• Pseudocide: This involves faking the death of an insured person to cash in on the life insurance payout.
• Murder-for-hire: Someone commits or plots to commit murder to cash in on the victim's life insurance policy.

To avoid becoming a victim of life insurance fraud, it is important to be vigilant and take precautions such as working with licensed agents, reviewing policies annually, and being cautious when providing personal information.

Policy lapse due to overdue premiums

Life insurance is a long-term commitment to providing financial security for loved ones. It is important to make regular premium payments to keep the policy active and ensure that beneficiaries receive a payout upon the policyholder's death. However, if an individual fails to make timely payments, their life insurance policy may lapse.

A life insurance policy lapse occurs when a policyholder stops paying the required premiums, resulting in the termination of policy benefits. This situation can have significant consequences for both the insured and their beneficiaries. When a policy lapses, the coverage it provides ceases, and the insured loses all the benefits associated with the policy. The life insurance company is no longer obligated to pay any death benefit or other contractual benefits if the policyholder dies after the lapse.

If an individual has a term life insurance policy and misses a payment, the policy immediately enters a grace period. During this time, the policyholder can still make the necessary payment to avoid a lapse in coverage. Grace periods typically last around 30 days, but some insurers may extend them up to 60 or 90 days. It is important to note that if the policyholder dies during the grace period, the insurer will deduct any missed payments from the total payout to the beneficiaries.

If the grace period passes without payment, the policy will lapse, and coverage will end. At this point, the insurer is no longer obligated to pay any death benefits, and the policyholder will not receive a refund of past premiums. Reinstating a lapsed policy is possible but may come with conditions and potential costs. The policyholder may have to provide evidence of insurability, pay all overdue premiums with interest, and undergo a new waiting period. Additionally, the premiums might be higher due to increased age and new health issues.

To avoid a policy lapse, policyholders can take several proactive measures, such as setting up automatic payments or calendar reminders for due dates. It is also essential to maintain updated contact information with the insurer to receive important notifications and treat life insurance premiums as a non-negotiable budget item. By taking these steps, individuals can ensure uninterrupted protection for their loved ones.

Suicide

After the exclusion period ends, most life insurance policies do cover suicide, and beneficiaries are entitled to receive the full death benefit. The specific terms and conditions may vary depending on the type of policy, such as group life insurance, traditional life insurance, or military life insurance.

If a suicide occurs during the exclusion period, beneficiaries may still receive a refund of the premiums paid into the policy before the insured person's death. Additionally, if the policy is a whole life insurance policy with a built-up cash value, beneficiaries may receive a portion of that value back, depending on the terms of the policy.

It's important to carefully review the specific terms and conditions of your life insurance policy to understand how suicide is covered and what benefits may be available to beneficiaries in the event of a tragic loss.

Term life insurance expiry

Term life insurance is a type of insurance policy that provides coverage for a specific period, typically ranging from 10 to 30 years. Unlike permanent life insurance, term life insurance does not offer lifelong protection and expires once the term ends. However, there are options to extend coverage or convert the policy to maintain continuous protection. Here is what you need to know about term life insurance expiry:

Understanding Term Life Insurance

Term life insurance is a popular choice for individuals seeking affordable coverage for a set period. During the term, the policyholder pays fixed premiums to maintain the policy. If the insured person passes away within the term, the insurance company pays out a death benefit to the designated beneficiaries. Term life insurance is generally cheaper than permanent life insurance, making it a cost-effective option for those who want coverage during their prime working years or while their children are young.

When a term life insurance policy expires, it typically ends without any action needed from the policyholder. The insurance carrier sends a notice, and the policy simply terminates. Premiums stop, and there is no longer a death benefit in place. If the policy included a return-of-premium feature, the policyholder may receive a refund for the premiums paid during the term.

Options for Extending Coverage

If you find yourself still needing coverage after your term life insurance expires, there are a few options available:

• Renewal: Some term policies offer the option to renew coverage on a year-by-year basis after the initial term expires. Renewal allows you to maintain the original coverage amount but usually comes at a higher cost due to age-related risk increases. This option is particularly useful for those who develop health issues, as it does not require a new medical exam.
• Conversion to Permanent Policy: Many term policies include a conversion rider that allows you to change your term policy into a permanent policy without undergoing medical underwriting again. Conversion riders have expiration dates, and not all policies let you convert until the end of the term. Converting to a permanent policy will result in higher premiums due to increased age and the higher risk assumed by the insurer.
• Purchase a New Policy: If you are relatively young and in good health, you may opt to purchase a new term or permanent life insurance policy. However, keep in mind that a medical exam and increased age may result in higher premiums.

Factors to Consider

When deciding how to proceed with an expiring term life insurance policy, it is essential to consider your health, financial situation, and future needs. Assess whether you still have dependents, outstanding debts, business obligations, or other factors that may require continued coverage. Consult with a financial advisor or licensed insurance professional to make an informed decision based on your specific circumstances.

High-risk activities

Life insurance companies have differing opinions on what constitutes a high-risk activity, but most agree that certain activities fall into this category. These activities are generally not covered by standard life or disability insurance policies due to the increased risk of injury or premature death.

• Aviation sports: Skydiving, paragliding, base jumping, and other aviation sports rank highly on the list of activities that life insurance companies consider risky. These activities involve risks such as airplane malfunction, parachute failure, collisions, and botched landings.
• Scuba diving: While it may seem less dangerous than skydiving, scuba diving comes with its own set of risks, including equipment malfunctions, drowning, and decompression sickness. The frequency of dives also plays a factor, as more frequent dives can make the diver a riskier client.
• Rock climbing: If your rock-climbing hobby takes you beyond the indoor climbing wall and onto dangerous terrain, it can affect your life insurance coverage. Factors such as experience level, frequency of climbs, climbing areas, and length of rope used will be assessed to determine the level of risk.
• Racing: Car racing and motorcycle racing are considered high-risk activities due to the potential for accidents, even with improving safety measures. Companies will consider factors such as age, level of experience, frequency of racing, driving record, and vehicle specifications when determining the risk.
• Extreme water sports: Activities such as extreme white water rafting and kayaking increase the likelihood of drowning and are therefore considered high-risk. The frequency of participation and the circumstances of the activity will also impact your life insurance coverage.
• Backcountry skiing: While a family ski trip to a resort is unlikely to affect your insurance, backcountry and heli-skiing are considered high-risk due to the increased potential for accidents. If you participate in these activities more than seven days a year, you can expect higher life insurance rates.
• Other hazardous activities: Horseback riding, bungee jumping, parasailing, off-roading, and even smoking are also considered high-risk activities by some insurance providers.

It is important to note that not all insurance providers consider the same activities hazardous. Additionally, occasional participation in a hazardous activity may not necessarily classify you as a high-risk applicant. However, frequent engagement in these activities can increase your risk profile and lead to higher insurance rates or even denial of coverage.

Frequently asked questions