Term Life Insurance: Exclusion Decision Factors

Life insurance is a financial safety net for your loved ones after you pass away. However, life insurance companies do not pay out in all circumstances. Exclusions are circumstances in which an insurance company will not pay out a death benefit. These exclusions are decided by insurance companies to protect themselves from fraud and excessive risk. Exclusions are listed in the policy at the time of application, so the insured knows which causes of death may not be covered by the policy before accepting it.

Suicide

Most life insurance policies include a suicide clause that prevents the insurer from paying out the claim if the insured's death was due to self-inflicted injury within a certain period, typically two years, from the start of the policy. This period is known as the exclusion period or contestability period. The clause is meant to prevent someone from purchasing a policy immediately before taking their life so that their loved ones can receive financial benefits.

If the insured person dies by suicide within the exclusion period, the insurer may deny the death benefit or only refund the premiums paid. However, if the suicide exclusion period has ended, life insurance policies typically cover suicide, and beneficiaries are entitled to receive the full death benefit.

It is important to note that changing a policy, such as adding coverage or converting a term policy, can reset the exclusion period. Additionally, the incontestability clause allows the insurance company to deny a claim during the contestability period, which is separate from the suicide clause, if they find undisclosed health conditions or discrepancies in the policy's application.

Group life insurance, often provided by employers, generally does not include a suicide clause. In these cases, the policy can pay out for suicidal death. Military life insurance policies also typically pay out the death benefit regardless of the cause of death, including suicide.

Dangerous activities

The definition of a "dangerous activity" can vary between insurers, but some common examples include:

• Rock climbing
• SCUBA diving
• Hang gliding
• Skydiving
• Race car driving
• Aviation
• BASE jumping
• Paragliding
• Hot air ballooning

It's worth noting that exclusions for dangerous activities are becoming less common in term life insurance policies. Some insurers may simply charge a higher premium for individuals who engage in these activities, rather than excluding them from coverage. In other cases, insurers may refuse to provide coverage at all to individuals who participate in particularly risky activities.

It is important to carefully review the terms of your life insurance policy to understand any exclusions, including those related to dangerous activities. These exclusions will be listed in the policy at the time of application, so you can make an informed decision about your coverage.

Illegal activities

While you might assume that this exclusion refers primarily to illegal drugs or alcohol, it can also apply to other situations. For example, if you die in a car accident while speeding or not wearing a seatbelt in a state where this is illegal, your beneficiaries may not receive the death benefit. Similarly, if you are killed in an accident and are found to have been driving under the influence, your insurance claim may be denied.

In addition, if the insured person dies due to criminal activities such as drug-related offences, gang participation, or other illegal behaviour, the insurance company may deny the death benefit claim.

It is important to carefully review the terms of your life insurance policy to understand the specific exclusions and how they may apply in different situations.

Aviation accidents

The aviation exclusion may also extend to other scenarios, such as death while parachuting from an aircraft, or travelling as a crew member, student pilot, or pilot. Life insurance companies often exclude pilots from their best rates or deny benefits for general aviation accidents, as they consider aviation to be a dangerous activity. This is because insurance companies perceive aviation as a high-risk activity, and want to protect themselves from excessive risk.

However, there are life insurance policies tailored specifically for pilots, which offer full-coverage protection 24 hours a day, including during flights. These policies do not have aviation surcharges or exclusions for flight crews.

Acts of war

War exclusion clauses typically refer to invasions, insurrections, revolutions, military coups, and terrorism. They are designed to protect the insurer from having to pay out claims on automobiles, homes, and other insured entities if they are damaged or destroyed by war.

War exclusion clauses became more standardised after the September 11 terrorist attacks, with many insurance companies adding more detailed and far-reaching "war and terrorism" clauses that excluded coverage for civilians.

It's important to note that policies designed specifically for service members, available through the Department of Veterans Affairs or private insurers, may not include acts of war as an exclusion. Additionally, companies or individuals in high-risk areas, such as politically unstable countries, may be able to purchase separate war risk insurance policies.

Frequently asked questions