Life Insurance: What's Not Covered And Why

Life insurance is a contract between you and an insurance company. You make regular premium payments, and the company provides your beneficiaries with a death benefit when you pass away. While life insurance covers most causes of death, there are some circumstances in which your beneficiaries may not receive a payout. This includes suicide within the first two years of the policy, acts of war and terrorism, homicide by the beneficiary, and death caused by illegal or high-risk activities. Additionally, if you lie on your application or fail to pay your premiums, your insurer may deny the claim. It's important to understand the limitations and exclusions of your policy to ensure your beneficiaries receive the intended financial protection.

Suicide within the first two years of the policy

Suicide is generally excluded from life insurance coverage within the first two years of the policy. This is known as the suicide clause or suicide provision, and it is intended to prevent people from taking out a policy with the intention of ending their lives soon after so that their loved ones can receive financial benefits. The clause typically lasts for the first one to three years of the policy, depending on the insurer, but it is usually two years. During this exclusion period, if the policyholder dies by suicide, the insurer may deny the death benefit or only refund the premiums paid. After the exclusion period, most life insurance policies do cover suicide, and beneficiaries are entitled to receive the full death benefit.

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. It is important to note that different types of life insurance policies may have specific clauses and conditions that impact coverage. For example, military-focused life insurance policies may pay out the death benefit regardless of the cause of death, including suicide. Group life insurance policies, often provided as part of an employee benefits package, usually include similar suicide clauses to those found in individual life insurance policies. Traditional life insurance policies, including term and permanent life insurance, typically contain a suicide clause that applies for a specific period.

Suicide provisions can also vary depending on the type of coverage for the insured. For instance, with whole life policies, beneficiaries might receive the plan's cash value even if the insured dies during the exclusion period. In contrast, with individual term life insurance, beneficiaries can only claim the death benefit after the exclusion period has ended. If the insured dies during the exclusion period, the beneficiaries might only receive the sum of the premiums paid up to that point.

Changing a policy, such as adding coverage or converting a term policy into a whole life policy, can reset the suicide exclusion period. Additionally, insurance companies may request additional documentation, such as an autopsy report or medical records, if they suspect suicide as the cause of death, which can delay the claims process.

Acts of war and terrorism

Life insurance policies do not typically cover deaths resulting from acts of war or terrorism. This exclusion is less common in life insurance than in other types of insurance, but it is still worth noting. The good news is that many insurance companies do not include this exclusion in their policies. However, it is important to check with your insurance provider to be sure.

If you are an active member of the military, your eligibility for a private life insurance policy will depend on your rank and deployment status. Ask your insurance agent for clarification if you are unsure about this exclusion.

War exclusion clauses were expanded and became standard after the September 11 terrorist attacks. These clauses specifically exclude coverage for acts of war, such as invasions, insurrections, revolutions, military coups, and terrorism. The reason for these exclusions is that insurance companies cannot accurately compute the premiums to charge for damages sustained during war, and the cost of claims could potentially bankrupt the company.

While acts of war are almost never covered, workers' compensation insurance is the only type of insurance that does not exclude coverage for acts of war. This type of insurance covers employees injured or killed on the job, including those impacted by acts of terrorism or war.

Dangerous hobbies or activities

Life insurance policies generally cover deaths from natural causes, illness, and accidents. However, dangerous hobbies and activities are often excluded from coverage. These exclusions are in place to protect insurance companies from excessive risk and fraud.

• Scuba diving
• Skydiving
• Rock climbing
• Bungee jumping
• BASE jumping
• Car racing
• Paragliding
• Flying a plane
• Horseback riding
• Hang gliding
• Off-roading
• Ballooning

In addition to these activities, certain jobs are also considered dangerous and may be excluded from coverage. These include:

• Construction work
• Logging
• Aircraft pilots
• Offshore oil rig workers
• Fishermen
• Structural steelworkers
• Underground mining

If you engage in any of these activities or have a dangerous hobby or occupation, it is important to disclose this to your insurance company during the application process. Failure to do so may result in your policy being cancelled or your beneficiaries being denied the death benefit.

Insurance companies may handle these exclusions in different ways. Some may deny coverage altogether, while others may offer a policy with an exclusion for death resulting from a specific activity. Alternatively, you may be required to pay a higher premium due to the increased risk associated with your hobby or occupation.

Criminal activity

Life insurance policies are designed to provide financial protection to your loved ones in the event of your death. However, it's important to understand that life insurance doesn't cover every scenario, and there are certain exclusions that can result in claim denials. One such exclusion is criminal activity.

The "commission of a crime" exclusion is a provision found in many life insurance policies. This exclusion allows the insurer to deny a life insurance claim if the insured person dies as a result of committing a crime or engaging in illegal activities. The exact wording of this exclusion may vary across policies, but it typically applies to felonies or other criminal activities. For example, if you are killed while committing a drug-related offence or participating in a gang, your insurer may deny the death benefit claim.

It's worth noting that the "commission of a crime" exclusion doesn't apply to all criminal activities. Some policies may only exclude coverage for specific types of crimes, such as drug trafficking or money laundering. Additionally, there might be a time limit on this exclusion, such as two years, after which it no longer applies.

The burden of proof for denying a claim based on criminal activity falls on the insurer. They must provide evidence that the insured person was engaged in criminal activity at the time of death. If they cannot provide sufficient evidence, the exclusion may not apply, and the life insurance claim may still be paid.

To summarise, while life insurance policies typically cover deaths from natural causes, accidents, and illnesses, criminal activity is one of the notable exclusions. Insurers may deny claims if the insured person's death occurs during the commission of a crime or participation in illegal activities. However, the specific crimes covered and the interpretation of this exclusion can vary between policies, so it's essential to carefully review the terms and consult with an attorney if needed.

Pre-existing health conditions

When you apply for life insurance, the provider will assess your risk of making a claim and your chances of claiming based on your health condition. This evaluation will determine whether they will offer you a policy and how much they will charge you for insurance. The number of providers willing to cover you may be limited, and you might have to pay a higher premium due to the increased risk of insuring you.

The specific pre-existing condition you have will influence how much your life insurance costs. For example, Type 2 diabetes may result in a considerably higher premium because it can be harder to manage and lead to greater health complications. On the other hand, insurance providers may be less strict with Type 1 diabetes, as it is typically diagnosed at an early age, and they know that you have had the condition under control for a number of years.

If you've had a heart attack or stroke, the type of policy you can get and its cost will depend on factors such as the severity of the incident, when it happened, whether you had surgery, and if there are any long-term implications or recurrent problems. Similarly, if you've been diagnosed with cancer, it doesn't automatically exclude you from getting life insurance, but it may be more challenging to find coverage, and it will likely be more expensive.

To improve your chances of getting life insurance with a pre-existing condition, it's recommended to follow your treatment plan, exercise regularly, and maintain a healthy weight. These steps can help control your medical condition and potentially increase your insurability. Additionally, consider using an agent or broker who is familiar with the underwriting standards for each condition and can advocate on your behalf. Remember to be honest about your medical history and condition, as concealing information could result in policy cancellation or prosecution for insurance fraud.

Frequently asked questions