Life Insurance: Death Disqualifiers?

Life insurance is a crucial safety net for loved ones in the event of death, but not everyone is eligible for coverage. While life insurance covers death due to natural causes, illness, and accidents, certain circumstances may cause the insurance company to deny paying out the death benefit. These include lying on the application, engaging in risky behaviours, and failing to pay premiums. Pre-existing conditions, such as high blood pressure, chronic kidney disease, and severe mental health disorders, may also lead to disqualification. Engaging in extreme sports or having a history of substance abuse or criminal activity can also impact eligibility. It's important to carefully review the terms and conditions of a life insurance policy to understand what may lead to a denied claim.

Pre-existing conditions

Chronic conditions that require long-term medication or treatment can also impact eligibility. Some common pre-existing conditions that fall under scrutiny by life insurance companies include high blood pressure, diabetes, cancer, asthma, chronic kidney disease, chronic obstructive pulmonary disease, liver disease, and organ transplant recipients.

Several factors can affect the approval chances for life insurance with pre-existing conditions:

• The type of condition: The insurer evaluates the risk the condition entails and its likelihood of causing recurring issues. For example, cancer, heart disease, and other severe chronic illnesses are considered higher risk.
• Current health status: Even with a pre-existing condition, insurers evaluate how well it is being managed. If the condition is under control, approval may be more likely, and one may qualify for more favorable premiums. Demonstrating vigilant management of the condition, such as regular medical visits and medication usage, can reduce risk from the insurer's perspective.
• Age: Premiums can increase, and approval chances can decrease with age, given the same pre-existing condition. Younger people generally have a longer life expectancy, reducing the insurer's risk.
• Lifestyle habits: Certain lifestyle habits can influence approval chances. For example, smokers with pre-existing conditions may have lower approval chances, while demonstrating healthy habits like regular exercise can potentially increase the chances of approval.
• Time from diagnosis: A longer time from diagnosis can increase the chance of complications or other issues. Insurers may scrutinize an application more closely if the diagnosis happened long ago.

People with pre-existing conditions have several life insurance options, including term life insurance, guaranteed issue life insurance, group life insurance, and whole life insurance. Term life insurance policies have more favorable premiums and large death benefits but limited coverage durations. Guaranteed issue life insurance approves all applicants without medical questions or exams, but the coverage is limited. Group life insurance can be obtained through an employer, while whole life insurance offers lifelong coverage and a cash value growth component at higher premiums.

To increase the chances of getting life insurance with pre-existing conditions, it is recommended to stick to a treatment plan, exercise regularly, maintain a healthy weight, shop around for insurers, and work with an insurance broker if necessary.

Lying on the application

Lying on a life insurance application is considered insurance fraud and can have serious consequences. While it may be tempting to tweak certain details to secure a better rate, doing so can leave your loved ones without the financial support they need. Here's why honesty is the best policy when it comes to life insurance applications.

Consequences of Lying

When you apply for life insurance, insurers verify the information you provide through various means, including medical records, interviews with friends and relatives, and databases like the Medical Information Bureau (MIB). If they uncover any inconsistencies or false statements, it can lead to denied claims or policy cancellations.

One of the most severe consequences of lying on a life insurance application is the potential for the insurer to deny or reduce the death benefit after your passing. During the contestability period, which is usually the first two years of the policy, the insurer has the right to investigate your application. If they find that you weren't truthful about a pre-existing condition or other relevant information, they may decrease or deny the payout to your beneficiaries.

In some cases, lying on your application may result in criminal charges. Intentional fraud can lead to fines, restitution, or even jail time. According to the NAIC, life insurance fraud costs consumers and businesses billions of dollars annually.

Common Areas of Misrepresentation

There are several key areas where applicants are tempted to be untruthful on their life insurance applications. These include:

• Age
• Weight
• Family medical history
• Personal medical history, including mental health issues
• Tobacco, drug, and alcohol use
• High-risk hobbies or activities
• Income, occupation, and international travel

Honesty is the Best Policy

While it may seem advantageous to downplay certain health issues or omit risky hobbies, the risks of lying far outweigh the potential benefits. By being upfront and honest on your life insurance application, you can ensure that your policy provides the intended financial protection for your loved ones.

Additionally, comparing different policies and working with an agent can help you find coverage that meets your needs without feeling pressured to misrepresent the truth. Remember, life insurance is meant to provide peace of mind and financial security for your loved ones, and honesty is crucial to achieving that goal.

Engaging in risky activities

If you participate in risky activities, it's important to disclose this to your insurer during the application process. Failure to do so could result in your policy being cancelled or your beneficiaries not receiving the death benefit. Insurers will typically ask about your participation in these activities during the "contestability period," which usually lasts for the first two years of the policy.

The impact of risky activities on your life insurance can vary depending on the insurer and the specific activity. Some insurers may deny coverage altogether, while others may charge higher premiums or add an additional fee called a "flat extra" for the risky activity. The frequency and level of your participation in these activities will also be considered. For example, occasional scuba diving while on vacation is unlikely to affect your insurance, whereas frequent deep-sea diving without proper training would result in higher rates or even denial of coverage.

It's important to note that not all insurers consider the same activities hazardous. Additionally, if you decide to stop participating in a risky activity, you may be able to remove the flat extra fee from your policy after a certain period of time.

Murder (if the beneficiary was involved)

If a policyholder is murdered, their beneficiaries will usually receive the death benefit. However, if the beneficiary is found to have any involvement in the policyholder's death, they will not receive a payout under the "slayer rule".

The slayer rule is in place to prevent beneficiaries from benefiting from the policyholder's death if they had a hand in it. This applies even if the beneficiary is found guilty of manslaughter, or the policyholder died due to the beneficiary's self-defence. If the beneficiary is found guilty of murdering the policyholder, the death benefit will go to the contingent beneficiaries or the policyholder's estate.

If the policyholder is murdered during the first two years of the policy, also known as the contestability period, the insurance company is entitled to launch its own investigation into the murder. They will review the application documents to rule out any material misrepresentation and may request medical records, toxicology reports, and autopsy reports to determine the exact cause of death. Until the investigation is complete or the police find the beneficiary not guilty, the claim will be delayed.

If the beneficiary participated in a plot to kill the policyholder, even if they did not personally commit the act, they will not receive a payout. If the policyholder conspires with their family to plot their own death, this is insurance fraud, and their beneficiaries will not receive a payout.

Suicide (during the first two years of the policy)

Suicide is a leading cause of death that leaves behind a trail of devastation for families and loved ones. The emotional and mental turmoil that follows a suicide can be compounded by financial anxiety and uncertainty. Life insurance is meant to provide financial security and ease uncertainty for families and beneficiaries in the event of the policyholder's death.

Most life insurance policies include a "suicide clause", which states that the insurer may deny the death benefit or return only the premiums paid if the policyholder dies by suicide within a certain period, typically the first two years, of the policy being issued. This clause is meant to prevent an individual from purchasing a policy with the intention of ending their life soon after so that their loved ones can receive financial benefits. After this 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, whether premeditated or not. It is important to note that different types of life insurance policies may have specific clauses and conditions that impact coverage in these circumstances. For example, military-focused life insurance policies often pay out the death benefit regardless of the cause of death, including suicide. Group life insurance policies, on the other hand, usually include similar suicide clauses to those found in individual life insurance policies.

In the tragic event of a suicide, the deciding factor for whether group life insurance will pay for a suicidal death depends on the specific suicide clause, exclusions, and applicable laws and regulations. If the suicide occurs within the exclusion period, the death benefit may not be paid. However, after this period, group life insurance generally covers suicide.

Frequently asked questions