insurance

When your life insurance policy won't pay

Where have all the life insurance exclusions gone?

Not so long ago, it was commonplace for a life insurance policy to exclude coverage for such risks as acts of war, military service, aviation, dangerous pastimes such as scuba diving and mountain climbing, and even public health perils such as HIV. If your death was caused by an excluded act, the insurer was under no obligation to pay your beneficiaries.

But the industry trend away from outright exclusion has given consumers new options and more confidence the premiums they pay today won't be in vain.

"We're in the business of insuring people, not rejecting them," says Chris Graham, chief life insurance underwriter for The Hartford. "The fewer exclusions that you can have in a policy, the better off you are from a consumer's standpoint."

Graham explains there are two types of exclusions. There's an outright exclusion written into the life insurance policy that applies to everyone, and there's an exclusion option underwriters can use at their discretion if they don't like the risk or lack the data history to price it appropriately.

"We have that available, but it is not very common for us to use it because people don't like life insurance where some events are excluded," Graham says. "Today, you're more likely to pay what is called a flat extra, an added dollar amount per thousand of coverage, for the risky activity."

One exclusion that won't go away

James Miles, consulting staff fellow for the Society of Actuaries, says a life insurance policy typically contains only one outright exclusion: the suicide clause.

"Depending on the state, it will be either a one-year or two-year suicide clause. If you commit suicide within the first year or two years of the contract, the beneficiary would receive the premiums back but not the death benefit," he says.

Unlike property and casualty insurance, life insurance has no standard form, so policy terms, prices and exclusions vary widely by company. What standards do exist have usually been imposed by state regulators, and thus vary state to state.

Billy Hester, a broker and agent for Shelter Insurance in Oxford, Miss., says exclusions began to disappear as life insurance became more competitive.

"Pricewise, life insurance changed in 2000, the reason being that people live longer. Now, when we rate somebody, it's out to age 120, where it used to be to age 100," he says. "After 2000, life insurance became less expensive than it was before."

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