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As you get older, having a life insurance policy in place may allow you to leave money to your loved ones if you pass away. However, not everyone knows that there are certain exclusions that might prevent your beneficiaries from claiming your death benefit. If you have a life insurance policy, it’s important to know what those exclusions are so your loved ones can avoid any surprises following your death.
Common life insurance policy exclusions
A life insurance exclusion is a situation or circumstance that prevents your beneficiaries from receiving your death benefit. Essentially, it means that certain causes of death are not covered by the policy. Life insurance exclusions are regulated at the state level, but insurance companies can decide which of those exclusions they include in their policies. Exclusions will be listed in the policy at the time of application, so the insured will know which causes of death may not be covered by the policy before accepting a policy.
The main reason life insurance companies add exclusions is to protect them from risk — namely untimely deaths, which may cost the company more money in the form of an early death benefit. Exclusions are a way for insurers to reduce the likelihood of paying a death benefit in certain situations.
You might be surprised to learn what situations may not be covered by insurance. Some common life insurance exclusions include death caused by:
- Suicide: If the policyholder dies by suicide within a certain timeframe after purchasing their policy, then a life insurance suicide exclusion likely applies, and the insured’s beneficiaries are not eligible for death benefits. In most cases, the suicide clause is a two-year period, but this will be defined in the policy.
- Acts of war: If a policyholder dies as a result of wartime activities, coverage may be denied.
- Service in the military: Because military service may make a policyholder a higher risk to insure, this exclusion may be present in policies.
- Aviation accident: Although fairly rare anymore, death caused by aviation accidents is a common life insurance exclusion.
James Miles, consulting staff fellow for the Society of Actuaries, says virtually every life insurer typically includes the same outright exclusion in its policy: a suicide clause.
“Depending on the state, it’s usually a two-year suicide clause. If you die by suicide within the first two years of the contract, the beneficiary would receive the premiums back but not the death benefit,” he says.
The suicide clause is in place to prevent individuals from purchasing a life insurance policy when they are struggling with mental health disorders or are planning suicide. Most life insurance companies screen applicants for mental health conditions, like depression and anxiety, before they are approved for coverage. And while you will likely pay a higher premium if you are living with a mental health condition, you will still most likely be able to get a life insurance policy.
In the case of physician-assisted suicide, the same rule applies. If you live in a state where assisted suicide is legal, you must pass the two-year period before you can claim death benefits.
Accidental death policy exclusions
Some life insurance policies, known as accidental death policies, only provide coverage for the insured if they die due to an accident. Causes of death related to illness, medical issues or chronic health conditions are not covered. These policies will define what constitutes an accident and may include exclusions due to death from:
- Illegal activity: When someone dies as a result of illegal activity, their beneficiaries likely cannot claim their death benefits. This includes everything from drug deals gone wrong to DUI crashes.
- Risky activity: Any death due to risky activities, such as skydiving or rock climbing, are usually counted as an exclusion.
- Substance abuse: If a policyholder’s death is the result of drug or alcohol abuse, it may be excluded from their policy.
It’s also worth noting that risky hobbies, substance abuse and misrepresentation (providing false information on your application) could bar you from getting coverage in the first place or subject you to a higher premium.
Additionally, life insurance policies have a contestability period, in which life insurance companies can investigate your application and deny claims. This period is typically 1-2 years from the effective date of the policy. If you pass during the contestability period and the insurer determines you misrepresented yourself, or provided any false information to your life insurance company, it could completely void your coverage and no death benefits will be paid.
How do I know if I have exclusions on my life insurance policy?
Knowing what your life insurance covers may be vital. After all, some types of life insurance will cover you for your entire life — which means making premium payments for your entire life, too. As such, not understanding your life insurance exclusions could prove to be a costly mistake.
One way to learn more about the exclusions on your life insurance policy is to read through your contract. Although it may be dense, your contract will spell out precisely what is and isn’t covered on your life insurance policy. However, life insurance is complex, and contracts may be hard to decipher. With that in mind, it may be a good idea to meet with your life insurance agent, so they can break it down for you.
Do life insurance exclusions change over time?
Over the years, life insurance companies have altered their definition of risky behavior based on global, economic and socially-driven changes. For instance, some life insurance companies used to exclude private aviation from the list of covered causes of death. However, as private aircraft became safer, many life insurance companies eased up on the rules for most policyholders. Today, some life insurance companies offer an aviation rider for recreational pilots.
It’s important to note that although some circumstances and health statuses may not be exclusions on your life insurance policy, they could be risk factors that may contribute to a higher premium. Additionally, every insurance company is different, so it’s important to read through your contract to understand your policy limitations.
Frequently asked questions
Life insurance exclusions are typically included in a policy automatically. Policies that include many exclusions, such as accidental death policies, may be lower cost, whereas choosing a traditional whole life policy with few to no exclusions will likely increase your premium.
Just because risky activities might make it harder to get coverage doesn’t necessarily mean you can’t get coverage. Certain hobbies, like rock climbing or mountaineering, could make you a high-risk applicant and will likely raise your premium, but your beneficiaries should still be eligible for the death benefit if something happens. Just make sure you are honest about your participation in risky hobbies on your application. If you lie or hide the fact that you are an avid rock-climber and pass during the contestability period, it could put your beneficiaries at risk of having the claim denied.
Life insurance exclusions are included in full policy language that you receive when you purchase a policy. Before you purchase life insurance, you can ask your agent to review all policy exclusions with you. If you have any questions about what’s covered, you may want to contact your agent who can walk you through the details of your policy.