Life Insurance Exclusions

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As you get older, having a life insurance policy has a number of benefits. If you have the right policy, it can replace your income during retirement or help you pay off debt. Most importantly, it allows you to leave money to your loved ones after you pass away in the form of a death benefit.

However, not everyone knows that there are certain exclusions that can 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 you and your family can avoid any surprises.

What are life insurance 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 life insurance. Life insurance exclusions are regulated at the state level, but insurance companies can decide which of those exclusions they include in their policies.

The main reason why life insurance companies include exclusions is to protect them from risk—namely, early and untimely deaths. When a policyholder passes away, the insurance company can lose money when paying the death benefit. Having exclusions is a way to reduce the likelihood of paying a death benefit in certain situations.

What are the typical exclusions in a life insurance policy?

You probably know that life insurance covers most causes of death, including old age, terminal illness and so on. However, you might be surprised to learn what situations are not covered by insurance:

  • Suicide: If the policyholder commits suicide within two years of purchasing their policy, they are not eligible for death benefits.
  • Illegal activity: When someone dies as a result of illegal activity, their family cannot claim their death benefits. This includes everything from drug deals gone wrong to DUI crashes.
  • Risky activity: Any death due to risky activities, like 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’s excluded from their policy.
  • Misrepresentation: If you are found to have lied about your age, or provided any false information to your life insurance company, you aren’t eligible for your death benefit.

The life insurance suicide clause

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’s usually a two-year suicide clause. If you commit 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.

A changing definition of risk

Over the years, life insurance companies have altered their definition of risky behavior based on global and economic changes. For instance, life insurance companies used to exclude private aviation from the list of covered causes of death.

But as private aircrafts became safer, life insurance companies eased up on the rules. Today, most life insurance companies offer an aviation rider for people who are recreational pilots.

“Flying in a plane today is certainly much, much safer than it was 30 years ago because of navigational equipment, plane construction, pilot training, weather radar, all of that,” Miles says. “Now the exclusion is there for a pilot with very little experience or a very old private pilot, somebody in their 90s, who is flying a plane. A private pilot who is middle-aged and experienced is not going to have trouble getting life insurance.”

Until several decades ago, acts of war and serving in the military were usually excluded from life insurance policies. But these exclusions began to disappear following the Vietnam War. Overtime, the notion of war has changed, as well as support for service members.

Chris Graham, chief life insurance underwriter for The Hartford, says, “You don’t have the catastrophic risks you had in the first or second world war,” he says. “And the military is viewed differently today. I think there is a sense of patriotism in some of that thinking.”

In the early 1980’s, HIV was excluded from life insurance policies. According to Miles, “Today, HIV status would be looked at like other chronic illnesses a person might have. They might pay more for their life insurance, but they wouldn’t be totally excluded from getting coverage.”

Frequently asked questions

Do life insurance exclusions impact my cost?

If you choose to remove certain exclusions from your policy, it will increase your premium. But if you agree to the exclusions when you sign a policy, it won’t have any effect on your rate.

Can I get coverage if I have high-risk hobbies?

Yes, just because risky activities are excluded from most life insurance policies, doesn’t mean you can’t get coverage. For example, some insurance companies offer a rider that extends your coverage to include activities like rock climbing or mountaineering. It will raise your premium, but your beneficiaries will still be eligible for the death benefit if something happens.

Where can I find the exclusions in my life insurance policy?

You can usually find your life insurance exclusions in the fine print of your policy documents. Before you purchase insurance, your agent should go over the exclusions with you. If you have questions about what’s covered, it’s best to contact your agent who can walk you through your policy.