What Deaths Aren't Covered by Life Insurance?
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TAKEAWAYS IMPORTANT
- Life insurance gives financial security to your loved ones in the event of your death, but plans may not always pay out.
- Life insurance policies, in general, cover deaths caused by natural causes and accidents.
- If you lie on your application, your insurer may refuse to pay your beneficiaries if you pass away.
- Suicide is covered by life insurance policies, but only if a specified length of time has passed after the policy was purchased.
- Depending on the conditions of your insurance, your insurer may or may not pay benefits if you die while engaged in a dangerous pastime.
- The "Slayer Rule" bans your beneficiary from receiving a death benefit if they murder you or are involved in your murder.
What Is Life Insurance and How Does It Work?
A contract between you (the policyholder) and an insurance company is known as a life insurance policy. In exchange for recurring premium payments, the insurance company gives your beneficiaries a death benefit if you die. Life insurance is a financial safety net that can be used to replace lost wages, pay off the mortgage, or cover the costs of your children's college education.
Whole Life Insurance vs. Term Life Insurance: What's the Difference?
Term and whole life insurance are the two most common types of life insurance (aka permanent life insurance).
Term insurance is the most basic—and least expensive—type of life insurance. It pays if you die during the policy's term, which is normally one to 30 years, according to the Insurance Information Institute. When the term ends, you have the option to renew it for another term, convert the insurance to permanent coverage, or let it lapse.
Whole life insurance, on the other hand, pays out a death benefit whenever you die, regardless of how long you've held the policy or how old you are. With a whole life policy, you'll pay more in premiums for less coverage, but you'll have the peace of mind of knowing your loved ones are covered for the rest of your life. Furthermore, whole life insurance can build up monetary value over time, and your insurer may pay you dividends.
What Is Covered By Life Insurance?
In general, if you die from natural causes, an illness, or an accident, your life insurance benefit will go to your selected beneficiaries. Here's an overview of the several types of deaths covered by life insurance policies:
Natural occurrences
Natural causes of death are covered by life insurance. Your beneficiaries will receive the insurance payout if you die of a heart attack, cancer, infection, kidney failure, stroke, old age, or any other natural cause.
Accidents
If you die in a car accident, drowning, poisoning, unintentional drug overdose, or similar disaster, your life insurance policy will pay out death benefits to your beneficiaries.
Murder
If you are murdered, your death benefit will be paid to your beneficiaries—unless your beneficiary was the one who murdered you or was intimately involved in your murder.
Suicide
life insurance covers suicide, and your beneficiaries will receive the death benefit unless the death happens during the "contestability period"—typically the first two years of the policy—provided the policy doesn't have any other exclusions.
Illness caused by a pandemic
If you have an existing policy and die as a result of COVID-19, your death is classified as a natural cause, and the insurance company will pay your beneficiaries the benefit. However, imagine you purchase a new coverage during a pandemic and lie about your health or exposure to the disease on your application. In that instance, the insurer has the option of refusing to pay.
What Deaths Aren't Covered by Life Insurance?
If you don't die for one of the reasons listed above, your insurer may refuse to pay your beneficiaries the death benefit. The following are examples of circumstances in which your beneficiaries may be unable to claim benefits:
Dangerous activities
If you die while participating in a risky activity, depending on the circumstances and your insurance, you may not be covered. Risky activities include leisure interests with a higher risk of injury or death, such as:
- Scuba diving is a sport that involves submerging yourself
- BASE jumping is a sport that involves leaping from a
- Gliding from a cliff
- Automobile racing
- Aviation
- Climbing on rocks and mountains
Work as a logger, pilot, offshore oil rig worker, offshore fisherman, or underground miner all fall under the risky activities category.
You can still get a life insurance policy if you engage in risky activities for leisure or for work, but your rates may be higher. In addition, depending on how dangerous the activity is, your insurer may include an exclusion in your policy that prevents payouts if you die while participating in it.
Murder
If your beneficiary murders you or is indirectly connected to your murder, they will not receive the death benefit under the "Slayer Rule." Rather, your insurer will distribute the death benefit to your contingent beneficiaries or estate.
Suicide
Suicide is generally covered by life insurance. During the first two years of most policies, however, there is a "suicide clause"—or contestability period. Suicides that occur within this time period are not covered by life insurance policies. If a policyholder dies from a drug overdose during this time, things can get complicated. To withhold the death benefit in this scenario, the insurer would have to show that the overdose was purposeful.
Other Explanations for Why Life Insurance Doesn't Pay Out
On the application, lying
If you misrepresent on your application, life insurance companies can refuse to pay out death benefits (which is considered insurance fraud). If you lie about any of the following, for example, the insurer can terminate your coverage and your beneficiaries will lose benefits.
- Medical history of the family
- Medical problems
- Use of alcohol and other drugs
- Dangerous activities
- Plans for travel
Not identifying a recipient (or they predecease you)
If you don't have any specified beneficiaries—or if you have and they predecease you—the death benefit payout becomes difficult. In some cases, the death benefit is paid to your estate rather than to your loved ones.
In the event of your untimely death, it's critical to name primary and contingent beneficiaries to receive the insurance death benefit. Otherwise, the benefits will be subject to probate, and they may not end up where you wanted them to.
Final Thoughts
For your loved ones, life insurance can provide peace of mind and a crucial financial safety net. Natural causes, disease, and accidents are all covered by most insurance. In some cases, though, insurers can refuse to pay benefits. Make sure you read the tiny print of your policy to understand what is and is not covered.
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