What are life insurance exclusions?
Having a life insurance policy in place as you get older may allow you to leave money to your loved ones if you die. However, not everyone is aware that certain exclusions may prevent your beneficiaries from receiving your death benefit. If you have a life insurance policy, you should be aware of the exclusions so that your loved ones are not caught off guard after your death.
Common life insurance policy exclusions
A life insurance exclusion is something that prevents your beneficiaries from receiving your death benefit. It essentially means that the policy does not cover certain causes of death. Exclusions from life insurance are regulated at the state level, but insurance companies can choose which exclusions to 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 be excluded before accepting a policy.
The main reason life insurance companies include exclusions is to protect themselves from risk, specifically premature deaths, which may cost the company more money in the form of an early death benefit. Exclusions allow insurers to reduce the likelihood of paying a death benefit in specific circumstances.
You might be surprised to learn about the situations that insurance does not cover. The following are some common life insurance exclusions:
- Suicide: If a policyholder commits suicide within a certain timeframe after purchasing their policy, a life insurance suicide exclusion will most likely apply, and the insured's beneficiaries will be ineligible for death benefits. The suicide clause is usually for two years, but this will be specified in the policy.
- Acts of war: Coverage may be denied if a policyholder dies as a result of wartime activities.
- Military service: Because military service may make a policyholder more difficult to insure, this exclusion may be present in policies.
- Aviation accident: Although relatively uncommon nowadays, death from aviation accidents is a common life insurance exclusion.
According to James Miles, a consulting staff fellow for the Society of Actuaries, virtually every life insurer's policy typically includes the same outright exclusion: a suicide clause.
"It's usually a two-year suicide clause, depending on the state." If you commit suicide within the first two years of the contract, the beneficiary receives the premiums but not the death benefit," he explains.
The suicide clause is in place to prevent people from purchasing life insurance policies while suffering from mental health issues or planning suicide. Before granting coverage, most life insurance companies screen applicants for mental health conditions such as depression and anxiety. And, while you will most likely have to pay a higher premium if you have a mental health condition, you will most likely be able to obtain a life insurance policy.
The same rule applies in the case of physician-assisted suicide. If you live in a state where assisted suicide is legal, you must wait two years before filing for death benefits.
Accidental death policy exclusions
Some life insurance policies, referred to as accidental death policies, only cover the insured if they die in an accident. Illness, medical issues, or chronic health conditions are not covered as causes of death. These policies will define an accident and may include exclusions for death caused by:
- Illegal activity: If someone dies as a result of illegal activity, their beneficiaries are unlikely to be able to collect death benefits. This includes everything from botched drug deals to DUI accidents.
- 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 dies as a result of drug or alcohol abuse, their policy may be voided.
It's also worth noting that risky hobbies, substance abuse, and misrepresentation (giving false information on your application) may prevent you from getting coverage or subject you to a higher premium.
Furthermore, there is a contestability period in which life insurance companies can investigate your application and deny claims. This period is typically 1-2 years from the policy's effective date. If you die during the contestability period and the insurer determines you misrepresented yourself or provided false information to your life insurance company, your coverage may be void 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 policy covers is important. After all, some types of life insurance will cover you for the rest of your life, which means you'll have to pay premiums for the rest of your life. As a result, failing to understand your life insurance exclusions could be a costly mistake.
Reading through your contract is one way to learn more about the exclusions on your life insurance policy. Despite its length, your contract will spell out exactly what is and isn't covered by your life insurance policy. However, life insurance is complicated, and contracts can be difficult to understand. Keeping this in mind, it might be a good idea to meet with your life insurance agent so they can explain it to you.
Do life insurance exclusions change over time?
Life insurance companies' definitions of risky behavior have evolved over time in response to global, economic, and social changes. Some life insurance companies, for example, used to exclude private aviation from the list of covered causes of death. However, as private planes became safer, many life insurance companies relaxed the rules for the majority of policyholders. Some life insurance companies now provide an aviation rider to recreational pilots.
Although some circumstances and health conditions may not be exclusions on your life insurance policy, they may be risk factors that contribute to a higher premium. Furthermore, because every insurance company is different, it's critical to read through your contract to understand your policy limitations.