Understanding What Life Insurance Does Not Cover
Don’t fall for the assumption that life insurance covers every situation. Each policy differs, but life insurance policies don’t cover certain situations under any circumstances. Always read the fine print on your policy so that you know what to expect, but as you shop around, know that most insurance companies won’t cover the following situations.
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Understanding the Discovery Period
First, you should understand that many insurance policies include a discovery period. A typical discovery period lasts one to two years. During this time, the insurance company can deny certain types of claims. This clause helps protect insurance companies from clients that take out a large policy only to collect on it in a short amount of time (one to two years).
Taking Your Own Life
People that take their own life may void his or her life insurance policy if they do so within the discovery period. This helps avoid clients that commit suicide shortly after taking out a life insurance policy in order to help their family financially.
Some life insurance companies also deny life insurance claims for suicide if the insured didn’t disclose the presence of a mental health history. For example, if the insured suffered from diagnosed depression but didn’t disclose it, the insurance company could deny the claim.
Purposely putting yourself at risk of harm could void your life insurance payout. If you have high-risk activities you participate in, let your insurance company know at the time of application. The insurance company may be able to include a special clause for extra coverage (for more money) in this case. If you don’t disclose your passion for skydiving or bungee jumping, though, you may void your benefits should you die participating in such an activity.
High-risk activities also include things like drinking and driving, drug overdose, or participating in any illegal activities. Putting yourself in harm’s way whether legally or illegally could void an insurance payout, but again, it varies by insurance company.
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Participating in illegal activities can automatically void your life insurance. This has nothing to do with the discovery period either. If you purposely put yourself in harm’s way, doing something illegal, the insurance company probably won’t pay your claim.
If you really dig into the fine print of your policy, you’ll find that illegal activities can be purposeful and accidental. For example, trespassing may be accidental, but if you die while trespassing, technically, the insurance company could deny the claim because it involved an illegal activity.
Most insurance companies investigate the cause of death before paying a claim, especially during the discovery period. If the life insurance company determines that you weren’t honest on your application, they may deny the claim.
If you die within the one to two-year discovery period, the insurance company can deny your claim. For example, if you didn’t disclose your high blood pressure and you die of a heart attack during the discovery period, the insurance company can deny the claim. Any signs of fraud can lead the insurance company to decline benefits altogether or reduce benefits accordingly.
Lapse in Payment
If you miss your premium payments, it causes your policy to lapse. If you happen to die during this time, the insurance company will not pay out any benefits. You may have a grace period, but never assume this is the case. Read the fine print on your policy and/or call your agent to find out if you have a grace period and how long it lasts.
Term life insurance policies are only good for a certain period. Let’s say you have a 10-year term. If you are still alive after those 10 years, the policy expires and you don’t receive a payout. Obviously, the good thing is that you are alive. The bad thing is that you have to buy another policy or inquire about extending your current policy.
Death During War
Dying during a war doesn’t pertain to soldiers – instead, this exclusion pertains to civilians that may be caught in an act of war. For example, a journalist caught in the middle of a conflict or civilians that bring themselves to an area in conflict. Some life insurance policies have an Act of War exclusion, so make sure you know your policy’s terms well to know what may happen.
No two insurance policies are the same. Make sure to read the fine print so that you know what your policy does and doesn’t cover. If you don’t understand something, make sure that you ask your agent. You want a full understanding of what your insurance policies cover so that you can prepare for the worst.
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