Typical life insurance policies have standard terms under which the death benefit will not be paid to the beneficiaries. It is important to understand what these are when buying a life insurance policy.
One of the most common circumstances for a death benefit not paying out is fraud during the application. For example, someone saying that they are a non smoker on the application to get a cheaper premium (but in fact they are a smoker). When you die if there is evidence that you were a smoker at the time of the application, the policy will be voided and the death benefit amount will not be paid to your beneficiaries.
It is always in your best interest to be as honest as you possibly can be on a life insurance application. Any intentional misleading information that you provide can only create problems down the road.
Another common clause in life insurance policies is a suicide exclusion. Most standard life insurance contracts include a two-year exemption with this as the cause of death. If you die within two years of taking out the policy and the cause of death is suicide, the policy death benefit will not pay out.
A few other common examples are if you die as a result of an act of war, whether it’s declared or not, or an act of terrorism your death benefit may not pay out. Another is that if you die while committing a crime it is unlikely that your life insurance will cover you. You may also want to let your beneficiary know that if they are a suspect in your untimely demise, the policy likely won’t pay them either. They need to make it look like an accident. Otherwise the dreams of sipping pina coladas on the beach in Fiji may never come true!
Finally, you need to be familiar with any supplemental exclusions that may have been added to your policy. An example of this would be participating in extreme sports. For instance, if you sky dive regularly, the insurance company may feel comfortable approving your policy with a clause added in the contract that says that they won’t pay out the death benefit if you die while jumping out of a perfectly good airplane for sport / recreation. This is often used as a way to make it so that an insurance company can issue a policy at a reasonable premium to someone who knowingly participates in a risky activity. Without an exclusion the premium may be so high that you wouldn’t accept it (or they could also decline the application outright). With the added exclusion the insurance provider knows that they are protected against loss from risky activities.
It is important for you to know what is and isn’t covered as well. Life insurance companies are not in the business of not paying out life insurance policies. Make sure that you are honest about your health and lifestyle during the application and understand the life insurance policy contract when you receive it. This protects your beneficiaries ability to receive the money if something happens to you.
As always, we are here to help answer any questions that you may have. Feel free to contact us to speak with one of our awesome brokers to see what product is right for you.