What does a life insurance policy not cover?
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UPDATED: Jul 22, 2011
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When someone purchases a life insurance policy, it is expected that the policy will pay a benefit in the event of the death of the insured. In the majority of cases, this is true. However, almost every life insurance policy outlines circumstances in which the benefits will not be paid in the event of the death of the insured. These exceptions are known as exclusions.
Life Insurance Exclusions
Exclusions to a policy vary by each individual life insurance company, and may also vary from policy to policy. It is very important for the insured to understand the exclusions governing the policy, so that plans can be made for alternative coverage in the event of an excluded event resulting in death.
Some exclusions are based on pre-existing conditions. If a company learns that a person purchased life insurance without revealing all health conditions, for example, the company may refuse to pay the death benefits. The most common exclusionary health issues are cancer, AIDS, and other life-threatening illnesses. Many companies require a physical examination in order to ensure that the covered person is basically healthy before issuing a policy. If the insured has failed to report pre-existing medical conditions which do not appear on the physical examination, the company may refuse to pay the beneficiaries. While the beneficiaries may have recourse to challenge this decision, it is a long and expensive battle which the insured probably did not intend for his or her loved ones. Therefore, it is very important to be honest with your insurance company about all of your health issues and pre-existing conditions before purchasing a policy.
There are some common exclusions which are not health-related, but rather are based on events which take place after the issuance of the policy. If one of these events occurs and results in the death of the insured, the insurance company may use them as a reason not to pay the death benefits. The most common exclusions are suicide, acts of war, aviation accidents, and dangerous activities.
Suicide is probably of the most concern to the average policyholder as an exclusion from payment. No one can predict a person’s state of mind in the future, and many people have bought life insurance policies in good faith, only to suffer a terrible depression resulting in suicide which prohibited their loved ones from collecting the life insurance benefits as they intended. However, most suicide clauses have a limited term, often two years. If a person commits suicide after the term expires, the death benefit will still be paid. Companies include this exclusion to prevent people from taking out large insurance policies when they have determined to end their own lives, but wish to provide for their loved ones.
Acts of war are often excluded from life insurance policies, as those engaged in combat may reasonably anticipate that they will be placed in serious jeopardy. Military men and women often have trouble obtaining regular life insurance as a result of this exclusion. However, the armed forces offer special insurance policies for combatants, although the premiums are often much higher than regular life insurance. Acts of war can also include domestic terrorism or other unforeseeable events, so it is important to check your policy carefully for events which can result in non-payment of benefits.
Aviation accidents are also usually excluded from life insurance policies. Aviation exclusions usually apply only to private aircraft and not commercial flights. This is because private aircraft have a far higher rate of accidents than commercial airlines, and private flights are not regulated as closely as commercial flights. A pilot or passenger in a private plane must seek other forms of insurance, often at a higher premium than general life insurance policies.
Dangerous activities are also excluded from many life insurance policies. Dangerous activities are things that people do knowing there is a high probability of injury or death. Examples might include scuba diving, sky diving, or certain sports. It is important to talk with your insurance agent about all of your hobbies and activities to ensure that you know which ones are not covered by regular life insurance.
While many policies have exclusion clauses, most companies will allow the insured to purchase special protection which overrides the exclusion. This special coverage is called a “rider” to the original policy. It is often cheaper to purchase a rider than to purchase a separate policy to cover the activity in question.
When considering a purchase of life insurance, it is important to discuss all aspects of the policy with your agent and understand all of the possible exclusions to your coverage.
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