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What does life insurance cover? And what doesn’t it cover?

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One of the most important questions about any type of insurance is: What does my policy cover?

An insurance policy is a contract between an insurance company and the owner(s) of the policy. In exchange for the premium paid by the policy owner, the insurance company agrees to pay out a contracted benefit if a legitimate claim is filed.

A policy owner should know what needs to occur before a policy claim can be filed. In addition, you should understand how much the policy will pay under certain circumstances. In some cases, insurance policy benefits limit what you can use the money for. And, you should know situations in which the policy will not pay out benefits.

On the surface, answering what a life insurance policy cover seems pretty simple: When the insured dies, the policy death benefit is paid to its beneficiaries. That’s true in most cases, but not always.

Here is an overview of what life insurance covers and what it does not.

What types of death does life insurance cover?

Standard life insurance policies will pay out a death benefit claim for almost all causes of death, as long as the policy is active at the time of the insured’s death.

Does life insurance cover coronavirus?

If you have an active policy before contracting COVID-19 and subsequently die from the disease, your policy should pay on the claim.

Learn More: Life Insurance & Coronavirus

Does life insurance cover natural death?

Nearly any type of natural death will be covered, as long as the policy was active at the time of death. This includes death by old age, heart attack, cancer, respiratory illness, stroke, kidney disease, or other types of diseases.

Learn More: Life Insurance & Cancer

Does life insurance cover accidental death?

If you die as a result of injuries due to a workplace incident, car accident, accidental shooting, or similar cause, your policy should pay out the benefit. Even if the accident was your fault, your policy should pay unless you were in the act of committing a crime or illegal act when you were injured.

Does life insurance cover homicide?

If you are intentionally killed by another person, your policy death will be paid. Keep in mind that the insurance company may delay payment until your death is fully investigated. The policy benefit will not be paid if the beneficiary played a role in the murder.

Does life insurance cover suicide?

Life insurance policies typically pay claims for death caused by suicide, as long as the suicide clause period has expired. This period is typically the first two years of the policy.

Additional things life insurance may cover

If you include one or more life insurance riders on your policy, it may cover more than just the life of the insured. Examples include:

  • An accidental death benefit rider increases the policy’s contracted death benefit should you die as the result of an accident. Learn more about accident insurance.
  • An additional insured rider can provide a death benefit on the life of a second person, such as your spouse.
  • A child rider can provide a small death benefit for any children that the main policy insured.
  • A disability income rider can pay a monthly benefit to an insured person who suffers a disability that affects their ability to work and earn an income. Learn more about disability insurance.
  • An accelerated benefit rider lets you — or your beneficiaries — receive a portion of your contracted death benefit prior to your death if you are diagnosed with a terminal illness.
  • A critical illness rider pays a benefit in the event you are diagnosed with a chronic illness. Learn more about critical illness insurance.
  • A long-term care rider provides monthly payments if you become confined to a nursing home or other long-term care facility. Learn more about long-term care insurance.

How beneficiaries can use life insurance

There is usually no limitation on what a life insurance policy beneficiary can do with the death benefit they receive.

Traditionally, life insurance is meant for income replacement. In the event you die, the policy’s death benefit to its beneficiaries helps replace the income that is lost. Those beneficiaries can use that money to:

  • Cover bills and household expenses. If your income contributed to the household budget, your death would create financial stress without life insurance. Beneficiaries, such as your spouse and children, can cover your share of the family expenses if you die.
  • Pay off existing debts. A life insurance death benefit can alleviate some of the financial stress of your loss by helping your family pay off the mortgage or pay off existing credit card debt, student loans, or auto loans.
  • Pay for children’s education. The life insurance death benefit can be used to help fund college tuition for your children.
  • Child care expenses. Stay-at-home parents should also be covered by life insurance. That’s because the surviving parent will likely have to pay for child care expenses if the caregiving parent dies.
  • End-of-life expenses. A common use for life insurance is to help pay for funeral costs and any medical expenses incurred at the end of the deceased’s life.

[ Related Read: 10 FAQs About Life Insurance Beneficiaries, Answered ]

Reasons why life insurance claims are denied

Although it doesn’t happen often, insurance companies may reject a life insurance claim for the following reasons.

The policy lapsed

This occurs if the policy owner stopped paying premiums. It could also result if the term ended on a term policy before the insured died.

There were misrepresentations on the policy application

Most life insurance policies have a contestability period. If the insurance company finds material misrepresentations on the application during this period, it can deny a claim.

For example, if the insured’s age or health condition was not accurate on the application and the insurance company discovers this during the contestability period, a claim can be denied. Once this period expires, the insurance company has no legal recourse if it finds inaccurate application information. Contestability periods are typically the first two years from the date of issue.

The insured committed suicide

Insurance policies also typically have a suicide clause. This states that the insurance company will not pay out a death benefit if the insured commits suicide within the first two years of purchasing the policy.

The insured died while committing a crime

Life insurers will not pay a death benefit if the insured died while participating in illegal activity.

The cause of death was listed as an exclusion on the policy

In addition to suicide and committing a crime, there are other causes of death that may be excluded in a life insurance policy. A policy exclusion is a scenario under which the policy will not pay a death benefit. Other Common exclusions for life insurance include death as a result of war or participation in a risky activity such as skydiving or auto racing.

The policy beneficiary murdered the insured

An insurance company won’t pay out a claim if the policy beneficiary is found guilty of murdering the insured.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published March 15, 2021
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