When purchasing a new life insurance policy, many people don’t consider that there could be a specific situation where the policy does not pay out to the beneficiary.
A life insurance policy is a contract, and just like any contract, you should read the fine print before signing it. The fine print is where certain exclusions are made known, where specific circumstances would not allow the beneficiary to receive the payment on the policy if you die.
In other words, you can’t simply take out a life insurance policy and assume you have a guarantee that a certain amount of money will be paid no matter what. Common sense will tell you that it probably doesn’t work like that, but here are seven specific ways life insurance will not pay out.
One of the more standard yet alarming instances where a life insurance policy will not pay out is in the case of suicide. Depending on what state you live in, there will be a suicide clause, meaning if you commit suicide within that time frame, the beneficiary would only get the premiums back, but not the death benefit.
This suicide clause is actually an incontestability clause, that window of time where insurance companies can investigate and deny claims. The period is typically two years in most states and one year in others, and it begins as soon as the insurance policy goes into effect. For the life insurance company, it protects them from people who take out a large policy, then commit suicide for the “betterment” of their family’s financial situation. It seems like a bizarre and unbelievable act to most people, but it used to be more commonplace than you would think—before this incontestability “suicide clause” went into effect.
2. Smoking or Another Health-Related Issue
The incontestability clause comes into play again if you were somehow less than forthright about your past smoking habits or if you somehow forgot to mention that you had high blood pressure. If the insurance company finds out otherwise during this one- to two-year period, they have a right to cancel your policy.
Asking if you smoke or if you have ever smoked is a pretty standard question on any life insurance policy. Maybe you quit smoking a couple years ago, but the insurance company will still ask if you used to smoke and how long ago you quit. It matters because the effects of smoking are long term. Your classification as a non-smoker could be satisfied by not smoking for a couple years, but depending on the insurance company, as many as five or 10 years might need to pass before you are in the clear to be labeled as a non-smoker.
Where something like high blood pressure is concerned, this is a perfect example to be completely honest when filling out a life insurance application. Let’s say you don’t mention that you have high blood pressure on your application, then you die in a manner that has nothing to do with your high blood pressure—maybe a car accident—within the period of contestability. The insurance company could come back to the fact that you did have high blood pressure and it could have been the cause of the death. See how that works?
Keep in mind that while this contestability period is in force for a specific period of time—one or two years—there is also a material misrepresentation clause, and that’s permanent. This refers to intentionally withholding information from the insurance company that would have resulted in having your application denied. In other words, you lie on your application in order to improve your chances of being approved. A good example, again, is smoking. This rule would apply even in the event that a claim has already been filed.
3. Dangerous Activities
You may have heard of a professional athlete who has a certain clause in their contract that does not allow them to participate in what is considered a dangerous activity. It could be fairly obvious, like skydiving, or even something more common, like riding a motorcycle.
The same applies to a life insurance policy. Think about it. Life insurance is all about risk management. If you are actively involved in jumping out of airplanes with a parachute (that may or may not work) on your back, you are a higher risk applicant than someone who doesn’t involve themselves in that kind of activity. So be honest about your dangerous hobbies or lifestyle when asked. If you are actively involved in one of the dangerous activities listed on the application, you can still do it, but you will need to pay for that protection.
4. Illegal Activities
This goes back to that common sense statement, but it’s worth mentioning anyway. If you die while committing a crime or participating in any kind of illegal activity, the life insurance company can refuse to make a payment. So, if you are killed when you are in the midst of stealing a car, your beneficiary won’t be paid.
That’s fairly obvious, but this next point might surprise you. What if you are doing something illegal and you don’t even realize it, like walking on private property? Trespassing is a crime, even if you didn’t know you were trespassing. So if you die while doing that—let’s say you have a heart attack while being chased by a big dog—your claim could be denied.
5. Act of War
Some life insurance policies have an Act of War exclusion in them. It’s not designed to exclude soldiers. Rather, it’s in place to deny claims for those civilians who are killed in wars or by acts of war, like journalists who finds themselves in the midst of battle on a regular basis or people who travel to regions of the world where conflict and battles are going on.
6. Living Outside the United States
Here’s one you may not have considered. Let’s say you take out a life insurance policy while you are living in the United States, then you move to another country. There could be a clause that excludes the payment of a death benefit if you are not living in the U.S. at the time of your death. Be sure to look for any mention of this in your contract, especially if you see yourself leaving America in the near future.
When it comes to life insurance, honesty is always the best policy.
The insurance company is going to investigate the cause of your death; you can be sure of that. They will look at the events that led to your death and then compare them to your original application. If they find that you had certain health conditions or that you were involved in dangerous activities all the way back to the time of your original application and you didn’t mention them, the company can deny payment on the claim.
Read the Fine Print and Get Insured With Confidence
This is, by no means, a comprehensive list of the ways life insurance won’t pay. They are some of the more common instances, however.
Bottom line, be completely honest and don’t ignore the fine print details on your life insurance policy. You don’t want to be responsible for losing the benefits on that policy because you “didn’t know” or because you thought you could get away with something by being less than honest. The best advice is to be sure to read your entire insurance contract—yes, especially the fine print—before you sign it.
If you are unsure of anything, just ask. That’s what the licensed, professional True Blue agents are here for, to guide and direct you to the insurance policy that is best for you. They will read the fine print with you and help you to understand what it all means, especially as it pertains to your particular situation.
When you are ready to apply—or even if you just have questions—simply pick up the phone and call 1-866-816-2100.
As an independent insurance agency, True Blue Life Insurance deals with all of the top insurance companies, so we will work to get the best price for you and address any concerns you may have. We deal with the insurance companies on your behalf, and the policies are issued immediately or within 48 hours, depending on the insurance provider you choose.
Finding a life insurance policy that’s perfect for you is what we do, but we read the fine print, too. Let’s talk about your needs and what we can do to help you.
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