One of the least known but most important terms and phrases that you cannot escape knowing about life insurance is – life insurance exclusions. Exclusions are situations that stand in the way of your beneficiaries’ receiving the insurance benefit. That is, they are situations that may disqualify your heirs from being recipients of the death benefit.
You buy life insurance with a view for your heirs not to being deprived of receiving the death benefit. But if you pass on falling in the exclusions, you may leave them in a very undesired situation. And, you very well can imagine how your beneficiaries will be affected if so happens. This is why, you should be aware of the situations that may create instances of life insurance exclusions.
However, the exclusions mainly apply to term life insurance. Term life insurance is, you know, is made solely for the death benefit.
Theoretically speaking, whole life plans should not have instances of exclusions as they involve investment. But when it comes to death benefit, they may also involve situations that may affect your beneficiaries.
Good news is you don’t require an attorney in order for you to understand the exclusions. You can do it very simply—carefully reading the policy that your insurer hands over to you when you become their customer.
A list of life insurance exclusions may cover quite a few asterisk or bullet-point pointers. But, we are pointing out the most prominent ones of them that apply generally to all or most companies.
A waiting period is the time till the end of which the death benefit does not convert. Typically, this waiting period varies from 1 anniversary year to 3 years. Two years is the most common.
Technically speaking, the waiting period does not fall in the life insurance exclusion category. But, if you die within this period, your beneficiaries will receive only the amount or part of the premiums you have paid.
This is especially true when the policyholder commits suicide.
Willful or not, if you provide any false statement or information to your life insurer, your heirs will have trouble getting the coverage. Every life insurance company retains the right to contest or challenge your claims request if they find they were lied to. If they find you lied, they will exercise their right and decline to pay the coverage.
Note that there are numerous cases where life insurance claims have been denied. Usually, such cases go to arbitration or suit.
Criminal activities are one of the life insurance exclusions that stand in the way of the beneficiaries’ receiving benefits. Criminal activities are intentional and deliberate that put the policyholders’ lives at risk. As a matter of course, such acts will deprive a beneficiary from getting the death benefit.
If a policyholder dies of drug abuse, the insurer may contest the claim request. However, if the overdose is not intentional with a view to doing harm to himself, life insurance exclusion rule will not apply. That means if someone takes overdoses of drugs with a view to committing slow or instant suicide, exclusion provision applies.
Alcohol abuse also may similarly affect your heirs in a negative way.
Habitually Dangerous Activities
A policyholder’s beneficiaries will face the life insurance exclusion if he dies out of activities that he professionally or habitually (for hobby) performs. Often, life insurance companies are reluctant to sell products to them. But, if such a person returns to dangerous activities after he has signed up on a policy, exclusion will apply to his case.
This does not directly fall in the life insurance exclusion list. But somehow it is related to denial of benefit. If a beneficiary kills a policyholder so that he may receive the death benefit, he will not receive anything if it is legally proven. The benefit, in that case, will go to the next innocent beneficiary.
You will probably have a bit of lengthier lists of life insurance exclusions on the web. For example, many will refer to wars or diseases like AIDS to be instances when the claims process will stumble. We have kept them off our list because life insurance exclusion can be very company-specific. Also, the terms and conditions of life insurance companies are evolving from more rigid to more liberal these days. So, what is an exclusion today with a certain company, may not be the same next time with the same company.
This is why, as we have told you before, read your policy well when you have it. And, do it before well ahead.