Many people believe that a life insurance policy will pay out to their beneficiaries in the unfortunate event of their death. However, almost every life insurance policy excludes coverage of certain types of deaths. Life insurance companies will try to use these exclusions to deny life insurance claims whenever possible. It is important for beneficiaries to understand these exclusions because, depending on how the exclusions are written and the circumstances of the insured’s death, they may not apply.
Death by suicide is excluded in most life insurance policies. It is also extremely likely that the insurance company will contest any claim on the life insurance policy made within the contestability period if the insured’s death was by suicide. This is because life insurance companies do not want people to commit suicide shortly after getting life insurance coverage just so they can leave their family something. However, beneficiaries may be able to fight a denial of their claim by submitting a police report showing the case of death. Also, just because the insured’s death was caused by suicide does not mean the policy will be automatically denied. Sometimes companies will refund the policy premiums.
Life insurance policies often exclude deaths caused by substance abuse because they are deemed self-inflicted. These clauses can be written very broadly, which can create problems for beneficiaries because life insurance companies may try to contest claims if any substance was involved with the insured’s death in any way. Therefore, it is extremely important to review and understand this exclusion so that a challenge can be made when appropriate.
Similarly, some life insurance policies will exclude deaths caused by illegal activities. These activities can include driving while under the influence of substances, consumption of illegal substances, the commission of a crime, or similar illegal activities.
Depending on the circumstances, life insurance policies may exclude the death of an insured if it was the result of a murder. For example, life insurance policies will often deny a beneficiary's claim if that beneficiary murdered the insured. In this situation, the beneficiary that is suspected of murdering the insured will not receive a payout until they are no longer a suspect in the insured’s murder. Life insurance companies may also deny a claim if the insured was murdered during the commission of a crime.
Some policies will exclude deaths that were caused by an act of war. This exclusion usually only applies to civilians killed in a war.
Finally, life insurance policies may exclude deaths caused by hazardous hobbies and activities. Amateur racing, paragliding, and scuba diving are all examples of risky activities. Claims made based on deaths resulting from these activities. If the insured lied about participating in these activities on the life insurance application, the life insurance company may cancel or void the policy altogether. In some situations, the life insurance policy may only define some activities as hazardous. So, it is important to know what the life insurance policy defines and does not define as a hazardous activity that will result in the denial of a claim.
Experiencing the death of a loved one is a difficult situation. In addition to the loss of the loved one, family members are usually dealing with issues related to the deceased person’s estate, including any payout from life insurance policies. However, if the life insurance company contests the payout, or even threatens to cancel the life insurance policy, based on things the deceased loved one may or may not have said on the life insurance policy, it can create additional fear and confusion. It is important to understand why, how, and when a life insurance company can contest a life insurance policy based on material misrepresentations.