7 Ways Life Insurance Will Not Pay Out
When purchasing a new life insurance policy, many people don’t consider that there could be a specific situation in which the policy does not pay out to the beneficiary.
A life insurance policy is a contract, and just like with any contract, you should read the fine print before signing it. The fine print is where exclusions are disclosed regarding specific circumstances that 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. Here are seven specific situations in which life insurance will not pay out.
A common circumstance in which a life insurance policy will not pay out is in the case of suicide. Depending on what state you live in, there could be a suicide clause in your policy. If there is such a clause, and if you were to commit suicide within the specified time frame, your beneficiary would only get the premiums back, not the death benefit.
This suicide clause is an incontestability clause, a window of time during which the insurance company can investigate and deny claims. The period is usually one to two years in most states, and it begins as soon as the insurance policy goes into effect. The clause protects life insurance companies from people who would take out a large policy and then commit suicide for the “betterment” of their family’s financial situation. The thought of doing something like that might seem bizarre to most people, but before the incontestability “suicide clause” went into effect it occurred more often than you might think.
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 have a condition such as high blood pressure. If the insurance company finds out otherwise during this one- to two-year period, it has the right to cancel your policy.
Asking if you smoke or if you have ever smoked is a pretty standard question on any life insurance application. Maybe you quit smoking a couple of years ago. 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. Some insurance companies might classify you as a non-smoker if you haven’t smoked for a couple of years. For others, it might take five or 10 years of not smoking before you’re considered a non-smoker.
Where something like high blood pressure is concerned, this is a perfect example of the importance of being 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, and then you die in a manner that seemingly has nothing to do with your high blood pressure — maybe in a car accident — within the period of contestability. The insurance company could assert that you did have high blood pressure and that it could have been the cause of your death. See how that works?
Keep in mind, too, that while this contestability period is in force for a specific period of time — typically one or two years — there is also a material misrepresentation clause, and that’s permanent. That clause has to do with intentionally withholding information from the insurance company to improve the chances that your application will be approved. A good example, again, is smoking. This clause still applies even if a claim has already been filed.
3. Dangerous Activities
You may have heard of professional athletes having a certain clause in their contract that does not allow them to participate in what are considered dangerous activities. That could be something fairly obvious, like skydiving, or even something far more common, such as riding a motorcycle.
The same applies to a life insurance policy. Think about it. Life insurance is all about risk management. If you are jumping out of an airplane with a parachute (that may or may not work) on your back, you’re a higher-risk applicant than someone who doesn’t engage in that kind of activity. It’s best to be honest about your risky 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 to be protected.
4. Illegal Activities
This goes back to that earlier statement about common sense. If you die while committing a crime or participating in an illegal activity, the life insurance company can refuse to make a payment. For example, if you are killed while stealing a car, your beneficiary won’t be paid.
Okay. That one’s fairly obvious. But this next point might surprise you. What if you’re doing something illegal and you don’t even realize it? Maybe you’re walking on private property. Trespassing is a crime — even if you don’t know you’re trespassing. Let’s say you’re being chased by a big dog, and you have a heart attack and die. If it turns out that you were trespassing, your claim could be denied.
5. Act of War
Some life insurance policies have an Act of War exclusion. It’s not designed to exclude soldiers. Rather, it’s in place to deny claims for civilians who are killed in wars or by acts of war, such as journalists whose job takes them into the midst of battle on a regular basis, or people who travel to regions of the world where there’s armed conflict.
6. Living Outside of the United States
Here’s one you may not have considered. Let’s say you take out a life insurance policy while you’re living in the United States, and then you move to another country. There could be a clause in the policy 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 the U.S. in the near future.
The insurance company is going to investigate the cause of your death. You can be sure of that. It will look at the events that led to your death and compare them against your original application. If the company finds that you had certain health conditions or that you were involved in dangerous activities all the way back to the time you applied for coverage and you didn’t mention them, it can deny payment on the claim.
Read the Fine Print and Get Insured With Confidence
By no means is this a comprehensive list of reasons life insurance won’t pay. These are, however, some of the more common instances.
Bottom line? Be completely honest, and don’t ignore the fine print 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 not being 100% truthful. The best advice is to be sure to read your entire insurance contract — including and especially the fine print — before you sign it.
If you’re 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’s best for you. They will read the fine print with you and help you understand what it all means, especially as it pertains to your particular situation.
When you’re 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 generally 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, and we read the fine print, too. Let’s talk about your needs and what we can do to help you.