What Does Life Insurance Not Cover?

Life insurance gives your family financial protection in the event of your death. In exchange for a monthly life insurance premium, an insurance company promises to pay a lump sum to loved ones that you name as beneficiaries of your policy. Your family can use the funds to cover burial expenses, supplement their income, pay off debts and fund higher education. When you sign up to provide your family these benefits, you sign a contract saying you agree to certain terms. Generally, life insurance contracts specify circumstances in which the insurer won't pay a claim. Knowing what life insurance does not cover can help you feel certain that your family will receive payment if you die.

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What Does Life Insurance Not Cover?

In general, life insurance covers deaths due to:

• Natural causes like a heart attack, infection or cancer
• Accidents like car wrecks, accidental drug overdoses, poisoning and drowning
• Murder
• Suicide
• Pandemics

Most life insurance does not cover:

• Deaths due to a risky activity such as mountain climbing, piloting a plane or scuba diving
• Deaths due to jobs that are classified as high risk such as mining, oil drilling and logging

If you engage in risky recreational activities or have a job that puts you at an increased risk of injury, you can usually still obtain life insurance coverage. Your premium will likely be higher than what other people who are of similar age and health would pay. Should you die from a cause other than the activity or job, the policy would still pay your beneficiary. 

For What Reasons Will Life Insurance Not Pay?

Even if you die from a covered cause, your life insurance may not pay a claim under certain circumstances. Some excluded reasons include some situations of suicide and murder as well as information fraud and expired terms. More detail is provided below.

Suicide That Takes Place Early in the Life of a Policy

Most life insurance policies have a contestability period of roughly two years. If you were to commit suicide during this time frame, the insurer wouldn't pay. The purpose of this clause is to prevent people from taking out policies with the intention of committing suicide to pass wealth on to their families.

Murder Committed by the Beneficiary

Under the Slayer Rule, if the beneficiary of your policy is convicted of killing you, they likely will not receive the life insurance payout. Instead, the money would go to your contingent or backup beneficiaries. If your beneficiary is accused of killing you but acquitted of charges, the insurer may still cover your death.

False Information on Applications

Lying on a life insurance application is illegal under insurance fraud laws. If you are caught in a lie, you could face legal trouble and the policy would probably be canceled. If the insurer determines that you provided incorrect information after your death, the company will usually reject the claim. When applying for life insurance, provide accurate information about: 

• Your health
• Your family's health history
• Whether you smoke
• If you drink alcohol or use recreational drugs
• Engaging in risky activities
• Working in a risky field
• Your travel plans
• Exposure to a contagious illness

Expired Terms

Life insurers offer two main types of insurance: term and whole life. A whole life policy remains in effect until you die. Term life insurance lasts for a certain period and then must be renewed. Most policies have terms of one to 30 years. If your term life policy expires and you don't renew it, life insurance will not cover your death.

Is Life Insurance Only for Death?

Whole life insurance builds a cash value over time. Having this type of insurance may benefit you before you die by:

• Serving as collateral for a loan. You may be able to pledge your life insurance policy for a loan agreement. A financial institution will usually let you borrow an amount equivalent to a certain percentage of the cash value of your policy. If you fail to repay the loan, the bank will seize the policy to recoup the money.
• Covering expenses. If you need money to supplement your income in retirement or pay for a major purchase or expense, you may be able to withdraw from your whole life insurance policy's cash value. You may also be able to surrender or sell the policy to obtain its full cash value.

Some life insurance policies have an accelerated death benefit or ADB rider. This provision allows you to receive a lump sum payout if you're diagnosed with a terminal illness and meet other eligibility requirements specified by the policy. The lump sum is deducted from the death benefit. Your family receives less money when you die, but you'll have money available to cover medical treatments and other expenses.