Life insurance is crucial to financial planning as it offers peace of mind by paying your loved ones after you pass away. But while it’s an essential tool for many, it’s important to read the small print of your policy. We take a look at 12 surprising things your life insurance policy might not cover:
Suicide
Most life insurance policies have a suicide exclusion clause, meaning they won’t pay out if you die by suicide within a certain period. Typically, if a person dies by suicide within two years of the policy opening, money will not be paid out to family members. The reason is that some people will deliberately take out an insurance policy, knowing they intend to take their own lives.
War and Acts of War
Life insurance policies often exclude deaths caused by war or acts of war, as there is no possible way to assess the risk of war accurately. If payouts were made for every war-related death, the cost for insurance companies would become unsustainable. Premiums would have to be significantly higher for everyone, making life insurance less accessible.
High-Risk Activities
Engaging in dangerous activities like skydiving or base jumping might void your policy coverage if death occurs during such an activity. If you regularly participate in high-risk activities, you may still be able to take out insurance but with a much higher premium.
Travel to Dangerous Areas
Some life insurance policies may exclude coverage for deaths in dangerous areas. This could be war-torn countries or areas where the government doesn’t advise travel, such as Iran and Eritrea. If you travel to dangerous areas for work, you should check out your death-in-service policy, as your employer might pay out when your insurance company doesn’t.
Pre-Existing Conditions
If you have a pre-existing medical condition, you should always declare it when you take out an insurance policy. If you disclosed your condition on your application, the insurer might not deny your claim or limit the payout. Some insurance companies won’t offer you life insurance if you have a specific medical condition, such as heart disease or cancer, but others may offer a policy with exclusions.
Drug or Alcohol Use
Drug and alcohol use, especially if excessive or involving dangerous substances, significantly increases the risk of death. If your death is directly related to drug or alcohol use, your insurer might deny your claim. You should check the small print before signing an insurance document and ask the company outright what their drug and alcohol policy is.
Travel During Unstable Health
Life insurance companies use a combination of factors to calculate your premium, essentially determining the risk of them having to pay out a death benefit. If you travel while seriously ill and against your doctor’s advice, you significantly increase the risk of death. This means your insurers might deny the claim if they believe the travel contributed to your death.
Fraudulent Application
If you suspect you have lied about your application, such as age, lifestyle, and health conditions, your insurers may not pay out. Misrepresenting your health or habits on the application can lead to a denied claim and leaving your family out of pocket.
Failure to Pay Premiums
Life insurance lapses if premiums are not paid on time. You should double-check your policy’s grace period for late payments and contact them as soon as a payment is missed. It is best not to bury your head in the sand about your financial difficulties, as you could risk your family expecting a payout and being devastated not to.
Certain Hobbies
Some life insurance companies might exclude coverage for deaths caused by high-risk hobbies like extreme watersports or riding a motorcycle. While this seems strict, as you could die doing more gentle hobbies, if a large number of policyholders died participating in high-risk activities, it could create a significant financial burden for the insurance company.
Estate Planning Issues
While poor estate planning won’t necessarily stop our life insurance from paying it out, it can cause significant delays. If your beneficiary designations are outdated or unclear, it can cause disputes, and there may not be a payout for many years. It is always best to seek legal advice to coordinate your financial affairs before your death to make the probate process as straightforward as possible.
Smoking
Smoking is a significant health risk, significantly increasing the likelihood of developing severe health conditions like cancer, heart disease, and lung disease. When you set up your policy, your insurance company will ask if you are a smoker. If you lie on your application or you don’t disclose that you have taken up smoking, your insurance may become invalid.
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