The primary benefit of life insurance is security and peace of mind, as it provides a financial safety net for your loved ones if you pass away. However, it’s important to remember that the circumstances of your death can play a role in how, and if, your life insurance benefits are successfully distributed.
Depending on the timing or manner of your death, your carrier may decide not to pay out your life insurance policy. To ensure that your beneficiaries get the support they need if you pass away, you should have an understanding of the reasons why your payout might be withheld. In this article, we’ll walk you through circumstances in which your life insurance benefits may be denied.
Reasons Why Life Insurance Won’t Pay Out
If you pass away from illness, an accident, or natural causes, your carrier will typically pay out your policy’s benefit without issue. However, regardless of the manner of death, there are two primary reasons why a life insurance payout may be declined.
Lying on your application, such as failure to disclose details about your health history, risky hobbies, or medical conditions, can not only result in your death benefit being declined but could also lead to your policy being investigated for fraud. Be as honest as possible during the underwriting period to avoid this and to ensure your policy is paid out.
Not having listed beneficiaries can slow down the process of collecting your death benefit. Be sure to designate both primary and contingent life insurance beneficiaries to ensure your benefits are distributed according to your wishes and avoid going to probate.
What types of deaths does life insurance not cover?
Life insurance typically covers deaths from illness, accidents, murder, or natural causes. However, coverage may be denied depending on the manner of death. Common causes of death that may cause your payout to be denied include:
Suicide During Your Contestability Period: Most life insurance policies cover suicide, but only as long as it occurs more than two years after the policy goes into effect, also known as the contestability period. If a death by suicide happens within this contestability period, it will typically not be covered.
Murder Committed by a Beneficiary: Your life insurance payout may be denied if you’re murdered by a beneficiary of your policy. Sometimes referred to as the “slayer rule,” this stipulation prevents a payout to anyone who committed the murder or was closely related to it. In this case, your contingent beneficiaries will receive the death benefit instead.
Death From a Risky Activity: If your death results from a high-risk behavior or hobby, like scuba diving, rock climbing, or bungee jumping, it could impact your policy’s payout amount or whether it’s paid out at all. If you frequently participate in risky hobbies or activities, you may have to modify your policy with additional riders. For example, private pilots often have to add a rider to their policies that excludes coverage for death in a flying accident.
Death While Committing a Crime: Life insurance policies typically contain a provision that addresses benefits in the event of death occurring during the commission of illegal activities. This provision varies by policy and insurer, but it generally states that benefits may be denied if the insured's death is directly or indirectly related to illegal activities. Engaging in illegal activities that lead to the insured's death could be considered a material misrepresentation, which can result in the denial of benefits.
Death From a High-Risk Job: Your occupation can not only impact your life insurance rates but also your payout. Industries that a life insurance carrier may consider high-risk include, but aren’t limited to, fishing, mining, law enforcement, military, aviation, and firefighting. Carriers gather information about your occupation during the life insurance application process, so if you pass away from an accident resulting from a high-risk job, your benefits may not be paid out.
Does life insurance cover accidental death?
Most life insurance policies include coverage for accidental death, which is typically referred to as accidental death and dismemberment (AD&D) coverage. AD&D coverage provides benefits in the event of the insured's death or certain bodily injuries resulting from an accident. In addition to the death benefit provided by the base life insurance policy, AD&D coverage offers an additional benefit if the insured's death is deemed accidental. This benefit is typically paid in a lump sum to the designated beneficiaries. AD&D coverage may have exclusions for deaths resulting from illness, natural causes, self-inflicted injuries, or injuries sustained while engaging in hazardous activities or illegal acts.
Understand Your Life Insurance Policy Details With SelectQuote
Before you buy any life insurance coverage, it’s important to know exactly what is and isn’t covered. At SelectQuote, we’ll help you carefully review your life insurance application and assist you in answering all questions about your health, habits, and work honestly. This transparency can be the difference between financial security for your loved ones or a denial of coverage. If you have questions about whether a life insurance policy may cover specific events, whether it’s a risky activity or accidental death, our team can compare policies from some of the most trusted insurance companies in the nation to help find life insurance coverage that works for you.
