Buying life insurance is an important decision in life. A policy can provide a secure benefit for your loved ones left behind and protect your estate, in the case of your unfortunate passing.

This peace of mind is invaluable… but are there times where your life insurance company might not pay out on your coverage, were you to die?

In fact, there are. Depending on your policy, your lifestyle, and even the circumstances surrounding your death, your insurance company could choose to deny your policy benefit in the end.

Let’s take a look at these types of situations, and how you can avoid leaving your family with denied coverage.

Terminal Illnesses

Serious illnesses are an unfortunate, but unavoidable, part of life for many of us. Cancer, for example, is particularly prevalent, and approximately 38.5% of men and women will be diagnosed by cancer (of any site or severity) at some point in their lives. So, if you were to get sick and pass away from cancer, or another serious disease, would your insurance policy pay out a benefit to your family?

The answer depends on the type of life insurance you purchase. If you buy term or whole life coverage, illnesses and diseases are indeed covered. There may be other factors involved in the claim approval, which we will touch on below, but the claim will not be denied based on the cause of death alone.

However, if you instead purchase a policy called Accidental Death and Dismemberment (AD&D) insurance, illnesses like cancer may not be covered under the terms of your policy. This is because, as the name suggests, AD&D policies typically pay claims only for deaths that are accidental in nature. Because AD&D policies are more limited in scope, they are often less expensive than other options, such as term insurance.

If you want to ensure protection against serious, terminal illnesses like cancer, you’ll need to purchase a term or whole life policy. An accidental death and dismemberment rider can often be added to these more comprehensive policies, adding even more benefits for your family. With such a rider, a person’s accidental death would be covered by the base term policy as well as an additional benefit paid from the rider.

Suicide

There’s a common misconception out there: if someone commits suicide, their family will not receive a life insurance payout. This is true in some instances, but the reality is that many life insurance policies actually will pay out on a claim related to suicide. The caveat rests in both the type of coverage held and the age of the policy.

As with terminal illnesses above, AD&D coverage will not cover self-inflicted deaths, as they are not accidental in nature. The same applies to drug overdoses, even if they are unintentional and not an attempt at suicide.

Term and whole life coverage, on the other hand, will usually pay out after a suicide, as long as the policy has reached a particular age. Typically, the timeframe is two years from the purchase of coverage. This caveat, called a “suicide clause,” is an effort to prevent those considering suicide from hurrying to purchase coverage prior to their death.

High-Risk Activities

Most life insurance policies have pages and pages of fine print, which include the types of activities for which a death benefit will not be paid. For a number of them, this includes the participation in a dangerous, high-risk hobby or activity. Such activities include extreme sports like bungee jumping, skydiving, rock climbing, or hang gliding.

If you regularly participate in these sorts of activities, you’ll need to disclose this on your life insurance application. By doing so, you open yourself up to a possible denial for coverage or, if you are approved, a potentially higher rate for “high-risk insurance.” But, failing to do so could be even more impactful.

Failing to tell your insurance company about these sorts of dangerous hobbies can subject your family to the denial of a claim, were you to accidentally die while participating in such an activity. This is especially true in the first two years of the policy, which is often considered a “period of contestability” in most states. This contestability period gives the insurance company the right to deny death benefits based on omissions or untruths in your application.

While you will likely pay more for coverage by being a daredevil, the extra payment is worthwhile… especially when the alternative could be a denied death benefit for your loved ones left behind.

Lying on the Application

Taking the last section a step further, let’s talk about how deceit on an initial application can impact coverage.

Failing to disclose a number of habits, histories, or preferences, or including other types of material misrepresentation, can result in a denied or delayed payout if you pass away during the contestability period. A death in these first two years typically results in an investigation, during which the insurance company will gather your medical records; statements from family, friends, and acquaintances; your autopsy; and more.

If it’s discovered that you intentionally misled the insurance company during your application process, your entire claim could be denied. For example, let’s say that you claim to be a non-smoker, but pass away a year and a half later from lung cancer. The insurance company would certainly investigate your claim before paying out to your family, to find out if you had lied on your application or not.

The same applies if you claim to be a low-risk client, but then die in a freak scuba diving accident. The insurance company would investigate you and your past; if it’s discovered that you’ve actually been an avid cave diver for 20 years and lied to snag lower premiums, your entire death benefit could be jeopardized.

Act of War

Most insurance companies have a “war clause” in their fine print, excluding payouts for those who are killed as an act of war. While this doesn’t usually cover terrorism, it does cover those fighting in a war, or often times, those who die in a country that’s actively involved in war.

You’ll need to be sure to read the fine print on your specific policy to know what is and what is not covered. However, it’s typically the case that if you are military and are deployed, your insurance company will not pay out if you are killed in action. In response, military members are provided with special deployment insurance, which takes care of their beneficiaries during this time.

If you choose to travel to a country that is actively involved in war, you should first contact your insurance company to discuss the travel. Otherwise, if you go and pass away during your trip, your death benefits could be denied or at least delayed.

Lapses in Coverage

It should go without saying, but if you let your life insurance coverage lapse – either by failing to pay your monthly premiums or failing to renew after the end of your term policy’s time frame – your death benefits are likely to be denied. While grace periods are occasionally offered (typically, 30-31 days), they’re on a case-by-case basis and depend on the insurance company and claim details.

To be safe and ensure that your loved ones are continually covered by your life insurance policy benefits, set up an auto-pay for monthly premiums or even prepay for coverage. Maintain communication with your insurance agent, and begin talking about renewals or look for alternate coverage at least a few months before your term life policy is slated to end.

Buying the Right Coverage

The right type of life insurance for you depends on many factors. Once you’ve decided how much coverage you need and when to buy a policy, you then need to decide how your life will impact coverage.

If you are a high-risk client – engaging in risky activities on the weekends, for example – you’ll need to disclose these types of things to the company. It’s also incredibly important to be honest on your application, mentioning health concerns and diagnoses, as well as disclosing lifestyle choices.

If you want your life insurance coverage to pay out for both accidental and natural deaths, a term life policy is necessary. If you only want to insure against accidental deaths, an AD&D policy can be a more cost-effective (but limited) option.

Keep in mind that if you pass away within the first two years of buying your policy, the payout can be subject to investigation. If your death is the result of suicide during this timeframe (or if you only have AD&D coverage), your claim will likely be denied.

Lastly, it’s always important that your coverage is up-to-date and valid. Paying premiums on time each month and not allowing a term policy to lapse are key to providing death benefits to those that you would leave behind.

If you want to learn more about the types of coverage available and find the policy that best matches your situation, contact one of our certified life insurance coaches. The consultation and quote are free, and can help you decide exactly what kind of life insurance you need.