Having life insurance in place is one way to ensure that your loved ones are looked after when you’re gone.
There are different types of life insurance, with varying benefits, that can cater to your needs and personal circumstances. However, on some occasions, your beneficiaries — the nominated person(s) to receive the death benefit — may not be entitled to the pay out, or may not receive the full amount.
It may seem unpleasant, but these occasions could include committing suicide, living longer than expected, or withholding information on your application.
Let us explore further some of the times when your life insurance policy may be invalidated.
1. Taking Your Own Life
In most cases, life insurance does cover and will pay out to beneficiaries in the event of suicide. However, this is within certain requirements.
For example, a life insurance provider will most likely cover death by suicide if the policy has been in place for a certain period of time. This is usually two years but can vary between one to three years, depending on your policy and location. Suicide is the only cause of death that has its own exclusion period.
This means that if someone was to take their own life within the first two years of the policy, their beneficiaries would not be eligible to receive the death benefit. Again, depending on the policy, your loved ones may receive compensation for the premiums already paid into the insurance in this case. However, if the policyholder were to pass away from suicide after this period of time, say after four years, then the beneficiary would receive the full value of the death benefit.
Another necessary requirement is to disclose all mental health conditions during the application process. It’s possible that the insurance claim will be rejected, if the company discovers that the policyholder lied on their application about a history of clinical depression, for example.
In accordance with The Insurance Bulletin, one of the biggest reasons why a life insurance death benefit may be limited in the event of suicide is that insurance providers do not want to incentivize people to take their own lives.
This is because they do not want to encourage the idea that someone who is having suicidal thoughts may be reassured by the fact that their loved ones will be provided for through their life insurance policy if they were to take their own life.
2. Outliving Your Term Life Insurance
Term life insurance involves a stated death benefit for a set period of time only. If you pass away during this period of time, then your beneficiaries will receive the full death benefit.
However, if you were to live longer than the term covered by the insurance, and do not take out any further policies, then your loved ones will not receive anything when you die. For example, if you applied for a policy at the age of 30, and your life insurance is set for a 40-year period, you will be covered up to the age of 70. If you were to pass away after you’ve reached the age of 70, you will not be covered by the original term life insurance.
If you were to take out a whole life insurance, then your life insurance will pay out the death benefit, as you are covered until your death with this type of policy.
3. Lying Or Withholding Information On The Application
As previously mentioned, non-disclosure of any mental health illness on your insurance application can lead to a rejected claim in the case of suicide.
The same principle also applies to physical illness. In fact, one of the main reasons for a life insurance policy not paying out to your beneficiaries is because of fraud on the application or non-disclosure of the relevant information.
Chris Stocker with Diabetes Life Solutions mentions “A person needs to be honest when applying for life insurance coverage. In the event you pass away in the first two years of the policy, an insurance company will contest the claim. Meaning they can investigate your health history and order medical records. Many people apply for non medical exam insurance, and might not be one hundred percent honest. For life insurance for diabetics, companies will definitely review your diabetes history if you die during the contestability period.”
For example, if you were diagnosed with cancer, and do not inform the insurance company or withhold this from your application, then on the occasion of your death, the claim can be rejected and the death benefit may not be paid.
If you pass away within a short period of taking out the policy, the life insurance provider may investigate further, accessing your medical records or autopsy results to determine if any information was not disclosed properly.
It is therefore essential that you are completely honest when applying for any type of life insurance.
These are just some of the reasons that a life insurance policy may not pay out. Other circumstances can include if you were to miss paying the premiums for the insurance or do not inform the company of any changes that have happened in your life.
If you are interested in even more lifestyle-related articles and information from us here at Bit Rebels, then we have a lot to choose from.