Life insurance is a legal agreement between a policyholder and an insurer. The insurer agrees to pay a cash benefit to the named beneficiary in the policy at the policyholder’s death. However, most policyholders don’t know that there are certain situations when insurers may not want to pay out death benefits to beneficiaries. What situations are those, and what can be done about them?
This article describes some such situations in detail. Read on to find out more!
How Does a Typical Life Insurance Coverage Function?
After the policyholder buys a policy, he pays a monthly premium to the insurer. This premium serves as death benefits. These benefits are paid out when the named beneficiary files for a claim. Usually within 30-60 days of completing and submitting the claims form, provided that the causes of death are sudden or accidental.
However, the insurer will not pay the benefits under the following circumstances:
- The Policyholder Commits Suicide
As stated in most policies, the cause of death has to be natural or accidental. It does not carry any clause for payment when the policyholder commits suicide. The only thing the beneficiary may get is the premium, not the benefit. This is how insurance companies protect themselves from bizarre people who purchase huge policies and kill themselves for their families to get a financial settlement.
- The Policyholder Withheld Information While Applying for the Insurance Plan
If doing an ongoing investigation, the insurer discovers that the insured held back some information that leads to their death, they will not pay out benefits. For instance, if the insured failed to give certain details about their health, and the cause of death happens to be a result of the withheld health issue, the beneficiary will receive no payment.
- The Policyholder Participates in Dangerous or Illegal Activities
For the insurer to pay out benefits, the cause of death has to be clearly expressed in the policy. Life insurance may not cover or pay benefits if the policyholder is involved in dangerous activities (like extreme sports). Also, if during the contestability period (when the cause of death is being investigated), it was discovered that the cause of death is a result of illegal activities, the insurer will not pay the benefits.
- The Policyholder Resides Outside The United States
Life insurance policy only covers a policyholder when they live within the country. If they pass away while living in another country, their beneficiary will not get paid. This is why it is very important to read and understand the agreement clause when buying a policy.
- The Policyholder Dies in a War or a Region of Military Unrest
Most life insurance policies exclude payment of benefit if the cause of death is an act of war. This does not apply to the military, only civilians. For instance, their insurer wouldn’t pay out the benefits to persons who travel to a region of military unrest for an adventure and get killed there. Similar rules would apply to journalists who get killed while traveling in regions of military unrest as part of their jobs. That’s because this situation is excluded from the policy.
Life insurance shouldn’t be taken lightly, especially when you truly have dependents who will benefit from it. For more details on policies exclusion and benefit payment clauses, contact our team of insurance experts at Young Insurance Agency. We are always ready to help you with all your queries on life insurance.