Life Insurance Policies Exclusions—What’s Not Covered?

One of the hardest keys to acquire in today’s world is the one that opens the doors to investment. Shrewd investment is the only way to survive, and one of the most beneficial investments is life insurance, as it provides financial benefit for the family whenever needed the most. However, not all instances (like suicide) can fall under this policy. Life insurance policies have certain exclusions, and knowing these exclusions is crucial. This blog post will explore common exclusion scenarios such as suicide while shedding light on how such exclusions should be a guiding topic to help you make better choices.

1. Life Insurance Policy Exclusions Explained

To better comprehend the topic at hand, we need to answer the “What is a life insurance policy exclusion?” inquiry first. Exclusions are situations or conditions that do not get compensated under the life insurance umbrella policy. Their purpose is to allow insurers to cut losses and make profits. In the unfortunate event of an individual’s death, an insurance plan comes into effect. There is a caveat, and the insurer does not pay out if the death falls under one category or another clearly marked.

2. The Suicide Clause: Why Life Insurance Companies Will Not Pay If A Person Commits Suicide After Taking Life Insurance Policies.

One of the most controversial and regrettable exclusions of life insurance policies is suicide.

The majority of life insurance policies contain a “suicide clause” that specifies the absence of payout for the death benefit if the policyholder dies by suicide during a specific period, which is usually the first two years after taking the policy.

Why Does This Happen?

Insurance companies usually have this clause with the aim of preventing people from attempting to self-harm after taking out life insurance and maximally intending to benefit from it. Their thinking is that profiting from one’s tragic death is wrong, and even more so if the death were to be a suicide. Most policies do not cover death by suicide because of these two reasons. However, most suicidal death policies after this duration will always remember to read the fine print.

A Real-Life Example

Take this situation for an example: A woman named Sarah, who is a mother of 2, takes a life insurance policy for the sake of her children in case anything happens to her. Two months after taking the policy, she sadly takes her own life. After the two periods of Sarah’s death, her insurance company would be liable to cover the death benefit owing to the reason that Sarah died within the first two years of the policy.

3. Death from Illegal Activities: When Breaking the Law Can Void Your Coverage

Another standard exclusion of the clauses of life insurance is all sorts of deaths stemming from illegal activities.

As is the case with most life insurance policies, illegal acts are tried to be excluded from risks and coverage. For one, a death caused by robbery or drug trafficking while under a life insurance policy will warrant the policy denying any benefits to the family.

The rationale behind exclusion is solely diving into risk and how much coverage is given by the insurance company. Activities deemed illegal are borderline dangerous; therefore, death due to these circumstances is considered high risk on the policyholder’s behalf.

For instance, in the unfortunate case of John, a man aged twenty-five, getting insurance made complete sense, but the motive of engaging in risky behavior with no regard to life caused his family immense grief as he had met an untimely death while attempting to rob a bank. Engagement in such activities truly compromises the idea of living life to its fullest.

Another approved life insurance policy comes with complete freedom to live life, except for some high-risk activities like scuba diving or racing cars. Taking into account the overly ambitious decision-making we live in today, it is not a huge surprise why insurance policies have started to clamp down on covering racing.

A few plans specifically deal with those activities and even issue extra coverage for them, but they usually limit the scope of those extra features and charge high premiums.

Reasons for High-Risk Activities Exclusions.

Engaging in those activities is likely to result in an increased chance of an accident or death. For example, people who participate in extreme sports or any other dangerous hobbies are more likely to get hurt or die. Since life insurance policies protect people from unforeseeable incidents, insurers always want to steer clear of activities that are dangerous by nature

A Case in Point.

Tom is an ardent skydiver and is able to perform a lot of dives. He takes out a life insurance policy but does not inform the insurance company regarding his hobby. Unfortunately, he suffers an accident while skydiving and dies. The insurance company would arguably not be liable to pay the claims, in particular, because the hobby was not disclosed at policy issue.

Death Caused by Intoxication Using Drugs or Alcohol: Exclusions due to Intoxication.

One caveat is that most life insurance policies have added an exclusion for his death by reason of drug or alcohol use.

If an intoxicated policyholder passes away, their claim may be denied. 

Why Is This A Possibility? 

Insurers see the demise of alcohol and drug abuse as a terribly hostile situation, just as they do with illegal actions that serve as a dire peril. People who indulge in such undisciplined behavior as drinking and driving put themselves in a perilous situation. While life insurance policies provide safeguards for unintentional death, the insurance provider will always seek an opportunity to disclaim the peril under the policy. 

A Real-Life Scenario 

Mark is a forty-year-old with a habit of “taking the bottle” too much. One fateful night, he is in a car accident due to overconsumption of alcohol. Given the circumstances of death (driving under the influence of alcohol), his family stands no chance of claiming benefits from the insurance company. 

4. War and Terrorism: Global Conflicts Affect Coverage Edges With Life Insurance Policies 

Many life insurance coverage policies do not cover passing due to terrorist strikes or war aid. This is especially common for people in the military or residing in areas affected by conflict.

With some policies, you may receive an additional payout for death caused by war. But, as a rule of thumb, insurers purposely do not provide coverage for the risks incurred during a global armed conflict.

Why Do Insurance Companies Want to Stay Away from War and Terrorism?

When you have a policy, risks such as war and terrorism are usually excluded because they are, by nature, highly unpredictable. More so, they are beyond the control of the policyholder or even the insurer. These risks usually entail mass destruction or loss of life, so, insurance providers would most likely exclude them to be on the safe side.

Real-Life Example

A good case is Rachel, who lives in a politically unstable country and holds a life insurance policy. Terrible as it is, a terrorist attack occurs, and Rachel is unfortunately a casualty. Most insurance providers would classify her as an outlier and not have to exhibit her death under the benefits due to terrorism unless her policy outlines a specific inclusion for terrorism.

5. Acts of Self-harm: When Actions that are Intentionally Self-Inflicted are Not Covered by the Insurance

Oftentimes, life insurance policies do not provide coverage after an individual attempts self-inflicted injury. Not only does this statement cover attempted suicide, but it also includes any injury inflicted by the policyholder.

This is included by insurers in order to combat claims fraud and avoid making life insurance a tool for self-destructive behavior.

Why does this exist?

The fundamental logic behind the restriction on self-harm is that life insurance is taken so that one does not have to deal with death, whether through an accident or some other means. Self-harm is therefore viewed as an act that violates the existence of life insurance.

A case that vividly illustrates the situation.

Susan holds a life insurance policy but grapples with some mental health challenges. One day she tries to take her life but does not succeed. There are policies in some life insurance companies to not cover the expenses associated with attempted suicides, and in this case, they may also not pay for her injuries incurred in the process.

CONCLUSION: Be informed and prepared

Knowing why there are exclusions to a life insurance policy is very important in selecting the right type of coverage for you and members of your family. Insurance is supposed to provide comfort, but in this area, it is recommended that individuals do their due diligence by reading the details and limitations.

Being aware of the boundaries set by different service providers, such as the suicide clause and death resulting from illegal activities or high-risk hobbies, can aid you in making smarter decisions regarding your financing. There will be no more surprises to concern yourself with.

One of the most crucial suggestions that can drastically change your life is to reach out to an insurance agent or professional who can help you understand the particulars of the life insurance policy before you sign it. It is also wise to ask the expert about specific exclusions and provide details about your hobbies, health, and lifestyle so that there will always be someone to protect the well-being of your loved ones.