Nobody likes to read through insurance policy documentation. The policies can be long, tedious, and full of jargon that leaves the average person confused about what exactly they’re signing or agreeing to. That’s why it’s so important to have an unbiased agent on your side you can answer any questions you might have about a policy fairly and without prejudice. Of course, it’s good to be as knowledgeable as you can as well and not solely rely on an agent. There are some important things to look out for while you’re reading through a potential policy, and one such this is the exclusions the insurance company may have attached to the life insurance policy.
Exclusions are circumstances that life insurance companies use to get out of paying benefits upon the death of the policy holder. It’s important to understand what kind of exclusions are included in your policy so that you can either adapt the policy to fit your needs and to know when your death is covered or when it can be contested by the company.
The Contestable Period
This is a period set aside by insurance companies that gives them (usually) two years to contest the policy. During the contestable period the insurance company can open up the underwriting of the policy and if they find that information was withheld or misinterpreted that would have led to higher premiums, less coverage, or would have stopped the policy from being approved in the first place they can contest and change or void the policy. The insurance company also doesn’t have to pay benefits if the policy holder was to commit suicide within the contestable period, or if they died and it was discovered that there was missing information that would have led to a change in the policy. A note, the contestable period is not technically an exclusion, but for our purposes it serves the same function since it can keep the benefits from being paid.
This exclusion clause protects the insurance company from paying benefits should you die while breaking the law. While this may sound unlikely, it’s important to remember that seemingly trivial matters are actually illegal. For example, if you were driving on a highway with a 55mph speed limit and you were travelling at 60mph when you died in a car accident you would have been involved in an illegal activity and the insurance company could get out of paying benefits.
The same way that dying while involved in an illegal activity can terminate benefits, dying in a dangerous activity can have the same outcome. Don’t worry, you won’t have to guess which activities are considered dangerous and could leave you without coverage; the specific activities will be listed out within the exclusion clause. Better yet, if you enjoy rock climbing (for example) during your free times and it is listed as a “dangerous activity,” you can usually pay a higher premium and have that the dangerous activity removed from the clause so you’re still covered. Or if you can’t get the proper coverage you need you may have to look at a high risk life insurance policy.
Misstatement of Age
Lying about your age on your eHarmony is one thing, but doing so on your life insurance policy is sure-fire way to have your claim denied. It doesn’t even matter if your false age actually benefited the insurance company (such as charging you higher premiums), any false information on your age will result in the claim being denied.
This clause is much like the contestable period clause, but lasts for the entirety of the policy. This means the insurance company can terminate or be saved from paying benefits if you withheld information that may have stopped them from insuring you in the first place. Some examples may be smoking, hypertension, or family history of cancer just to name a few. This clause helps to show the importance of being honest and telling the truth when getting a life insurance policy. Not doing so could result in your beneficiaries not receiving payments upon your death.
While no one likes to think about life insurance, having some extra knowledge can lead you to asking the right questions to make sure you are covered and that your benefits will be paid. These are only some of the most common exclusion causes you’ll come across, and many cut-rate or budget policies could have much more that will make it more likely for the insurance company to get out of paying benefits. Make sure you read the policy over carefully and ask for clarification on anything that smells fishy to you.
About the author
Liran Hirschkorn is the founder of ChooseTerm.com and is an expert in the insurance industry with 12 years of experience working with the best life insurance companies.