Things Your Life Insurance Doesn’t Cover

Summary: Did you read the fine print in your life insurance policy? There are some circumstances where it will not pay out. Learn the things your life insurance doesn’t cover.

When a beneficiary goes to claim life insurance after a death, they may be surprised to learn that not all circumstances lead to a payout. Today we will discuss some ways your beneficiary can be denied your life insurance.

What is Life Insurance For?

First, we need to understand what life insurance is for. Life insurance provides a sum of money to your beneficiaries upon the event of your death. Death is stipulated to mean a death by natural causes, accidents, and most diseases. If your death is somehow not classified as these, your insurance company likely will not provide a life insurance payout after death.

Mortgage Payments

Your life insurance is not the same thing as your mortgage insurance. While your lump sum of life insurance money could be used toward your mortgage, you will not be provided with mortgage coverage in the event of your death unless you have separately purchased mortgage insurance.

This all means that your loved ones will have to use a lot of your life insurance payout after death in order to pay for your mortgage if you neglect to purchase mortgage insurance or if your coverage amount is not high enough. Remember: mortgage insurance pays the bank. Life insurance pays your beneficiaries – but life insurance can be used to pay your mortgage. It is very important to speak with a broker to ensure you have the right type and amount of coverage.

You Haven’t Died, But Are Critically Ill

While some life insurance plans will advance part of the benefit upon a critical illness diagnosis, a better plan is to purchase a separate critical illness (CI) policy or rider. CI policies are called living policies because they pay you, not a beneficiary, while you are alive. Not all life insurance provides advanced funds, so a combination of life insurance and CI provides much more robust coverage.

Criminal or Reckless Activity

If you die in the middle of a bank robbery or sky diving, you might be denied your life insurance payout after death. Reckless behaviour, such as death-defying magic tricks, mountain-climbing, or participating in rodeos could mean the denial of your claim to life insurance. This is also the case with deaths that occur during, or as a result of, a crime. If your death occurs because of a police-chase or any other crime, odds are your beneficiaries cannot collect on your life insurance.

Pre-Existing Medical Conditions

It may be stipulated in your life insurance plan that a death resulting from a pre-existing condition will be denied. For example, if you were born with muscular dystrophy and die from the disease, you likely won’t be eligible for a life insurance payout after death. If you are aware of a pre-existing condition and do not disclose it on your application, the claim will be denied. Underwriters go to great lengths to determine the cause of death before providing a payout. Hiding a condition only results in paying for a policy that will not pay out in return.

Does Life Insurance Pay for Suicidal Death in Canada?

The way life insurance companies handle suicide varies, however a life insurance payout after death will most likely be denied or diminished. Some companies will pay out in the event of suicide, providing that two years have passed since the policy was taken out, and many companies will simply return whatever the deceased has paid into their plan to the beneficiary.

Committing suicide will not provide loved ones with any significant financial gain, and in many cases, insurance will be denied completely, leaving funeral and relating costs as an expense on your family. These rules are in place to help prevent individuals under financial duress from committing suicide.

Check with a Broker

Overall, life insurance is an effective tool for ensuring the wellbeing of your family, but there are circumstances in which life insurance will not cover your death. In some cases, you may need to purchase additional coverage, and in other cases, such as crime or suicide, there are typically no insurance options available. Use a life insurance broker to ensure you are getting the best policy for you and your family’s needs.