Although life insurance covers death from natural causes and accidents, certain circumstances could prevent a payout. Here is what you need to know.

What Is Life Insurance?

A life insurance policy is a contract between you, the policyholder, and an insurance company. In exchange for regular premium payments, the insurance company pays a death benefit to your beneficiaries if you die.

Term Policies vs. Permanent Policies

There are two main types of life insurance: term and permanent life insurance.

Term insurance is the simplest and most affordable type of life insurance. According to the Insurance Information Institute, it pays if you die during the policy's term, which generally ranges from one to 30 years. Once the term expires, you can renew it for another term, convert the policy to permanent coverage, or allow the policy to end.

On the other hand, whole life insurance pays a death benefit whenever you die, regardless of how long you have held the policy or how old you are. You will pay higher premiums for less coverage with a whole life policy, but you will have the reassurance of knowing your loved ones are protected throughout your life. Whole life policies can also accumulate cash over time, and you may receive dividends from your insurer.

What Does Life Insurance Cover?

Generally, if you die from natural causes, an illness, or an accident, your designated beneficiaries will receive the life insurance payout. Here is a quick overview of the types of death covered by life insurance policies:

Natural Causes

Life insurance covers death from natural causes. If you die from a heart attack, cancer, an infection, kidney failure, a stroke, old age, or another natural cause, your beneficiaries will receive the insurance payout.

Accidents

Your life insurance policy will pay death benefits to your beneficiaries if you die from a car accident, drowning, poisoning, an accidental drug overdose, or another tragedy.

Murder

The death benefit will be paid to your beneficiaries if you are murdered, unless your beneficiary murdered you or was closely involved in your murder.

Suicide

Life insurance covers suicide, and your beneficiaries will receive the death benefit unless the death occurs during the "contestability period," generally the first two years of the policy, provided no other policy exclusion prohibits it.

Pandemic Illness

If you have an existing policy and die from COVID-19, it is classified as a natural cause, and the insurance company will pay the benefit to your beneficiaries. However, suppose you purchase a new policy during an ongoing pandemic and lie on your application about your health or exposure to the disease. In that case, the insurer may refuse to pay.

What Types of Death Are Not Covered by Life Insurance?

If you do not die from one of the reasons mentioned above, your insurer may not pay the death benefit to your beneficiaries. These are situations in which your beneficiaries may be unable to collect benefits:

Risky Activities

Depending on the situation and your policy, you may not be covered if you die while participating in a risky activity. Risky activities are recreational pursuits with a higher potential for injury or death, such as:

• Scuba diving
• BASE jumping
• Hang gliding
• Auto racing
• Aviation
• Rock climbing and mountaineering

The risky activities category also includes certain occupations, such as loggers, pilots, offshore oil rig workers, deep-sea fishermen, and underground miners.

If you participate in risky activities for recreation or work, you can still purchase a life insurance policy, but you could end up paying higher premiums. And depending on how risky the activity is, your insurer may add an exclusion to the policy prohibiting payouts if you die while performing that activity.

If you participate in risky activities, tell your insurer during the application process. Otherwise, your insurer may cancel your policy or refuse to pay the death benefit.

Murder

Under the "slayer rule," if your beneficiary murders you or is involved in your murder in any way, they will not receive the death benefit. Instead, your insurer will pay the death benefit to your contingent beneficiaries or your estate.

Suicide

Generally, life insurance covers suicide. However, most policies have a "suicide clause," or contestability period, during the first two years of the policy. Life insurance policies will not cover a suicide occurring during this period. Matters can become complicated if an insured person dies from a drug overdose during this time. In that case, however, the insurer would need to prove the overdose was intentional to withhold the death benefit.

If you or someone you know is experiencing depression or mental health problems, get help now. You are not alone. If you or a loved one is thinking about suicide, contact the National Suicide Prevention Lifeline at 1-800-273-8255 or through live chat. It is available 24 hours a day, seven days a week, and provides free, confidential support.

Other Reasons Life Insurance May Not Pay

Lying on the Application

Life insurance companies can withhold death benefits if you lie on your application—which, incidentally, is insurance fraud. For example, the insurer can cancel your policy, and your beneficiaries would lose benefits, if you lie about your:

• Family health history
• Medical conditions
• Alcohol and drug use
• Risky activities
• Travel plans

Not Naming a Beneficiary, or Having One Who Dies Before You

Paying the death benefit becomes complicated if you have no designated beneficiaries, or if your designated beneficiaries die before you. In these situations, the death benefit goes to your estate and not necessarily to your loved ones.

It is essential to designate primary and contingent beneficiaries to receive the insurance death benefit in the event of an untimely death. Otherwise, the benefits are subject to probate and may ultimately not go where you intended.

Life insurance can provide peace of mind and a valuable financial safety net for your loved ones. Generally, policies cover deaths from natural causes, illnesses, and accidents. Still, insurers may withhold benefits in certain situations. Be sure to read your policy's fine print to understand what is and is not covered.

References/Article Sources

1. Insurance Information Institute. "What Are the Principal Types of Life Insurance?"
2. Legal Information Institute. "Slayer Rule."
3. American Council of Life Insurers. "Life Insurance," page 66.
4. Insurance Information Institute. "Are Life Insurers Denying Benefits for Deaths Related to COVID-19?"