The Scoop On Life Insurance Exclusions!

Ah, the fine print. Somewhere in that life insurance policy must be something written so small and obscurely that it can never be found by a mere human that excludes my family from being paid no matter how I die. All I am doing is paying money to an insurance company so I can pretend I was doing the right thing, right?

Exclusions! Everyone has heard of them and heard horror stories (urban legends) about how families have been crushed because of them. I will be the last to let the industry off the hook and tell you that claims don’t sometimes get eaten up in red tape and wrongly not paid. I will be the first to come to the defense of life insurance companies in our country who are well regulated and working hard every day, not just to sell insurance, but to make sure that all legitimate claims are paid and paid as quickly as possible. I know for a fact that life insurance companies will pay questionable claims rather than fight them.

Do claims go unpaid? I spoke with a former claims representative from a major company that said he believes about .1% of contestable claims go unpaid and that might be high. He says far more claims are filed and unpaid simply because premiums weren’t paid and the policy was no longer in force at the time of death. Just to support how the companies feel about this, I had a client who didn’t pay his premium and the policy went into the 31 day grace period. He died on the 30th day with the premium still not paid. The company paid the claim in full and deducted the 30 days premium. Companies also pay interest from the date of death until the claim is paid. There are plenty of things life insurance companies could wiggle out of, but they don’t.

Sooo, exclusions. As an agent I get the question frequently, “well, why can’t they just exclude that from my policy?” This especially comes up when someone has had a serious health issue that may raise their life insurance rates. Health insurance companies do it. They call it a pre-existing condition and don’t offer benefits for bills related to it. Well, life insurance companies keep a clean slate on that scene. If they will cover you they will cover you for all causes of death (except suicide in the first two years), including your pre-existing condition. If they aren’t willing to cover it all, they won’t offer coverage. To those few who are declined that may seem mean, but look at how simple it makes things. If you die your family collects.

If you had a history of cancer and after taking out life insurance it comes back and kills you, your family collects. If you skydive and after taking out life insurance you die while skydiving, your family collects. If you commit suicide more than two years after your life insurance goes in force, the company pays the claim in full. If you die because of an act of war or terrorism, you’re covered. There’s a reason life insurance companies do it this way rather than the complicated health insurance way. They are in the business of taking your money, spreading the risk and paying every legitimate claim and more.

So, you can’t exclude cancer, but if the risk is acceptable a company will sell you a policy that will even cover a recurrence of cancer and all other causes of death. It won’t be $9 a month, but all things considered it will be fair.

Bottom line. My personal opinion is that life insurance is better off just the way it is, without random exclusions. Just an FYI, if you are not married to your beneficiary you need to take some extra steps.