How Can I Tell What Is Excluded In My Life Insurance Policy?

We’ve all heard some version of the story. A life insurance policy with an exclusion for anyone that dies  if they are hit by a bus while wearing a green shirt on a Wednesday during August. Actually if the price was good, I would take that one.  Don’t have a green shirt and no buses where I live, so……..

In all seriousness though, exclusions are a common question and a very real concern. Some time ago there were small policies that had odd exclusions and the concern has spilled over into a more sane and fair time in the life insurance industry.

Today’s life insurance is underwritten such that there are no needs fior exclusion as the pricing takes into account any “pre-existing condition”. It is not uncommon for someone with an impairment such as cancer or epilepsy to ask how long it will be before they are covered if they happen to die due to something that has to do with that condition. The answer is that there is no waiting period. The policy was underwritten to accept that risk so it is covered from day one.

There are generally only three exclusions that you will find in a life insurance policy. The first two are general and apply to all policies. They are the suicide and contestability clauses. Suicide is obvious and it states that if, during the first two years of the policy (one year in a few states), you take your own life, the company is not bound to pay the death benefit, just return the premium paid.

The contestability clause states that if you die from something that was materially misrepresented during the first two years of the policy, the company again is not bound to pay the death benefit. So, if you had actually been having chest pains, and had discussed it with your doctor but never really had it looked into, and you didn’t divulge that on the application, that would be material misrepresentation.

If you flat out lie about something on the application, that  is fraud. There is no two year limitation on fraud and a company could refuse to pay if you died from something you lied about. Do people lie on their applications? Well, yes they do!  Generally it is uncovered in the application process when their medical records are reviewed, but sometimes it can slip through. That is not a position you want to put your family in.

The last is an exclusion that private pilots occasionally take. A pilot who has aviation practices that are considered a higher risk such as crop dusting, aerobatics or bush piloting are often assessed a higher rate. They can choose to exclude aviation from their policy. Most private pilots get very good rates and don’t need to exclude aviation. This is really the only thing that most companies will allow an elected exclusion for.

One notable exception to what I’ve said is guaranteed issue life insurance. Anyone can get guaranteed issue. It is exactly what it says it is. They have a two or three year waiting period with no death benefit, only return of premium. That is their way of protecting themselves as anyone, with any health problem can get a policy, no questions asked.

Bottom line. Life insurance policies are very straight forward. When your policy goes in force you are covered with only the exclusions mentioned above. As we explain to clients, don’t lie on the application and don’t kill yourself and you’re covered fully from the day the policy goes in force.