Life insurance covers death due to natural causes, illness, and accidents. However, the insurance company can deny paying out your death benefit in certain circumstances, such as if you lie on your application, engage in risky behaviors, or fail to pay your premiums. Here's what you need to know.
- Life insurance provides financial protection to your loved ones if you die, but policies don't pay out in every situation.
- In general, life insurance policies cover deaths from natural causes and accidents.
- If you lie on your application, your insurer could refuse to pay your beneficiaries when you die.
- Life insurance policies cover suicide, but only if a certain amount of time has passed since you bought the policy.
- If you die participating in a risky hobby or dangerous occupation, your insurer may not pay benefits, depending on your policy's details.
- “Slayer rules” prevent a death benefit payout to your beneficiary if they murder you or are closely tied to your murder.
What Is Life Insurance?
A life insurance policy is a contract between you (the policyholder) and an insurance company. In exchange for you paying regular premiums, the insurance company agrees to pay a death benefit to your beneficiaries if you die.
Life insurance coverage provides a financial safety net that could replace your wages, or be used to pay off your mortgage or college costs for your kids. Less than 1% of death claims are contested each year, and many of those are ultimately paid. But beneficiaries and policyowners should be aware that it can happen.
|What Deaths Does Life Insurance Cover?|
|Natural Causes||Lying on the application|
|Accidents||Engaging in risky activities|
|Murder (in most situations)||Murder (if beneficiary was involved)|
|Suicide (for two years)||Suicide (during first two years of policy)|
What Does Life Insurance Cover?
In general, if you die due to natural causes, an illness, or an accident, your designated beneficiaries will get the life insurance payout. Here's a quick rundown of the types of deaths that are covered under life insurance policies:
Life insurance covers death due to natural causes. If you die of a heart attack, cancer, an infection, kidney failure, stroke, old age, or some other natural cause, your beneficiaries will receive the insurance payout.
Your life insurance policy will pay death benefits to your beneficiaries if you die from a motor vehicle accident, drowning, poisoning, accidental drug overdose, or another tragedy.
The death benefit will be paid to your beneficiaries if you are murdered—unless your beneficiary murdered you or is closely tied to your murder.
Life insurance covers suicide, so your beneficiaries will typically receive the death benefit. However, if the death occurs during the suicide clause period—typically the first two years of the policy—benefits will not be paid.
If you have an existing policy and die of COVID-19, it's categorized as a natural cause and the insurance company will pay out the benefit. But what if you buy a new policy during an ongoing pandemic and lie on your application about your health or exposure to the illness? In that case, the insurer can refuse to pay out.
Which Types of Death Are Not Covered by Life Insurance?
If you don't die under the scenarios mentioned above, your insurer may not pay the death benefit to your beneficiaries. Here are the situations when your beneficiaries may be unable to collect benefits:
Depending on your policy terms, you may not be covered if you die while participating in a risky activity. Risky activities include recreational pursuits that have an increased potential for injury or death, such as:
- Scuba diving
- BASE jumping
- Hang gliding
- Auto racing
- Rock and mountain climbing
Another category of risky activities includes certain jobs, such as working as a logger, aircraft pilot, offshore oil rig worker, construction worker, firefighters, and police officers.
If you participate in risky activities, whether for fun or work, you can still buy a life insurance policy—but you might end up paying higher premiums. Also, depending on how risky the activity is, your insurer may add an exclusion to the policy that prohibits payments if you die while engaged in that activity.
If you engage in any risky activities, tell your insurer during the application process. Otherwise, your insurer can cancel your policy or refuse to pay out the death benefit.
Under state “slayer rules,” if your beneficiary murders you—or is somehow tied to your murder—they will not receive the death benefit. Instead, your insurer will pay the death benefit to your contingent beneficiaries or to your estate.
In general, life insurance covers suicide. However, most policies have a "suicide clause" that spans the policy's first two years. Life insurance policies won't cover a suicide that occurs during this period, but all premiums paid will be refunded.
Death claims can get tricky if a policyholder dies of a drug overdose during this period. However, to invoke the suicide clause and withhold the death benefit in an overdose case, the insurer would need to prove the overdose was intentional.
If you or someone you know is contemplating suicide, contact the 988 Suicide & Crisis Lifeline by calling or texting 988 or via live chat. It’s available 24 hours a day, seven days a week, and provides free and confidential support.
Other Reasons Life Insurance Won't Pay Out
Lying on the Application
Life insurance companies can withhold death benefits if you lie on your application. (That's insurance fraud, by the way.) Insurers can rescind your policy if they determine you made a material misrepresentation: a false statement that would have affected whether the company would have issued the policy or how much it would charge.
For example, the insurer can cancel your policy, and your beneficiaries would lose out on benefits, if you lie about your:
- Family health history
- Medical conditions
- Alcohol and drug use
- DUI/DWI convictions
- Risky activities
- Traveling to or living in high-risk countries
Lying on the application can be grounds for the insurance company to deny a claim during the contestability period. This period typically lasts two or three years after the policy is issued, depending on state regulations. The insurance company can closely investigate any death that occurs during this time frame for up to two years afterward, delaying payouts.
Your Policy Expires
Term insurance only pays if you die during the policy's term, which can range from one to 40 years. Whole life is designed to provide benefits throughout your lifetime—as long as you keep paying your premiums.
Most life insurance policies provide a 31-day grace period for making late payments. If you die during the grace period, your beneficiary will receive the death benefit (minus the unpaid premium). However, once your policy lapses or the term expires, the insurance company will no longer pay benefits to your beneficiaries.
If you die while committing a crime or engaging in an illegal activity, the insurance company will usually deny the claim, and your beneficiaries will not be paid.
The death benefit payout gets complicated if you don't have designated beneficiaries—or if you do and they die before you pass away. In these situations, the death benefit goes to your estate and not necessarily to your loved ones.
It's essential to designate primary and contingent beneficiaries to receive the insurance death benefit in the event of your untimely death. Otherwise, the benefits are subject to probate, and they ultimately may not end up where you intended.
Will Life Insurance Pay for a Funeral?
Life insurance will provide a lump sum amount to the beneficiary if the coverage applies. Then, the beneficiary can use that money however they would like, including to pay for funeral services. Final expense insurance is a whole life insurance with a smaller payout that is designed to help beneficiaries pay for funeral and burial expenses. However, even with final expense insurance, beneficiaries can use their benefit for any purpose.
Can I Pull Money Out of My Life Insurance?
If you have a permanent life insurance policy, you may be able to pull cash out of it if you have built the cash value to a sufficient size. With term life insurance, there is no cash value component, so you cannot pull money out of it.
What Happens I Am Late Paying My Life Insurance Premium When I Die?
If you fail to pay your insurance premium, your coverage can lapse and your beneficiary may not get their payment. However, most insurance policies offer a grace period, such as a 31-day period, in which you are still covered. If you die during the grace period, your beneficiary will still be paid.
The Bottom Line
Life insurance can provide peace of mind and a valuable financial safety net for your loved ones. In general, policies cover deaths due to natural causes, illness, and accidents. Insurers sometimes withhold benefits in certain other situations. Be sure to read your policy's fine print to understand what's covered—and what's not.
Insurance Industry Institute. "Are Life Insurers Denying Benefits for Deaths Related to COVID-19?"
Boston Legal Review. “The Slayer Rule.” Page 809.
Progressive. “Does Life Insurance Pay for Suicidal Death?”
Fidelity Life. “9 Reasons Life Insurance Won’t Pay Out.”
My Family Insurance. “Will Life Insurance Pay a Death Benefit from a Drug Overdose?"
NAIC Journal of Insurance Regulation. “Material Misrepresentations in Insurance Litigation.” Page 1.
AARP/New York Life. “Understanding the Two-Year Contestability Period for Life Insurance.”
Texas Office of Public Counsel. “Life Insurance: Know Your Rights.”
FidelityLife. "What Is Final Expense Life Insurance?"
New York State Department of Financial Services. “Types of Policies."
Texas Office of Public Insurance Council. "Life Insurance: Know Your Rights."