What Is Covered by a Life Insurance Policy?


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ByMark Fitzpatrick
Reviewed byMandy Sleight
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ByMark Fitzpatrick
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Reviewed byMandy Sleight
Edited byRae Osborn
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Updated: June 13, 2024

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Life insurance can serve as a financial safety net, offering monetary support to beneficiaries upon the policyholder's passing. It addresses a range of expenses, from funeral costs to ongoing living expenses, ensuring financial stability. Coverage extends to various types of death, including natural death and accidents. However, certain circumstances like suicide within a specified period or involvement in a criminal activity might lead to a policy not paying out.

Understanding what expenses can be covered, what types of death scenarios result in a death benefit and which do not can help ensure your loved ones have support when they need it most.

Expenses That Can Be Covered With the Life Insurance Payout

A life insurance policy can cover various expenses, providing significant financial support to your dependents upon your passing. Here are some key examples:

1
Funeral Expenses

Life insurance can help cover these costs, easing the financial burden during an already difficult time. If covering these expenses is your primary concern, then you may want to consider a final expense policy. The costs associated with a funeral can be quite substantial, including:

  • Funeral service costs
  • Burial or cremation costs
  • Headstone or urn costs
2
Living Expenses

Life insurance can help with your dependents' daily living expenses, such as:

  • Groceries and other food costs
  • Utility bills, such as electricity, water and gas
  • Rent or mortgage payments
  • Transportation costs, including car maintenance, fuel or public transit
  • Health insurance premiums and out-of-pocket health care costs
  • Clothing and personal care expenses
3
Debts

Life insurance can be instrumental in settling any outstanding debts that you may leave behind, such as:

  • Mortgage loans
  • Car loans
  • Credit card debts
  • Personal loans
  • Student loans
4
Education Expenses

The payout from a life insurance policy can be allocated to fund your children's or other dependents' education. This can cover a variety of educational costs, such as:

  • Private school tuition for younger children
  • University tuition, books and living expenses for older dependents
  • Post-graduate or vocational training programs
5
Lost Income

If you were a primary income earner, life insurance can replace that lost income, helping to maintain your family’s standard of living after your death.

6
Medical Expenses

If you incurred significant medical expenses before your death, your life insurance could be used to cover these costs, easing the burden on your loved ones.

7
Child Care and Related Expenses

For families with young children, life insurance can cover child care costs, such as:

  • Daycare or babysitter expenses
  • After-school programs or activities
  • Education-related costs, such as tutoring
8
Donations to Charities

You can designate a portion or all of your life insurance payout to a charity of your choice, ensuring your philanthropic legacy continues even after your death.

9
Estate Taxes

In some cases, life insurance proceeds can help pay estate taxes, protecting the value of your estate for your heirs.

Types of Deaths Covered by Life Insurance

Life insurance policies are generally designed to provide financial protection against the broadest range of circumstances surrounding the policyholder's death. The specifics of what is covered can vary between different insurers and policies, but most life insurance policies will cover:

  1. Natural Causes: Generally, life insurance covers natural death. If the policyholder dies due to natural causes, such as illnesses or diseases like cancer, heart disease or complications from diabetes, the life insurance policy will typically pay out. This is subject to the condition that the policyholder was honest about their health history when applying for the policy.
  2. Accidents: Deaths resulting from accidents, such as car accidents, accidental falls or any other unintentional injury, are usually covered by life insurance policies. This even includes accidents that might occur while participating in high-risk activities unless specifically excluded in the policy.
  3. Homicide: If the policyholder is murdered, the life insurance policy generally pays out to the beneficiaries. However, if the beneficiary is found to be involved in the murder, the "slayer rule" typically prevents them from receiving the death benefit.
  4. Pandemic Illness: Most life insurance policies will cover death due to pandemic illnesses, such as COVID-19, provided the policy was in effect prior to the illness.
  5. Suicide: Many life insurance policies include a clause stating that the policy will not pay out if the policyholder commits suicide within a specified period after the policy is issued (usually two years). But, generally, life insurance covers suicide after this initial period has passed.
  6. Death in a Foreign Country: If a policyholder dies while in a foreign country, the death benefit will usually still be paid out, provided that the policyholder's travel to that location did not violate any policy terms.

Carefully review your policy documents or consult with your insurance provider to understand the specific terms and conditions of coverage. This ensures that you and your loved ones know what types of death your life insurance policy covers.

Circumstances Where Life Insurance May Not Pay Out

Certain circumstances might result in a life insurance policy not paying out. These usually include:

  1. Suicide: Many life insurance policies include a clause stating if the policyholder commits suicide within a specified period after the policy is issued (usually two years), the policy will not pay out.
  2. Fraud or Misrepresentation: If a policyholder lies or withholds material information on their insurance application, the insurer can deny the claim.
  3. Policy Expiration or Lapse: If the policyholder dies after their term life policy has expired, or if the policyholder allowed the policy to lapse by not paying the premiums, the policy will not pay out.
  4. Exclusions: Some policies have specific exclusions, such as deaths due to dangerous activities or in specific locations. Always review your policy to understand what is and is not covered.
  5. Involvement in Criminal Activity: If a policyholder's death occurs due to criminal activity, it may result in the policy not paying out. Importantly, if the beneficiary is found to have been involved in the homicide of the policyholder, the "slayer rule" typically prevents them from receiving the death benefit. This rule exists to deter beneficiaries from causing harm to the policyholder.

How to Ensure Your Death Benefit is Paid

Ensuring your loved ones benefit from the financial protection of a life insurance policy requires proactive steps. These measures safeguard the policy's integrity and affirm your commitment to your beneficiaries' future well-being. Adhering to best practices can significantly increase the likelihood of a seamless and dispute-free claim process.

1
Avoid Policy Lapse

Ensure that you pay your premiums on time. If you want to be extra safe, set up autopay with your insurance company. If you're having difficulty with the payment amounts, reach out to your insurance company to discuss options. They may be able to adjust your payment schedule or provide a grace period. Some policies have a premium waiver benefit in case of disability, which could keep your coverage in force without payments if you become disabled.

2
Honesty on the Application

Be as truthful and accurate as possible when filling out your insurance application. If an insurer discovers that you were dishonest about your health or lifestyle (e.g., smoking, alcohol consumption, risky hobbies), they may deny a claim or cancel your policy.

3
Understand Your Policy's Terms

Make sure you fully understand your policy's terms, including any exclusions or conditions. For instance, some policies have specific exclusions for high-risk activities such as skydiving or travel to certain countries. If you're unsure about any aspect of your policy, consult with your insurance agent or a legal advisor.

4
Timely Application

Apply for life insurance when you're relatively young and in good health. If your health deteriorates and you then apply for life insurance, the insurer might reject your application, or you might die before the policy takes effect.

5
Suicide Clause

In most cases, life insurance covers suicide. However, most insurance policies have a suicide clause, which typically states that no death benefit will be paid if the policyholder's death results from suicide within the first two years of the policy. Seek professional help if you're dealing with depression or suicidal thoughts.

6
Consider a Policy with Fewer Restrictions

If you participate in high-risk activities or have health issues, consider a life insurance policy with fewer restrictions, such as a guaranteed issue life insurance policy. These policies often have higher premiums but can provide peace of mind that your beneficiaries will receive a payout.

FAQ : What Is Covered by Life Insurance

Understanding what life insurance covers can help ensure you're fully prepared for the future. Here, we address some frequently asked questions, offering insights into the comprehensive scope of coverage provided by life insurance policies.

Whose life is covered on a life insurance policy?
What expenses can a life insurance payout cover?
Does life insurance cover medical bills?
What types of deaths are covered by life insurance?
Does life insurance cover suicide?
Does life insurance cover natural death?
Does life insurance cover accidental death?
Does life insurance cover murder?
Does life insurance cover car accidents?
Under what circumstances might life insurance not pay out?
How can I ensure that my life insurance death benefit is paid out?
Can life insurance proceeds be donated to charities?

About Mark Fitzpatrick


Mark Fitzpatrick headshot

Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.