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The Perils of Life Insurance

As sweet as having a safety net may sound, life insurance doesn’t guarantee automatic payments, and you should already know that these insurance providers treat their policies as businesses. In some instances- and there are many of them- the insurance provider can deny claims, which can leave your dependents with nothing. These are some of the exclusions that you should know about before purchasing your life insurance policy.

Suicide Clause

The suicide clause is designed to protect insurance companies from people intending to commit suicide after getting a policy in order for their families to receive the benefits afterwards. With a suicide clause, the insurance provider won’t pay out the death benefits, but only the premiums will be returned if the insured commits suicide within the first two years of coverage.

Contestability Period

Within two years of the policy’s issuance, the company can deny a claim if a mistake was found out during the time of application. For instance, if you have a history of a heart problem and you failed to mention it during your application, the company can cancel your policy if they find this out during the contestability period. The contestability clause allows the company to contest the cause of death and conduct further investigations, so they might refuse to provide the benefits if they can prove that the cause of death is questionable.

Material Misrepresentation Clause

Material misrepresentation takes effect by intentionally withholding any information that could affect the price of your premiums, the most common of which is smoking. Just like the contestability period, any right to claim can be denied if it is proven that the applicant failed to disclose any important information. However, unlike the contestability clause, material misrepresentation is permanently in force.

Criminal Acts

The insurance provider can also refuse to make payments if the insured dies while committing an illegal activity, like a bank robbery.

Drug and Alcohol Use

If the insured dies under the influence of drugs or alcohol, the payouts can also be cancelled or deducted. However, what makes this restriction tricky is that any death could be easily linked to drug or alcohol use even if you were not under the influence when the death occurred.

Dangerous Acts

There are many activities that are considered dangerous in most policies, such as sky diving, car racing, contact sports, etc, and payments are excluded when death occurred while performing any of these activities. Make sure you assess these exclusions early in the contract. While restrictions can be lifted depending on the policy, there’s always a certain price that you have to pay.

Misstatement of Age

Whether it’s older or younger by a few years, months, or even days, misstating your age during the application can result to having your claims denied.

Acts of War

This clause aims to deny claims for civilians who are killed during wars or invasions. If your occupation includes traveling to dangerous parts of the world most of the time, you should find a way to have this exclusion lifted.

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