Life Insurance Policy Exclusions & Limits

Instructor: Elisha Madison

Elisha is a writer, editor, and aspiring novelist. She has a Master's degree in Ancient Celtic History & Mythology and another Masters in Museum Studies.

Life Insurance policies can be challenging if you don't know the standard exclusions and limitations. These unique aspects of life insurance policies should be known before really delving into purchasing and working with these kinds of policies.

Introduction to Life Insurance Policies

Life insurance, in the most immediate terms, is a policy where the insured pay a premium for the insurance company to pay out a specified amount to family or dependents. The reason for having life insurance can range from paying for a funeral and subsequent fees but can also be used for paying bills, cars, mortgages, or anything that you need once you lose the income of the person who passes.

There are two main types of life insurance:

  1. Term Life Insurance - This insurance is temporary, in the fact that a payment will be paid to the insurance company for a specified period of time. During that period, say 20 years, if the insured passes, then there will be a payout.
  2. Whole Life Insurance - With whole life insurance, the payments are forever, but the insurance is as well. So, as long as you make payments on the policy, then you will be covered if you pass.

All this being said, there are always caveats to every policy whether it is life insurance or auto insurance.

Unique Limits and Exclusions

The limits and exclusions on a policy usually are places dependent on the specific type of life insurance purchased.

  • Suicide - This is not covered with accidental death policies; however, in a regular life insurance policy, suicide is actually covered but only after 12 - 24 months of premiums that have been paid.
  • Intentional Acts - This usually is an issue with accidental death policies as well. Someone being murdered is an intentional act, so the benefit is not paid out. However, keep in mind, being under the influence of drugs and alcohol when you have an accident is considered intentional and will keep a payout from happening.
  • Natural Disasters - This is an interesting exclusion because not all policies have it, but you do need to make sure. Situations like an earthquake, flood, or fire may not be covered.
  • Risk Exclusions - Although this one is not always standard, if you tandem base jump and die in the process, this can be considered dangerous activity and not paid for under the policy.
  • Acts of War - This is a strange clause and does not necessarily mean what it states. This limitation is focused on non-military persons that get involved in a war. For example, newspaper reporters that go into a war zone and die may not be covered. However, keep in mind, this caveat is not as popular as it was in the past, likely due to the state of the world today.

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