Learn about deaths not covered by life insurance, the differences between term and whole of life policies and why choosing the right policy is a must for many.
Life insurance offers a much needed safety net in the event of your death. But, which types of death are covered and which are not?
In this guide we’ll take you through the different death scenarios that will see your life insurance policy voided. We’ll also explain the differences between term and whole of life insurance so that you can make an informed decision about which is the right fit for you.
Read on to learn more about life insurance, which types of death are not covered and how to choose the right policy for you.
What is life insurance?
In general, life insurance policies are set up to pay out a lump sum in the event of your death. This lump sum is awarded to your survivors if you die during the agreed policy term.
Life insurance pay-outs are designed to help out with anything from covering the cost of mortgage repayments and household expenses in general to leaving an inheritance gift for your children or supporting your loved ones financially as they navigate their grief.
Whether you’re the household breadwinner or on a modest income that allows your family to enjoy non-essentials, there’s a life insurance policy out there for you. Any insurance pay-out will help to minimise the disruption to your survivors lives as much as possible.
Term vs. Whole of Life Insurance Policies
Term life insurance is valid for an agreed amount of time (or ‘term’). This is usually the age you want the policy to expire. The term for which your life insurance policy will last is agreed between both the policyholder and the insurance provider.
Whole of life insurance policies are quite different. This option provides the policy holder with life-long cover. It guarantees that your beneficiaries receive a payout when you die, whenever that may be.
Whole of life insurance is ideal for anyone looking to leave loved ones an inheritance. But, be aware that if you purchase a whole-of-life insurance policy while you’re still young, you will likely end up paying more into the life insurance policy than it will inevitably pay out.
Whole of life insurance comes with the most expensive premiums too.
Term life insurance is much cheaper and generally a good option for anyone looking to take out a policy in their 20s and 30s. There are also three different types of term life insurance to choose from:
- Decreasing term life insurance: The payout decreases in line with your outstanding financial commitments. As you pay off your mortgage, for example, the amount paid out by your policy also decreases. This is the most affordable type of life insurance.
- Level term life insurance: The payout remains the same for the duration of the policy. This amount is agreed between the policyholder and the insurance provider at the time the policy is taken out.
- Increasing term life insurance: The payout increases in line with the cost of living increases. This option is designed to retain your policy’s value.
What does life insurance cover?
The main reason to invest in life insurance is to ensure your family is financially supported after you die. It will also help to cover any outstanding debts so that these aren’t inherited by your survivors.
Life insurance covers you in the case of accidental death. It also covers you against death by natural causes.
Life insurance will also pay out in the event that you are murdered. That is unless your beneficiary was your murderer or is closely tied to your murder.
And, even suicide is covered by your life insurance policy. Your loved ones will still receive the life insurance payout unless the death occurs during the ‘contestability period’. This is usually a fixed duration, most commonly the first two years of the policy. But, as long as there is no other exclusion in the policy, suicide is in fact covered.
But not all types of death are covered by life insurance policies.
Let’s learn a little more.
Which types of death aren’t covered by life insurance?
There are a number of scenarios in which if you were to die, your life insurance policy would not pay out. These include:
- Risky activities. If you were to die during an activity or excursion deemed as ‘risky’ your life insurance policy would be void. Examples of risky activities include scuba diving, BASE jumping, hang gliding and rock or mountain climbing.
- Giving false information on your application form. In the event that you’ve lied about things like your family’s health history, any pre-existing medical conditions, your alcohol and drug use, or even your travel plans, your policy will not pay out.
- Death in the line of duty where a career is considered risky. Pilots, offshore oil rig workers, offshore fishermen, and underground miners are all considered risky careers. If you die while at work and have any of these job titles, your life insurance policy will not pay out.
- Suicide during the contestability period. If you were to commit suicide during the contestability period, your policy would be voided.
Other reasons life insurance won’t pay out
There are a couple of other instances in which a life insurance policy won’t pay out.
One of these is not naming a beneficiary or if your named beneficiary dies before you. If this were to happen, the payout gets a little more complicated. If either of these situations occur at the time of your death, the payout will instead be awarded to your estate.
Always make sure you assign both primary and contingent beneficiaries to receive your life insurance payout. This helps to avoid probate and ensures that the money goes wherever you intended it to after you pass away.
Another example of where a life insurance policy won’t pay out is when the ‘Slayer rule’ comes into play. If your named beneficiary murders you or is linked to your murder your insurer will instead award the payout to your contingent beneficiaries or to your estate.
At Mummy Insurance we provide free quotes from our panel of insurers. We’ll also help you to conduct a full comparison between the best life insurance options to suit your needs. All of our quotes are completely personalised. Plus, our experts are always on hand to help guide you through the entire purchasing process.
