A life insurance plan pays out the death benefit if the policyholder dies before the policy matures. However, under certain circumstances, the claim is rejected. These are known as the exclusions in a life insurance plan. You must be aware of the exclusions before you buy the plan to avoid any unpleasant situation later on.
A medical experts derives the cause of the death and hands over a death certificate. The court however takes the final call whether the reason for death was suicide or not. The nominee or the beneficiary has to show the death certificate to the insurer in order to file a claim.
In case the cause of the death is suicide, the insurance company rejects the claim.
A life insurance plan is bought to cover an unexpected death of the insured. Therefore, when a person decides to end his own life, the nominees may not receive a death benefit. Suicide is excluded for the first two years in a life insurance plan. This is done to discourage people from taking a life insurance plan solely to get the death benefit.
You cannot plan your death ahead in hopes of giving your nominee the life insurance benefits. So suicide is en exclusion for the first two years. Every time a plan is renewed or a new plan is bought, the clock gets reset to zero. You again have to wait for two years before the suicide clause is included.
Accidental death benefit – exclusions
If the death is caused by an accident, the insurance company will determine the nature of the accident and make a decision about the payout thereafter. There are some permanent exclusions under the accidental death benefit rider. They are:
- Influence of alcohol: If the accident took place when the policyholder was under the influence of alcohol, the claim will be rejected.
- War: Deaths that happen in accidents caused by war or terrorism are not covered under a life insurance plan.
- Due to an adventure sport: Death caused by an adventure sport, hazardous activity or racing/road-rage is excluded in a life cover.
- Criminal activity: If the death happens due to the involvement of a criminal activity, the claim may be rejected. The insurance company will run a thorough investigation to determine whether or not the policyholder was at fault. If yes, then no claim will be paid out.
- Pregnancy and childbirth: Death due to the complications related to pregnancy and childbirth is excluded in a life insurance plan.
- Pre-existing illnesses: If the policyholder dies due to an illness that was present even before the policy was purchased, the nominee cannot ask for a claim.
This is not, strictly speaking, an exclusion. However the life insurance claim may be rejected if the insurance provider discovers the policyholder had concealed any information while buying the life insurancethe plan. For example, if the policyholder smokes or drinks and mentions that he refrains from both, the claim may be rejected. This would typically happen if the death happens due to the lifestyle conditions associated with smoking. So it is absolutely vital for you to be truthful about the information and data you provide to the insurance provider. Making the declarations may ride up the cost of your life insurance plan, but it may prevent a claim being rejected too.
The bottom line
A life insurance claim will be paid out only if the insurer is satisfied with the nature of the death. If the death falls under the exclusions, the insurance provider will not be liable to pay out a claim. Every time a claim is made, the insurance company will run a thorough check to determine the nature of the death. The company will also ask for medical reports, police statements and other documents to ascertain the death details. Keep the exclusions in mind and inform your nominees about thesame. It is important for them to be aware of the exclusions, because they are the ones who will ultimately file the claim after your death.