When Will Life Insurance Not Pay Out?

Life insurance policies are designed to protect your family and loved ones financially after you pass away. However, there are circumstances in which a life insurance policy will not pay out. Here are some of the common instances:

Suicide

A suicide clause is an incontestability clause in a life insurance policy. If you commit suicide within the specified time frame, usually one to two years after the policy goes into effect, your beneficiary would only get the premiums back, not the death benefit.

Material Misrepresentations

If an investigation finds that you misrepresented facts on your application, the insurer can deny payment on the claim. Misrepresented information must be considered “material”, which means it would have caused the insurer to change the terms of the policy with different premiums, or have been unwilling to issue it in the first place.

Engaging in Illegal Activities

If you die while committing a crime or participating in an illegal activity, the life insurance company can refuse to make a payment. Even if you don’t know that you are doing something illegal, your claim could still be denied.

Act of War

Some life insurance policies have an Act of War exclusion, which denies claims for civilians who are killed in wars or by acts of war.

Living Outside the U.S.

If you move to another country and your policy contains a clause that excludes payment of a death benefit if you are not living in the U.S. at the time of your death, your claim could be denied.

Lack of Insurable Interest

For someone to purchase an insurance policy on your life and be considered the beneficiary, they must be able to demonstrate an insurable interest. If a life insurance policy lacks an insurable interest at inception, it is voidable.

These are some of the more common reasons why a life insurance policy will not pay out. It is important to read your entire insurance contract before signing it and to be completely honest with your insurer. If you have any questions or concerns, don’t hesitate to ask your claims specialist.