Updated August 16, 2021|2 min read
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Life insurance companies pay a death benefit to give financial protection to your beneficiaries in cases of natural death, accidental death, suicide, or murder. There are circumstances when your policy won’t be paid out—like if you lie on your application or die while committing a crime—but they’re rare.
Your beneficiaries can use the death benefit on any of their expenses, like a mortgage, college savings, or funeral expenses.
Life insurance pays out for death by natural causes, most accidents, suicide, and homicide
There are no restrictions to how or when beneficiaries spend the insurance payout
If you lie on your application or your death involves criminal activity, the benefit is withheld or reduced
What’s covered by life insurance falls into two categories: the causes of death insured by your life insurance contract and the expenses the policy’s death benefit can go toward.
Life insurance policies cover almost all deaths, with a few exclusions. As long as your policy is active when you die, life insurance providers will pay out if your death is caused by:
Natural causes: Like a heart attack, old age, or illnesses like cancer
An accident: Including accidental overdose from a prescribed medication
Suicide: As long as it occurs after the policy’s two-year suicide clause period ends
Homicide: Unless the beneficiary played a role in the murder
Your beneficiaries can spend your policy’s death benefit however they want. Beneficiaries often use the financial support for:
Everyday expenses: Like monthly bills, groceries, and other household essentials
Outstanding debts: Including a mortgage, credit card debt, private student loans, or auto loans
Childcare: Replacing care provided by a spouse
End-of-life expenses: Such as funeral expenses or end-of-life medical care
College costs: To fund continuing education for your spouse or tuition for your children
In some cases, you can withdraw part of the death benefit while you’re alive using policy add-ons called riders. You’ll need to have a qualifying condition, such as a terminal illness or a disability, and the money can only go toward related medical costs.
Your beneficiaries won’t get the death benefit if your policy is expired or in situations involving fraud, criminal activity, or policy exclusions:
Expired policies: Policies only stay active while you pay your premiums and as long as your policy’s term. If your coverage expires or lapses before you die, your beneficiaries don’t get the death benefit.
Exclusions: If you have a dangerous hobby, like skydiving, you can get cheaper coverage by adding an exclusion into your policy, but then the policy won’t pay out if your death is skydiving-related.
Fraud: If you lie on your life insurance application, your provider can cancel your policy while you’re alive or deny or reduce the payout to your loved ones when you pass away.
Criminal activity: If you die while doing something illegal, your provider won’t pay out. If a beneficiary commits a crime to try to get your insurance money, they’ll be denied a payout, but any innocent beneficiaries will still receive their share.
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Providers usually take two weeks to two months to process and pay out a claim after it’s been filed. Depending on your state, your local insurance department might require insurers to pay out within 30-60 days of receiving a claim.
The payout can be delayed if you die within the first two years of the policy (the contestability period). During this time, your provider can review your application for intentional misrepresentations before approving the claim. A review could delay payment for up to 60 days.
Your beneficiaries can choose to receive the payout as a tax-free lump sum (most common) or in monthly or annual installments.
Buying life insurance protects your loved ones from a worst-case scenario. As long as you’re honest on your application, your policy will cover almost any cause of death, leaving your family with financial assistance for any of their present and future needs.
Life insurance pays out the death benefit to your beneficiaries for most causes of death. Illness, suicide, most accidents, and death by natural causes are all covered by life insurance.
Beneficiaries can use life insurance funds any way they see fit. Many use the proceeds to pay for debts, funeral costs, or everyday expenses.
If you lie on your life insurance application, are murdered by your beneficiary, die by suicide during the suicide clause period, or die doing something that is excluded in your policy, your provider will not pay out.
All policies have exclusions for deaths that occur while committing a crime, and many exclude deaths while doing a dangerous activity, such as skydiving.