Cost & Coverage
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Life insurance pays out a benefit in most cases, but there are a few instances when it won’t. Here are specifics about what life insurance does and doesn’t cover.
Life insurance covers most forms of death
The death benefit can be used to cover any expenses needed by the beneficiaries
In cases of fraud or criminal activity, the benefit may be withheld
Life insurance covers most causes of death and will pay out a death benefit to provide financial protection to your family in cases of natural death, accidental death, suicide, or murder. The death benefit will cover any expense that the beneficiary needs it for, like mortgage, college savings, or funeral expenses, but there are a few instances, like cases of fraud, when it be covered.
In this article:
What life insurance covers can be answered two ways: the expenses it covers, and the types of death it covers.
People typically get enough life insurance to cover most or all of the following expenses:
Whether you’re a primary, secondary or sometimes breadwinner, you're covering rent or mortgage, utilities, and basic household essentials like groceries, cleaning supplies and more. A life insurance payout covers those bills and allows your family to maintain their current standard of living.
If you signed a mortgage, credit card, private student loan or other financing alongside a loved one, that debt won’t die with you. Your co-signer is still responsible for making good on any outstanding balances.
Even if they aren’t an official co-signer, your loved ones are will want to cover certain loans related to their livelihood — like the mortgage or auto loan on the family car — in your absence.
A life insurance policy would cover any child care expenses you’re currently shouldering, including daycare, after-school programs, in-home aides and more.
These costs are important to consider whether or not you’re currently reliant on them. If a sole breadwinner dies, a spouse who is caring for the kids would likely have to return to work. And if the stay-at-home parent passes, the working spouse would need to pay for the crucial services their spouse previously provided.
Policygenius can help spouses compare and buy life insurance together.
On top of that, if you are a caretaker for aging parents or special needs adults, life insurance can cover the expense of their care.
Yes, life insurance can cover expenses your family isn’t shouldering now, but would face down the line, like college tuition. In fact, our experts generally recommend factoring in the cost of college if you have or plan to have children, given how high education costs have climbed.
The unexpected death of a loved one creates an immediate financial burden for families: the cost of a funeral and burial, which can run anywhere from $7,000 to $10,000. Many policyholders work end-of-life expenses into their coverage, so their beneficiary can use the life insurance payout for their funeral.
Not sure how much life insurance you might need? Our life insurance calculator will give you a tailored recommendation.
Standard life insurance policies cover almost all cases of death due to illness, accident or natural causes, with a few potential caveats.
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So when won't a life insurance pay out? It's rare, but in cases of an expired policy, fraud, criminal activity, or exclusions, your beneficiaries may not receive the death benefit.
Term life insurance ends after a set number of years outlined in the policy (the term). Once the policy expires, your coverage is no longer in effect.
This is fine for most people, since they outgrow large expenses like their mortgage and children. For those who want life insurance that doesn't expire, consider whole life insurance, which is active for as long as the premiums are paid.
If you die within your contestability periods - a period of time (usually two years) after your policy goes into effect when the insurer can review your application for fraud - and your insurer discovers you misrepresented something on your application, your beneficiary’s claim can get denied or reduced by the amount of money you should have been paying in premiums.
Contestability periods exist primarily to protect insurance companies from fraud. They generally only come into play when the policyholder’s death is suspicious, but there are two big things about contestability periods to note:
Almost all policies contain a clause excluding death related to a policyholder's willing participation in a crime. So, for instance, if someone robs a bank and gets killed during the robbery, their life insurance coverage would not pay out to their beneficiary.
Though rare, some life insurers in certain states will write a policy that excludes death caused by a hazardous activity the policyholder is known to engage in. The most common of these activities involves flying (piloting a private plane, etc.).
If the policyholder dies from the excluded activity, the beneficiary won't receive the death benefit. Exclusions like this are rare in the life insurance industry; they’re more common when you’re applying for disability insurance. Life insurers are more likely a prospective policyholder a higher premium to have that activity covered — or outright deny them a policy.
If you're sick but haven't died, the full life insurance death benefit won't pay out. However, you can still get some coverage from your policy with specific riders:
Life insurance provides financial protection to a family when a policyholder dies. Disability insurance provides income protection to a policyholder if they can’t work due to illness or injury.
Some life insurance policies provide riders for a disability income benefit, but it's often more cost-effect to purchase a separate disability insurance policy.
Now that you know what expenses and forms of death life insurance does and doesn't cover, you should know how much it covers.
You'll decide on a death benefit coverage amount when you apply for life insurance. Experts suggest 10-12 times your income to ensure all expenses are accounted for.
Your beneficiary will have to file a claim, but once it’s processed, they should receive your life insurance payout within a few days. They will receive the payout as a lump sum or in monthly or annual installments in you set your policy up that way.
The payout could get delayed if you die within the contestability period and your death was suspicious. Delays can lengthen the pre-payout period to as long as 30 to 60 days, assuming the claim is ultimately approved.
Each state's insurance department has a "timely payment of claims" cause that determines how long a company has to pay.
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