What does life insurance cover?

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.

Jeanine SkowronskiColin Lalley 1600

Jeanine Skowronski & Colin Lalley

Published September 17, 2019

KEY TAKEAWAYS

  • 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 does life insurance cover?

What life insurance covers can be answered two ways: the expenses it covers, and the types of death it covers.

Expenses covered by life insurance

People typically get enough life insurance to cover most or all of the following expenses:

Monthly bills & everyday 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.

Co-signed debts

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.

Child care or dependent care

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.

College tuition

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.

End of life expenses

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.

Types of death covered by life insurance

Standard life insurance policies cover almost all cases of death due to illness, accident or natural causes, with a few potential caveats.

  • Natural causes: Your beneficiaries will receive the death benefit if you die of a heart attack or old age - the latter only if your policy is still active and hasn't expired yet.
  • Accidental death: Life insurance pays out if you die from natural causes, but will also pay in the case of accidents. Some types of insurance, known as accidental death and dismemberment (AD&D), only pay out in the case of accidents, and the limited coverage often isn't worth the cost. Learn more about AD&D vs life insurance
  • Suicide: Most policies contain a clause stipulating a beneficiary’s claim will get rejected if the policyholder dies within two years of their coverage's start death and their death is ruled a suicide.
  • Murder: Life insurance will pay out of the policyholder is murdered, but most states have a "slayer statute" that prevent beneficiaries from receiving a life insurance payout if they intentionally caused or played a role in the policyholder's death.
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What does life insurance not cover?

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.

An expired policy

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.

Fraud

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:

  1. Any misrepresentation can cause a claim denial. It doesn’t have to relate to your cause of death. If your life insurance company investigates your death in a car accident and discovers you didn’t disclose a past smoking habit, they could deny your beneficiary’s claim.
  2. Contestability can affect active policies, which is to say, if your insurance discovers you misrepresented something on your application within the first two years and you haven’t died, they can cancel your policy or up your premiums to account for whatever was discovered. These premium adjustments are often retroactive.

Criminal activity

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.

Exclusions

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.

Long-term care

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:

  • Long-term care: People may not be able to care for themselves as they age. A long-term care rider (or standalone policy) provides coverage for services like in-home aid.
  • Accelerated death benefit: Covers end-of-life care when a life insurance policyholder is diagnosed with a terminal illness. The money is deducted from the total death benefit, as needed, and there are usually caps on how much money can go to these expenses.
  • Critical illness: Covers treatment for certain illnesses that are likely to limit your life expectancy. The exact illnesses covered are specified in the rider, but can include heart attack, cancer, stroke, kidney failure, coma, ALS or AIDS.

Disability

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.

How much does life insurance cover?

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.

Find out how much life insurance you need here.

When does a life insurance policy pay out?

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.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.