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Basic life insurance: what does life insurance cover?

Life insurance pays out a death benefit in most cases, but there are a few exceptions. Here are specifics about what life insurance does and doesn’t cover.

Colin Lalley 1600Rebecca Shoenthal author photo

Colin Lalley & Rebecca Shoenthal

Published July 6, 2020

KEY TAKEAWAYS

  • Life insurance covers most forms of death, including natural causes, accidental overdose, cancer, and suicide

  • 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 named beneficiary. in cases of natural death, accidental death, suicide or murder. The death benefit covers any expenses the beneficiary might have, like mortgages, college savings, or funeral expenses, but there are a few instances, like cases of fraud, that life insurance does not cover.

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 (experts recommend between 10-15x your income) to cover most or all of the following expenses:

Monthly bills & everyday expenses

Whether or not you’re the primary breadwinner, you're likely 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 and loved ones to maintain their current standard of living when you’re gone.

Co-signed debts

If you signed a mortgage, credit card, private student loan or other financing alongside a loved one, that debt doesn’t die with you. Your co-signer is still responsible for paying off any outstanding balances.

Even if they aren’t an official co-signer, your loved ones will need 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 can 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 a 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 people with disabilities, life insurance can cover the expense of their care.

College tuition or education

Yes, life insurance can cover future expenses for your family, 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 continue to climb.

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 $8,000 to $10,000. Many policyholders work end-of-life expenses into their coverage, so their beneficiary can use the life insurance payout for the funeral and other costs.

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 deaths due to an illness, accident or natural causes, with a few potential exceptions.

  • Natural causes: Your beneficiaries will receive the death benefit if you die of a heart attack, old age, or cancer.
    Exceptions: your policy must be active and not expired at the time of death. By paying your premiums on time and renewing a term policy when it expires, you can be sure your loved ones will receive a payout.
  • Accidental death: Life insurance pays out if you die from natural causes, but it will also pay in the case of accidents, including accidental drug overdose.
    Exceptions: 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.
  • Suicide: Life insurance normally pays out in cases of suicide and it’s the burden of the insurer to prove a death was a suicide.
    Exceptions: Most policies contain a clause stipulating a beneficiary’s claim will get rejected if the policyholder dies during a particular exclusionary window (usually within two years of their coverage's start date) and their death is ruled a suicide.
  • Murder: Life insurance will pay out if the policyholder is murdered.
    Exceptions: Most states have a "slayer statute" that prevents 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 will your life insurance company refuse to pay? In cases of an expired policy, fraud, criminal activity, or certain other 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. Those who want life insurance that doesn't expire should consider purchasing whole life insurance, which is active for as long as the premiums are paid. It’s worth noting that whole life insurance is far more expensive than term life insurance— sometimes up to 15 times the cost.

Fraud

If you die within your policy’s contestability period - 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 owe 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. If your insurance company discovers you misrepresented something on your application within the first two years and you haven’t died, they can cancel your policy or increase 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, their 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 to offer a prospective policyholder a higher premium — so the risky activity is covered — or outright deny coverage.

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-effective 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 10-15 times your income to ensure all expenses are accounted for.

When does a life insurance policy pay out?

Your beneficiary will have to file a claim with the insurance company, but once it’s processed, they should receive the life insurance payout within a few days. Your beneficiaries will receive the payout as a lump sum or in monthly or annual installments, depending on how you set up your policy.

The death benefit payout could be delayed if you die within the contestability period (usually two years) 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" clause that determines how long an insurance company has to pay beneficiaries.

About the authors

Insurance Expert

Colin Lalley

Insurance Expert

Colin Lalley is the Associate Director of SEO Content at Policygenius in New York City. His writing on insurance and personal finance has appeared on Betterment, Inc, Credit Sesame, and the Council for Disability Awareness. Colin has a degree in English from the University of North Carolina at Chapel Hill.

Insurance Expert

Rebecca Shoenthal

Insurance Expert

Rebecca Shoenthal is an insurance editor at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.

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.

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