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What Your Life insurance Policy Does – And Doesn’t – Cover

This week, after the earthquake and Tsunami in Japan, many people were surprised to find that their travel insurance policies will not reimburse their trips because they were cancelled due to concerns of radiation contamination. Some are crying foul, but chances are if they read their travel insurance policy, they would find that these events – while unlikely to even occur – were included in a list of excluded incidents.

Insurance companies have to be able to limit their risks. When you pay a few hundred dollars for an insurance policy that could pay out thousands when a claim is made, you realize that insurers have to exclude certain items in order to preserve their bottom line and ensure that they have enough money collected in premiums to pay all claims they receive.

But travel insurance policies aren’t the only policies subject to unexpected exclusions. Life insurance policies also have exclusions that you should beware of. While we can’t generalize, since all insurance companies have their own operations, we can tell you that the following items are generally excluded from coverage:

Acts of war, terrorism, or civil unrest: If you die due to an act of war, civil unrest or terrorism, your death claim might be excluded.

Suicide: During the first two years you can expect your life insurance policy to have a suicide exclusion to prohibit you from buying a policy with the intent of committing suicide so your family can benefit.

Death during illegal activity: If your death occurs while you are in the process of engaging in an illegal activity, it will likely be excluded.

In many states, these exclusions are only in effect during the first two years that you have a policy. Be sure to read your life insurance policy fully to find out if these exclusions or others are included in yours and for how long.

March 22, 2011

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