Understanding Your Policy Exclusions

Life insurance is an important component of many well-rounded financial plans. Unless you have enough money saved away for your family to be taken care of in case something happens to you, you should have life insurance. When you sign up for life insurance, you want to carefully examine your policy. Many life insurance policies have exclusions, or instances when your policy will not pay. Before signing up for life insurance, be sure to find out what exclusions apply to your policy. Some of the more common policy exclusions are listed below.

Suicide

Your life insurance policy might not pay your family any money if your death is deemed to be a suicide. Often this exclusion is in place for the first two years that you hold your insurance policy, but you will have to read your policy carefully to make sure. Hopefully you will not have thoughts of suicide, so this exclusion will not be a big deal.

Drug and Alcohol Abuse

Do you have problems with drug or alcohol abuse? If you do, your best bet would be to get help, but also be aware that some insurance policies will not pay out if your death comes as a result of alcohol or drugs. You don’t have to abuse drugs or alcohol for this exclusion to affect you. If you drink on occasion, you could end up in an alcohol related accident. If your life insurance policy has an exclusion for alcohol or drug related incidents, you may want to think twice about how much you drink.

Risky Activities

If you like skydiving, race car driving, or flying your own private plane, you may discover that your life insurance policy has an exclusion for your favorite activity. If you die while engaged in your hobby, your family might not receive any life insurance money. Not all insurance companies have this exclusion, but they may choose to insure you at a higher rate if you like to regularly participate in dangerous activities.

Incontestability

An incontestability clause is a provision that your policy holder will often put into your policy. For a period of time (usually about two years), the insurance company can change your benefits or premiums if they discover that you misled or lied on your insurance application. After this period of incontestability, your insurance company cannot increase your premiums or change your benefits. This doesn’t mean that you shouldn’t be honest on your insurance application, but it is possible to forget a minor illness that you had as a child when you fill out your life insurance application. When reviewing your insurance policy, be sure to find out what the period of incontestability is.

Expiring Exclusions

Many policy exclusions will only be in effect for a certain time after the policy goes into effect. While nobody wants to actually have to collect on their life insurance, you certainly don’t want to die and leave your family unable to collect any of their life insurance money. Not all insurance companies will have the same exclusions, so if the policy that you are looking at has an exclusion that is unacceptable to you, you may wish to purchase another policy, even if the premiums are a little higher. After all, isn’t having peace of mind that your family will be financially secure if something happens to you what life insurance is all about?