Life insurance is meant to protect your loved ones, but it doesn’t always pay out. According to Western Southern Financial Group, in 2022, $321 billion was paid in benefits, yet many claims were still denied. If your policy has exclusions, your beneficiaries may not receive the financial support you intended.
Here’s what can disqualify your payout and how to avoid these pitfalls.
Common Reasons Life Insurance Won’t Pay Out
Insurance companies follow strict guidelines to avoid fraud and manage risk. Here are the most common reasons claims get denied:
Non-Payment of Premiums
Missing premium payments can cause your policy to lapse, leaving your family with no coverage. You usually have a 30-day grace period to make a payment, but if it is missing, your policy is no longer active.
Tip: Set up automatic payments to avoid missed premiums.
Misrepresentation on the Application
Any false or incomplete information, even if unrelated to your death, can result in claim denial, especially during the contestability period (usually the first 2 years).
Tip: Always provide accurate information, even about high-risk behaviors or medical conditions, to avoid denial.
Suicide Clause & Contestability Period
Most policies have a suicide clause, which limits payouts if you die by suicide within the first 1-2 years of coverage. After that, suicide is covered like any other cause of death. During the contestability period, insurers can also investigate your application for misrepresentations.
Tip: Make sure your policy remains active after this period.
High-Risk Activities & Criminal Activity
Death caused by high-risk activities like skydiving or illegal activities is usually excluded from coverage.
Tip: Disclose any risky activities to your insurer and consider adding a rider to cover them.
Death During the Waiting Period
Some policies, especially guaranteed issue ones, have a waiting period (usually 2-3 years) before full coverage kicks in. If you die during this period, your beneficiaries will only receive a refund of the premiums paid, plus modest interest.
Tip: Be aware of your policy’s waiting period.
Expiration of Term Life Policies
Term life insurance only lasts for a set period (e.g., 10, 20, or 30 years). If you die after your term expires, no payout will be made, regardless of how long you paid premiums, because the policy is no longer in force.
Tip: Review your policy before it expires to explore options like renewal or conversion to permanent coverage.
Understanding the Life Insurance Suicide Clause
The suicide clause in life insurance policies typically applies for the first 1-2 years after you buy coverage. During this time, if the insured dies by suicide, beneficiaries usually receive only the premiums paid, not the full death benefit.
What is the Contestability Period?
Alongside the suicide clause, the contestability period allows insurers to investigate your application thoroughly for any misrepresentations or omissions, even if they’re unrelated to the cause of death.
Once the contestability period ends, your policy is more secure, but be aware that fraud or misrepresentation can still result in a denial.
State Regulations and Exceptions for Suicide Claims
State laws vary, but most states limit the suicide clause to 1-2 years. Some states (like Missouri) even offer additional protections. Certain situations, like mental illness or military service, might also create exceptions.
If you are interested in knowing your state’s regulations, you can read our article about Life Settlement Regulations by State.
When Suicide Occurs | What Happens to the Claim |
During the exclusion period | Beneficiaries typically receive only a refund of premiums paid |
After the exclusion period | Full death benefit paid as with any other cause of death |
With policy reinstatement | The exclusion period often restarts from the reinstatement date |
What Happens When Your Term Life Policy Expires?
When your term life insurance expires, your coverage ends. Many people forget about the expiration dates, leaving their families without a safety net. If you die after the term ends, your beneficiaries will receive nothing.
Options Before Expiration:
- Policy Renewal: Some insurers allow you to renew your policy, but at higher premiums.
- Policy Conversion: You may be able to convert to permanent insurance if your policy includes this option.
- Buying New Coverage: If you’re healthy, applying for new coverage may be an option, but premiums will be higher as you age.
Option | Advantage | Drawback |
Renewal | No new medical exam | Extremely expensive premiums |
Conversion | Preserves original health rating | Higher premiums than term |
New Policy | Potentially lower cost than renewal | Requires a new medical qualification |
Let It Expire | No more premium payments | No death benefit protection |
Life Settlements as an Alternative
If your life insurance policy is nearing expiration, or you’re over 65, a life settlement can be a valuable option. By selling your policy, you can access cash immediately instead of letting it lapse. It’s an alternative that may offer more financial support than the policy’s surrender value.
Does Life Insurance Cover Suicidal Death?
Suicidal deaths are a common concern when it comes to life insurance payouts. Here’s what you need to know:
Suicide Clause and Contestability Period
The suicide clause limits payouts for suicides within the first 1-2 years of the policy. After this period, death by suicide is generally covered just like any other cause of death. However, during the contestability period, the insurer can investigate whether the application was fraudulent or misrepresented.
State Regulations and Exceptions for Suicide Claims
State laws may provide additional protections, so it’s important to understand how your state handles suicide claims. Some states offer more favorable terms or exceptions in cases involving mental illness or military service.
How to Protect Your Beneficiaries
To ensure your loved ones receive the benefit you intend, follow these steps:
Keep Your Policy Updated
Review your policy regularly, especially after major life changes like marriage, children, or buying a home. Make sure your beneficiary designations are up to date.
Pay Premiums on Time
Set up automatic payments to avoid lapses, and keep track of renewal notices.
Disclose High-Risk Activities
Always inform your insurer about high-risk activities like skydiving, scuba diving, or private aviation. Some insurers offer riders to cover these activities for an additional premium.
Choose the Right Coverage
Ensure your policy fits your current financial needs. Review your coverage regularly and make adjustments as needed.
Policy Type | Best For | Key Benefit |
Term | Temporary needs like mortgage protection | Affordable coverage for a specific timeframe |
Whole Life | Lifetime coverage and estate planning | Guaranteed death benefit and cash value |
Universal Life | Flexible premium and coverage needs | Adjustable premiums and death benefits |
Life Settlements: A Valuable Alternative
If your life insurance policy is no longer affordable or you’re facing the expiration of a term policy, a life settlement could provide immediate cash. A life settlement lets you sell your life insurance policy to a third party for more than its surrender value but less than the death benefit. It’s an excellent option if your policy no longer serves your needs.
Conclusion
Understanding what can disqualify your life insurance payout is crucial to protecting your family’s financial future. Regularly review your policy, keep it updated, and ensure you’re disclosing all necessary information. If your policy is nearing expiration, consider exploring life settlements for immediate financial support.
Get a free policy evaluation to see if a life settlement is the right option for you. Please note: policies with material misrepresentation, suicide risk, or other compliance concerns may not qualify for purchase. We provide clarity on your options, so you can make an informed decision.
