What Life Insurance Actually Covers: Common Myths vs Reality

Introduction: Life Insurance, a Misunderstood Tool

Worried about life insurance being stingy with payouts? This is a common fear. Everyone wants to ensure their loved ones will be protected, but will life insurance cover all illnesses, accidents, or suicides?

In this guide, we will go over life insurance coverage and exclusions, debunk common myths, and explain how to get the most out of your coverage.

Death by Natural Causes: Covered

Life insurance can provide death benefits following illnesses such as:

• Cancer
• Heart disease
• Stroke
• Respiratory illness
• Age-related conditions

The diagnosed illness is not usually a reason for non-payment so long as the policy is active. Regular term and whole life insurance policies will pay out for natural deaths.

Death from Accidents: Typically Covered

An accidental death is usually covered by life insurance. For example:

• Car accidents
• Workplace injuries
• Drowning
• Fire
• Falling

The exceptions that happen relate to accidental overdoses and criminal activity.

Do I need AD&D insurance?

Accidental death and dismemberment (AD&D) insurance is not the same as regular life insurance. It covers specific risks and provides large lump sums if the policyholder gets disabled or dies in an accidental death. You may want AD&D insurance for extra income replacement protection, especially if you’re worried about financial stability and working a dangerous job.

Pandemics & Public Health Emergencies: Special Cases

After the COVID-19 pandemic, many people began wondering if life insurance actually covers these special pandemics, viral outbreaks, or public health emergencies. Misinformation has spread that insurance won’t pay for pandemic deaths. This is not true. Traditional life insurance policies generally cover pandemic cases.

However, there are exceptions. If you misrepresent your health on your application, this greatly raises the risk of a claim denial. Fraud and misrepresentations related to COVID-19 symptoms can lead to a wary life insurance company. For example, life insurance companies may raise your life insurance premium if you suffer from long COVID symptoms or have had a severe infection of any kind in the past that you failed to disclose.

Suicide Clauses, The Most Misunderstood Situation

Suicides can be covered by life insurance. There is an exclusion period (usually of two years) during which life insurance companies can deny a claim for more reasons. During this time, suicide can be a reason for claim denial.

If suicide occurs after the exclusion period, then the policy should pay out.

What happens if a suicide occurs during the exclusion period?

Beneficiaries will receive the premiums paid so far back if suicide occurs during the exclusion window. The intention of the life insurance exclusion period is to prevent fraud, not to punish mental health issues.

Death Caused by Fraud or Misrepresentation

Do not commit life insurance fraud. Life insurance companies are experienced at uncovering fraud, and if the applicant has committed fraud or misrepresented details on purpose, it can cause issues with the life insurance payout during the contestability period (~first 2 years).

Insurers may deny the death benefit claim during the contestability period if the applicant:

• Lied about health history
• Hid smoking or drug use
• Concealed risky hobbies (e.g. adventure sports such as skydiving)

Illegal Activities & Criminal Behavior

Life insurance companies often deny claims for deaths related to illegal activities or criminal behavior, such as:

• Violent crime
• DUIs
• High-intoxication related incidents

Read your policy terms and conditions for more information since every policy can have its own exclusions and covered situations.

High-Risk Activities Not Disclosed

A lot of activities we engage in are more dangerous than we think. Private aviation, for example, comes with significantly high accident and death rates. Life insurance companies may charge a higher premium or require you to purchase an additional rider in order to qualify for coverage if you engage in high-risk activities such as:

• Scuba diving
• Racing
• Rock climbing
• Aviating

It’s recommended to disclose your lifestyle habits when applying for life insurance because if the life insurance company only finds out about it after you pass away because of that habit, then your loved ones might fail to receive any payout.

Pre-Existing Conditions

Many people erroneously believe that if they have a health condition, like diabetes, then life insurance won’t pay out. Actually, life insurance should pay out as long as you included the pre-existing condition on your application and the company still approved it.

Non-payment usually only occurs if you omitted the condition on your life insurance application or you misrepresented it during the contestability period.

Drug or Alcohol-Related Deaths

Drugs and alcohol can complicate things if they are related to the policyholder’s death.

Illegal drug use or intoxicated driving may void coverage. But what about accidental overdoses?

Accidental overdoses may be covered depending on whether your policy has self-inflicted harm and intoxication exclusions. Drug or alcohol-related deaths may be investigated for longer before payout.

Homicide Cases

Life insurance usually does cover homicide. However, there are serious exceptions. For example, if the beneficiary is involved, then the slayer rule could activate and prevent payout.

In addition, if death occurs during criminal involvement, life insurance may refuse to payout.

Life Insurance Riders

Riders are optional additions to your life insurance policy that can improve its utility for you and your beneficiaries. Sometimes, riders may be required by your insurer if you have a high risk that requires extra coverage.

Critical Illness Riders

If you opt to purchase a critical illness rider, it can provide a substantial lump-sum payout for illnesses such as:

• Cancer
• Heart attack
• Stroke

That way, the life insurance policy would be able to help with your personal treatment costs, travel, and lost wages.

Long-Term Care Riders

A long-term care rider specifically helps pay for long-term healthcare and caretaking living expenses, such as:

• Assisted living
• Nursing care
• In-home care

A long-term care rider can accelerate part of the death benefit to cover ongoing care needs, which may be needed if you encounter any health challenges as you age. This rider makes life insurance more flexible for you.

Disability Waiver of Premium Rider

Disability waiver of premium riders lets you waive life insurance payments if you become disabled and can no longer work. This is essentially a form of insurance for your insurance. It lets you maintain active life insurance coverage even if your income plummets.

Accidental Death & Dismemberment (AD&D)

AD&D insurance may be purchased as a rider to your life insurance. There are also AD&D options for travel insurance and other coverage types. The AD&D insurance rider increases payout if death or injury occurs due to a covered accident.

AD&D insurance can be valuable for people who have high-risk jobs, adventure sports hobbies, or physically active lifestyles.

Myth #1: Life insurance won’t pay if you die from illness

This myth couldn’t be more fake. Illnesses are the most commonly covered cause of death for life insurance.

Now, the exception comes if you misrepresent your health condition and risks when applying for life insurance. For example, if you have a serious health problem but you lied to your life insurance company when they asked about it on the application, then the claim will likely be rejected later on.

Myth #2: Suicide is never covered

Life insurance and suicide are a nuanced topic. Suicide may be a reason for denial, but it depends on whether the suicide is happening during the exclusion period. Many states and life insurance companies have a suicide clause that says if the policyholder passes away by suicide in that time period (usually 2 years), the life insurance company won’t pay out. This is to prevent people from purchasing life insurance for the sole purpose of getting the death benefit immediately.

Myth #3: COVID-19 or pandemics void coverage

Policies that are fully active during COVID (or other pandemics and outbreaks) usually should pay out upon death. Death benefits may be disrupted however if you have long COVID or have had a serious viral infection,

Myth #4: Employer insurance provides enough protection

Employers often provide life insurance benefits to entice employees into staying longer. It is good for employee retention because of its convenient protection for loved ones. Still, the reality is that most employer plans are limited in coverage. Supplemental coverage is often recommended.

If you’re not sure whether you have enough coverage, review our guide on How to Determine the Right Coverage Amount.

Myth #5: Smokers cannot get covered

Smokers (and people with other medical conditions) can of course still get covered–eligibility is rarely affected. The only potential problem is that smokers and other lifestyle habits can result in significantly higher life insurance premiums (hundreds of dollars more a month).

If you are worried about medical exam life insurance policies because of health conditions or fears, you may want to apply for an Ethos no exam life insurance policy that lets you skip the medical exam part.

Always Disclose Honestly

Disclosure of your history before purchasing life insurance is the safe way to go, because honesty can protect you from claim denials later down the line. Things to disclose that matter to life insurance companies include:

• Full medical history
• Lifestyle habits
• High-risk hobbies (e.g. adventure sports)

Understand Your Contestability Period

The first 2 years after getting life insurance are the most important for accurate disclosures. Life insurance claim denials are the most common during this contestability period because life insurers are allowed to investigate claims thoroughly and deny benefits if they find any fraud or meaningful misrepresentations during your initial application.

Most life insurance companies set the contestability period to 2 years, but double check your policy to be sure. Inaccuracies that impact claims include the non-disclosure of conditions such as:

• Smoking
• Dangerous hobbies
• Known but undisclosed pre-existing conditions

Keep Beneficiaries Updated

You can list a person, a trust, or other entity as your life insurance beneficiary. It is always necessary to keep your beneficiary information updated. A common denial cause or insurance problem is if you have outdated or incorrect beneficiary information on your policy.

To ensure you’re keeping beneficiaries up-to-date, check your life insurance policy details every 3 to 5 years or after each major life event, such as:

• Divorce or marriage
• New child or grandchild
• Changed relationships
• Moving to a new state or country

Add Riders to Fill Gaps

Have any worrisome gaps in coverage? Chat with your life insurance agent to see whether you can purchase any policy riders or endorsements to fill up those gaps. Many life insurance companies allow you to customize your policy for extra coverage regarding illnesses, deadly accidents, disability, or long-term care.

Conclusion: Review the Policy Exclusions!

Life insurance protects your loved ones from nearly all unexpected events, but exclusions exist. Claim denials usually happen in the first 2 years (the contestability period). Common problems include:

• Misrepresenting or giving fraudulent information when applying
• Not understanding the life insurance suicide clause
• Not reading the policy exclusions (e.g. criminal activity exclusion)

So read your policy, ask questions, and consider insurance riders to build coverage that matches your real-life needs.