What Does Life Insurance Cover?
If you’re considering life insurance, then it’s likely that you have many questions. While the premise of life insurance may seem simple, there are different types and exemptions that you need to know. That often leads to the question of what does life insurance cover?
That’s what we’re going to delve into here. We’ll look at what life insurance covers, what exclusions apply, and what add-ons you can include in your policy. By the end, you should be much clearer on whether or not life insurance is for you.
Understanding Life Insurance Coverage
As most people know, life insurance is there to provide financial support to its beneficiaries on the death of the policy holder. The most important part of this policy is the death benefit, which is the lump sum paid.
This payout can be a vital lifeline to families that rely on the policyholder’s income. It is often used for a wide range of expenses, including funeral costs, debts, mortgage payments and education. However, not all policies are the same, and it’s important to know the differences.
Types of Life Insurance Policies
There are several types of life insurance policy but they can generally be divided into two categories, which are term life insurance and permanent life insurance.
Term Life Insurance
Term life insurance covers you for a specific period of time, such as ten years. If the policyholder dies within that term, the death benefit is paid out. If they don’t, the policy expires, and they are no longer covered. Due to this time limit, term life insurance is cheaper and more straightforward.
Permanent Life Insurance
Permanent life insurance provides you with lifelong coverage but comes at a greater cost. It can also be more complicated as there are several forms, such as universal life and variable life. These policies usually have a cash value component that can be borrowed against or withdrawn.
What are the Exclusions and Limitations of Life Insurance?
In terms of what life insurance covers, it’s more or less anything that causes death. However, there are a few exceptions. It’s important to know what these are before signing up to a policy.
Suicide
The vast majority of life insurance policies have a suicide clause. This doesn’t mean that they won’t pay out, but it includes a timeframe. For example, there will be no payout if the policyholder commits suicide within the first two years of the policy.
It’s vital to be open and honest when getting a life insurance policy. For example, if the policyholder didn’t provide information about a previous suicide attempt or a mental health diagnosis, the policy may be declared invalid.
Fraud and Misrepresentation
As we just inferred, providing any false information can lead to a denial of a claim. A common example is someone not declaring they are a smoker. It may be tempting to try and get a cheaper premium, but dishonesty can lead to a denied claim.
Risky Activities
Some policies may exclude deaths that result from high-risk activities. The policy will have a list of these activities, but they are usually extreme sports such as base jumping. If you enjoy one of these activities, it’s important to disclose it and have it as an add-on to your policy.
Pre-existing Conditions
It’s not always an exclusion but pre-existing medical conditions can affect the terms or the coverage. Some policies may ask you to pay a higher premium, while others may exclude it entirely. It’s vital to double-check this before you sign up.
Additional Coverage Riders
If you’re not happy with the coverage offered, there are some riders you can add to your policy. These can help to enhance your coverage and give you a better level of protection.
Accidental Death Benefit Rider
The rider will give the beneficiaries a higher payout if the death was accidental. The thinking behind this is that it gives loved ones more of a financial cushion if the death is unexpected and they have no time to prepare financially.
Critical Illness Rider
This takes a similar approach to critical illness insurance. If the policyholder is diagnosed with a specified illness, a lump sum payout is given to the beneficiaries. This can help cover medical expenses and lost income.
Waiver of Premium Rider
If the policyholder becomes disabled, this can keep the policy in force even if the policyholder becomes unable to make the payments.
Child/Parent/Partner Rider
You can also get a rider to cover loved ones such as children, parents, or partners. This is generally cheaper and simpler than getting a separate life insurance policy. The payouts may not be as big, but they can cover some key expenses, such as a funeral.
Other Riders
There are plenty of other riders that can cover you in more specific circumstances. These can cover you for the likes of terminal illness, mortgage payments, hospitalization, or long-term care. It’s a great idea to ask your provider what types of riders are available on your policy.
Final Thoughts
Before entering into any type of policy, it’s important to know the terms and conditions. Getting the right life insurance will give you and your family peace of mind, but you need to know exactly what is covered and whether or not the exclusions will apply to you.
Whether you choose term or permanent life insurance, the most important thing is to get a policy which fits in with your specific needs. If you’re looking for life insurance or simply need more information, call Ron Johnston Insurance and we’ll be happy to find the perfect policy for you.