Monday, May 27, 2013

Exclusions in Life Insurance

Life insurance policies also contain certain exclusions or restrictions. The main exclusions are:
  • Suicide Exclusion. Initially, life insurance contracts excluded suicide entirely. But this exclusion left dependents without protection, which defeated the purpose of purchasing the coverage. Also, it was incorrect to exclude suicide completely, because death by suicide is included in the mortality tables upon which premiums are based. So, the majority of life insurance policies issued today contain a time provision (usually two years) that restricts liability in the event of suicide. Although, occasionally, it is only one year or less. A typical provision is that in the event of suicide within this period, the liability of the company shall be restricted to an amount equal to the total of premiums paid, without interest, less any indebtedness.
  • Aviation Exclusion. Aviation exclusions are rarely found in life insurance policies, but among the types of aviation restrictions still in existence are: 1) exclusion of all aviationcaused or -related deaths, except those of fare-paying passengers on regularly scheduled airlines; 2) exclusion of deaths in military aircraft only or death while on military
    maneuvers; and 3) exclusion of pilots, crew members, student pilots and (sometimes) anyone with duties in flight or while descending from an aircraft (for example, parachuting). Companies that use these restrictions will usually cover you in the event of a civil aviation death for an extra premium. The exclusions or restrictions apply only to those
    unwilling to pay the extra premium.
  • War and Military Service Exclusion. In wartime, it’s common for companies to limit the death benefit paid to a refund of premium, plus interest—or possibly an amount equal to the policy’s cash value. Also, the policy’s benefits often are suspended during a war or an act of war. There are two types of restrictions or clauses that may be used: 1) the status clause, which excludes the payment of the death benefit while you are serving in the military; and 2) the results clause, which excludes the payment of the death benefit if you are killed as a result of war.
  • Hazardous Occupations and Avocations Exclusion. By today’s underwriting standards, few applicants are declined life insurance because of their occupations. Much of the underwriting attention in this area focuses on avocations or hobbies. If you participate in a hazardous hobby— such as auto racing, sky diving, scuba diving, etc.—then the amount of insurance you can get may be limited, or you may have to pay an extra premium. And the death benefit may be excluded if your death is a result of the hazardous avocation.

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