On this page, we cover how life insurance works, highlighting some of the most popular riders and benefits available. We also review circumstances that can cause insurers to deny paying a claim. With that information, you can choose the right policy and avoid surprises if you ever need to make a claim.
What Does Life Insurance Cover?
Life insurance provides money when an insured person dies, although there are limited exceptions. When you purchase a policy and continue to pay premiums, you receive insurance protection in exchange. After death, beneficiaries receive a lump-sum payment, also known as a death benefit. Life insurance can be useful in several situations, such as protecting against the untimely death of a family member. For example, if a parent dies with young children in the household, a surviving parent needs extra funds to pay for basic needs, child care, funeral expenses, and other costs. Life insurance can provide those funds. In most cases, it doesn’t matter whether the insured dies due to illness, an accident, or other causes—as long as the policy doesn’t exclude the event leading to death.
Accelerated Death Benefits
In some cases, you can access the death benefit during life. For example, with an accelerated death benefit (ADB), the insured person can get money for substantial end-of-life medical expenses and other costs. When using this option, you take an advance against the death benefit, so the eventual death benefit for beneficiaries is smaller. To qualify for an ADB payment, you typically need to satisfy specific criteria. For example, you may need to be diagnosed with a terminal illness or lose the ability to perform certain basic functions, although other situations may also qualify. Once you satisfy the requirements, you have the option of using any available ADB funds. ADBs are available on several types of life insurance contracts, including term and permanent insurance policies. They may be offered as optional riders, but are not available on all policies. It’s critical to check for this coverage if it’s important to you.
Optional Riders
In addition to ADBs, other riders can potentially enhance your policy’s coverage. Keep in mind that you pay extra for riders, so choose features that you can afford to pay for over the long term.
Accidental Death Benefit
If you die in a qualifying accident, an accidental death benefit rider can provide a bigger death benefit than the face value of the policy. However, not all deaths are a result of accidents. For this reason, it’s best to buy life insurance with sufficient coverage should death result from an unexpected illness or natural causes as well.
Family Coverage
Some riders add coverage for additional family members, such as spouses, partners, or dependent children. You receive a death benefit if covered family members die, which can help pay for funeral costs and other expenses. That said, it may be best to buy separate insurance policies on each family member to maximize the benefits (such as accelerated death benefits and other optional riders).
Disability Income
If you’re unable to work, a disability income rider can provide income to replace a portion of your income. However, it may be wise to explore standalone disability insurance as well. Why? You might benefit from keeping a dedicated disability policy in force after your need for life insurance ends. (For example, if your children are grown and have moved out of the house, you may not need as much or any life insurance coverage.)
Waiver of Premium
It can be tragic to lose life insurance coverage if you’re disabled and you can’t afford to pay premiums. Waiver of premium riders can eliminate the need to pay premiums during periods of disability.
What Is Not Covered by Life Insurance?
Read your life insurance policy carefully to understand what’s not covered. Some of the most popular exclusions are below, but the details depend on which insurance company you use.
War and acts of terrorism: These events are often excluded, although some policies cover terrorism. Suicide: Death resulting from suicide or self-inflicted injuries is often excluded for the first two years after policy issue. Fraud: If your application contains false or misleading information, the insurance company may deny claims or reduce the death benefit. Illegal acts: If you die while engaging in criminal activity, the insurance company might not pay a death benefit. Dangerous hobbies: Some activities, like skydiving or SCUBA diving, may also be excluded. If you die as a result of injuries sustained during those activities, your beneficiaries might not receive a death benefit.
Permanent coverage can potentially last for your entire life. As long as you continue to pay the costs of insurance, your coverage remains in place (until paying out at death). With permanent policies, you typically pay premiums that exceed the cost of insurance during the early years of the policy. The extra amount you pay goes into a cash value that can potentially help pay insurance costs later in life. To buy life insurance, you typically complete an application and pay premiums. The application process might include a questionnaire and a health review, although some policies are available with no health exam. In some cases, you can get coverage (almost) instantly.
