Limitations of Life Insurance

Insurance Quotes -> Life Insurance -> Life Insurance Articles -> Limitations of Life Insurance

A life insurance policy is a insurance policy designed to pay a designated beneficiary a specified sum of money upon the death of the insured. The insurance policy may be bought by someone other than the insured and the beneficiary of the policy may be someone other than the buyer. The beneficiary of a life insurance policy is usually someone who is financially dependent upon the insured during his or her life.

Exclusions, Restrictions and Limitations

Most life insurance policies include a series of exclusions, restrictions, or limitations in the policy that is designed to withhold payment under certain circumstances. Most life insurance companies do not pay out should the insured be involved in “acts of war” or “while active in the military service”. Furthermore, most life insurance companies will not payout if the insured commits suicide within a specified period of time after policy issue (usually two years). There is also a contestability period in which the insurance company can contest cause of death and request additional information before paying (usually a two year period).

Types of Policies

The two major types of life insurance are term and permanent. Term life insurance covers the insured for a specific period of time. If the insured person dies within the specified period, then the life insurance pays out. Permanent life insurance has no designated time period and will pay out upon death as long as the premiums are paid. Although there are advantages to both depending upon the lifestyle and need of an individual, there are also disadvantages and limitations. Some limitations of life insurance include:

• For Term life insurance the premiums increase as the insured ages
• Coverage under a term life insurance policy may cease or premiums may increase due to age or health.
• Term life insurance does not offer a cash value option so there is no way to borrow against a term life insurance policy and there are no investment options.
• Permanent life insurance premium levels can be high, making it costly to purchase enough life insurance.
• Premiums must be paid on time for permanent life insurance or coverage will lapse.
• Although it is sometimes possible to convert a term life insurance policy into a permanent policy, there must be a clause in the contract mentioning this availability.
• Some types of permanent life insurance offer premium and/or investment flexibility, others do not.

Evaluations

Life insurance companies are allowed to evaluate an individual based on a series of criteria. Based on the answers to these questions, a company can deny coverage to an individual or increase premium rates based on those answers. Some of the criteria they need to determine coverage and cost are:

• Age
• Gender
• Height and weight
• Purpose of insurance (estate planning versus family protection)
• Marital status and children
• The amount of insurance the applicant already has
• Occupation (hazardous occupations increase risk of death)
• Income
• Tobacco and alcohol use
• Hobbies (hazardous hobbies increase risk of death – for example skydiving is a high risk hobby)
• Foreign travel

Coverage

There are also limitations on the amount of coverage one can buy. Companies usually have upper limits to policy payouts. There are also restrictions on borrowing against the cash value of a life insurance policy. Usually such borrowing has to be paid back with interest or is deducted from the death benefit upon the death of the insured.

Get Your Free Life Insurance Quotes Now By Filling Out the Quick Form At The Top Of This Page.

USInsuranceOnline provides quotes for life insurance of all types so our members can compare prices and save money.