Life Insurance Exclusions

In all types of insurance policies, there are limits to what a holder can do or can claim.  Provisions and exclusions are the proper terms for these limits.  The scope it these include how a policy may be used.  The most common exclusions in life insurance policies are the following: grace period provision, ownership clause, change of plan provision, incontestability clause and a reinstatement clause.

For as long as the policy holder is living, that person has the sole right to choose beneficiaries, receive benefits of the policy, changes in policy and cash value.  This is included in the ownership clause wherein the policy holder, by contract, is the owner of all the rights in the insurance policy.

The incontestability clause is used to protect the policyholder from the insurance provider because it states that the benefits cannot be contested due to false information or misrepresentation. For instance, you had a stroke and failed to mention it to the company during the application process; however, it was only discovered after two years.  They are no longer in authority to change your premium rates or benefits.  This is precisely the reason why insurance carriers are very strict when it comes to the over-all health of applicants, their medical exams and history.

Grace period provision indicates that the policy holder has a time period or grade period after the premium due date, in which the payment can still be made. This is usually between 30-31 days.  For instance, if there is an unsettled payment for premiums upon the death of the policy holder and is well within the grace period, the heirs can still avail of the cash benefit.  The amount due will just be deducted from the benefits.  However, if the premium payment due date has already gone over the 30-31 day grace period, the reinstatement clause shall be followed.  Only upon certain conditions will the holder be able to reinstate the policy where in payment for all overdue premiums should be settled.  If the overdue has been for over two months, the holder needs to show proof of eligibility.  Also, there must be repayment of all policy loans taken out on whole life policies and other types.  Less than five years, is the lapse period.

The suicide clause indicates that the insurance carrier is not obliged to give the death benefit to the heirs, if the policy holder commits suicide within two years of the date of purchase. Only the value of payment premiums shall be return.  This clause is made in order to discourage people from turning to suicide a means of settling their debts or relieving themselves from financial burdens.

The war exclusion states that the insurance company will not pay for benefits of a person who dies because of an ongoing war. The aviation exclusion notes that the insurance company will not pay for death benefits if the policy holder dies in a crash of a private plan, or if he/she is on a commercial flight but not as a passenger.

Insurance companies also have dangerous activities exclusions, where in, they will not pay for deaths related to rock climbing, car racing and the like.  This exclusion is not common because most companies will be willing to cover individuals who participate in these activities, for a higher rate.