What Does Life Insurance Cover?
Life insurance covers most natural or accidental deaths. There are some exceptions that most policies don’t cover, like if you pass away within the first two years of your policy. Learning what’s covered, how the payout works and how much coverage you need can help guarantee protection.
- Written by Lindsey Crossmier
Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.Read More
- Edited ByLamia Chowdhury
Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.Read More
- Reviewed ByEric Estevez
Owner of HLC Insurance Broker, LLC
Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.Read More
- Published: August 31, 2022
- Updated: May 23, 2023
- 5 min read time
- This page features 4 Cited Research Articles
- Edited By
What Does Life Insurance Cover?
In most cases, life insurance policies provide a financial safety net for your loved ones if you pass away. But your cause of death must fall within certain guidelines in order to receive the death benefit.
- Illness or natural causes, like cancer or heart disease
- Accidental death, like a motorcycle accident
- Suicide (if the policy has been active for at least two years)
- Drug overdose
Your beneficiaries can use your death benefit to cover any expenses, whether it’s related to funeral costs or everyday expenses. If the policyholder was the breadwinner of the family, there will likely be a large gap to cover.
According to a Statista report published in 2022, 37% of life insurance policyholders said they purchased a life insurance policy with the intent to replace their income. And 30% reported they purchased a life insurance policy for burial expenses.
Keep in mind that there aren’t guidelines on what you can use a death benefit for. If you are the beneficiary, you can use the death benefit to cover whatever you deem necessary.
- Mortgage payments
- Tuition payments to send your kids to college
- Personal debt
- Day-to-day expenses
- Leave an inheritance
- Funeral and burial costs
There are two main types of life insurance — term and permanent. They both cover the same types of deaths listed above, and you can use the death benefit to cover any of your expenses. However, there are some differences in coverage length rules.
What Does Term Life Insurance Cover?
Term life insurance will only provide coverage if the policyholder passes away while the policy is active. You select the length of your term when you purchase the policy. Common term lengths are 10, 20 or 30 years.
What Does Permanent Life Insurance Cover?
Permanent life insurance offers lifelong coverage. If your premiums are paid, then your beneficiary will always receive a death benefit.
All permanent policies have a cash value component, which grows tax deferred. With most policies, you can borrow from your cash value while you’re still alive. You could use these funds to cover retirement goals or unexpected medical costs.
What Are Some Things That Life Insurance Doesn’t Cover?
How the policyholder passes away determines if the beneficiary receives a death benefit or not. There are specific types of death that most life insurance companies do not cover. The way you fill out your life insurance application will also determine if you get coverage or not.
- Note that suicide is only covered by life insurance if the policy has already been active for two years. If the policyholder commits suicide before the two-year mark, there will likely be no coverage.
- Application Fraud
- If you lie about your current health status or lifestyle, you could be denied coverage. Make sure you’re honest about any pre-existing conditions, smoking habits or treatments being received when applying for a life insurance policy.
- Coverage will only be denied in the case of murder if the beneficiary is found to be involved with the crime. Otherwise, life insurance covers murder.
- Expired policy
- If you have a term policy, which expires, you will not receive coverage after your term length ends. So, if you die after your policy expires, no death benefit will be paid.
- Lapsed payment
- If you have a policy with fixed premiums and stop making payments, then your policy will lapse. If you pass away while the policy is lapsed, coverage will likely be denied.
- High-risk activity
- If you don’t disclose that you regularly enjoy a high-risk activity like rock climbing or skydiving, and you pass away while doing the risky hobby — coverage will likely be denied.
How Quickly Is Life Insurance Paid Out?
After all necessary documents are sent to the life insurance company, life insurance benefits typically take 30 to 60 days to be paid out. If there are any missing documentation, the process will likely take longer.
If are the beneficiary and want to receive the death benefit closer to the 30-day time frame, make sure you have all required documents. This includes, but isn’t limited to, the certified death report, a police report, toxicology report and autopsy.
How to Determine How Much Life Insurance Coverage You Need
There are two common approaches to calculating how much life insurance you need.
For a simplified estimate, multiply your income by 10. For example, if your salary is $75,000, you should get at least $750,000 of coverage.
If you want a more realistic life insurance coverage estimate — use the DIME rule. DIME is an acronym that stands for debt, income, mortgage and education. If you have outstanding debt, a mortgage or children you want to send to college, the DIME rule will give you a better estimate of the coverage you need.
You can use a life insurance calculator if you’re having difficulty determining how much coverage you need.
4 Cited Research Articles
- Statista. (2022, June 28). Distribution of Life Insurance Ownership in the United States From 2011 to 2021. Retrieved from https://www.statista.com/statistics/455614/life-insurance-ownership-usa/
- Dubey, N. (2021, September 1). 8 Major Death Cases Which Are Not Covered in Term Life Insurance Retrieved from https://economictimes.indiatimes.com/wealth/insure/life-insurance/8-major-death-cases-which-are-not-covered-in-term-life-insurance/articleshow/70444745.cms
- Kadetskaya, T. (2021, August 31). How Long Does It Take for Life Insurance to Pay Out Death Benefits? Lawyers Explain How to Get Your Check Fast. Retrieved https://life-insurance-lawyer.com/how-long-for-life-insurance-to-pay/#:~:text=When%20a%20claim%20is%20delayed,claims%20are%20still%20unfairly%20delayed
- Kadetskaya, T. (2020, October 23). Life Insurance Claim Process: How to File for Benefits After Death. Retrieved from https://life-insurance-lawyer.com/how-to-claim-life-insurance/