Policy Exclusions
Life insurance policies contain exclusions—situations where the death benefit will not be paid. Understanding these exclusions is important for both the exam and for setting client expectations.
Suicide Clause
The suicide clause (also called the suicide exclusion) limits or excludes death benefits if the insured commits suicide within a specified period.
How It Works
| Period | Result If Suicide |
|---|---|
| First 2 years | No death benefit paid; premiums returned |
| After 2 years | Full death benefit paid |
Key Points
| Point | Explanation |
|---|---|
| Period | Typically 2 years from policy issue |
| Reinstatement | New 2-year period may begin after reinstatement |
| Return of premium | Premiums paid (without interest) returned to beneficiary |
| Not contestability | Different from incontestability clause |
Policy Rationale
The suicide clause:
- Protects against purchasing insurance with intent to commit suicide
- Allows payment after reasonable period (presumably original intent was not suicide)
- Balances protection against fraud with eventual coverage
Example
| Scenario | Death Benefit |
|---|---|
| Insured commits suicide 6 months after policy issue | Premiums returned, no death benefit |
| Insured commits suicide 30 months after policy issue | Full death benefit paid |
Exam Tip: The suicide clause and incontestability clause are separate provisions. After 2 years, both clauses have expired—the policy is both incontestable AND the suicide exclusion no longer applies.
Aviation Exclusions
Some policies contain aviation exclusions that limit or exclude coverage for deaths related to aviation.
Types of Aviation Exclusions
| Type | Coverage |
|---|---|
| No exclusion | Death covered regardless of aviation involvement |
| Private pilot exclusion | Excludes death as pilot of non-commercial aircraft |
| Commercial passenger only | Covers only commercial airline passengers |
| Complete exclusion | Excludes any aviation-related death |
Modern Approach
| Trend | Details |
|---|---|
| Less common | Many policies no longer have aviation exclusions |
| Commercial passengers | Almost universally covered |
| Private pilots | May be rated or excluded |
| Military aviation | Often excluded or rated separately |
If Aviation Exclusion Applies
When death occurs in excluded aviation activity:
- Death benefit is NOT paid
- Premiums paid may be returned
- Policy terms dictate specific outcome
War/Military Action Exclusions
War exclusions limit or exclude coverage for deaths related to war or military action.
Types of War Exclusions
| Type | Description |
|---|---|
| Status clause | Excludes death while in military service |
| Results clause | Excludes death resulting from war (broader) |
Common Coverage Situations
| Situation | Typical Coverage |
|---|---|
| Active duty, peacetime | Usually covered |
| Active duty, combat | May be excluded |
| Death from act of war | Often excluded |
| Terrorist attack (civilian) | Usually covered |
| Nuclear/chemical warfare | Usually excluded |
War Exclusion Periods
| Trigger | Duration |
|---|---|
| Declared war | During war |
| Military conflict | During conflict period |
| Specified period | As defined in policy |
Important Considerations
- Many policies no longer include war exclusions
- Exclusion may be waived for additional premium
- Military-specific policies may have different terms
- SGLI (Servicemembers' Group Life Insurance) has no war exclusion
Hazardous Activities Exclusions
Some policies exclude or rate up coverage for hazardous activities or occupations.
Common Hazardous Activities
| Activity | Risk Level |
|---|---|
| Skydiving | High |
| Scuba diving | Moderate to high |
| Mountain climbing | High |
| Racing (auto, motorcycle) | High |
| Hang gliding | High |
Hazardous Occupations
| Occupation | Examples |
|---|---|
| Mining | Underground mining |
| Logging | Timber operations |
| Commercial fishing | Deep sea, crab fishing |
| High-rise construction | Steelworkers, roofers |
How Insurers Handle Hazardous Activities
| Approach | Description |
|---|---|
| Exclusion rider | Death from activity not covered |
| Flat extra premium | Additional premium for coverage |
| Rating | Higher rate classification |
| Decline | Application denied |
Other Exclusions
Illegal Activity Exclusion
Some policies may exclude death resulting from:
- Commission of a felony
- Illegal drug use
- Driving under the influence
Contestability vs. Exclusions
| Feature | Contestability | Exclusions |
|---|---|---|
| Time limit | First 2 years only | Entire policy life |
| Applies to | Misrepresentation on application | Specific circumstances |
| After expiration | Cannot void policy | May still apply |
What Happens When Exclusion Applies
| Exclusion Applied | Typical Result |
|---|---|
| Death during exclusion period | No death benefit |
| Premium refund | Often premiums returned |
| Partial exclusion | Reduced benefit possible |
| Accidental death rider | May have separate exclusions |
Key Takeaways
- Suicide clause: No death benefit if suicide within 2 years (premiums returned)
- Aviation exclusions: May exclude private pilots or specific aviation activities
- War exclusions: May exclude death from war or military action
- Hazardous activities: May be excluded, rated up, or declined
- Exclusions apply for the life of the policy (unlike incontestability)
- When exclusion applies, death benefit is typically not paid
- Many modern policies have fewer exclusions than older policies
If an insured commits suicide 18 months after a life insurance policy is issued, the insurer will typically:
The suicide clause in a life insurance policy typically excludes coverage for suicide during the first:
Policy exclusions differ from the incontestability clause in that exclusions:
11.1 Nonforfeiture Options
Chapter 11: Policy Options and Riders