One of the best features of a life insurance policy is that it will pay benefits as soon as the policy is in effect. Some people wonder how an insurance company can pay out a six-figure death benefit after receiving only a few premium payments, but that is actually what they are contractually obligated to do.
An insurance company will pay the death benefit even if it happens after only one or two premium payments. When an insurance company writes policies, it knows that policyholders will die at various times during life insurance policy terms. Some will live another 40 or 50 years, and yes, some will die within the first year. The policies will pay all of them.
There is one exception …
Most insurance policies have a built-in provision that prevents payment of death benefits in the event of suicide. However, this limitation is only temporary, usually not lasting more than two years. This is referred to as the period of contestability, and once it expires, the policy will be paid even if suicide is the cause of death.
This provision is put into place to prevent the idea that a person might take a very large life insurance policy and then commit suicide so that their loved ones will benefit from their death. While that is always possible once the period of contestability expires, it’s highly unlikely that the policyholder takes the policy with the express intent of committing suicide. The two-year delay makes it highly unlikely.
… and possibly one more
There is one more possible exception that may prevent an insurance company from paying out on a policy in event of your death: Health conditions.
If the insurance company has reason to believe that the insured died from a pre-existing condition that was not disclosed on the life insurance application, the company could decline payment on the policy. At a minimum, the insurer might delay payment in order to conduct a review of your prior medical history. This more likely to be suspected if the policy is fairly new.
It makes a strong case for filling out the application with complete accuracy
There is, of course, a way that you can prevent questions about your health from interfering with payment on the policy, and that is to fill out the insurance application as completely and accurately as possible.
People are often tempted to withhold certain information on a life insurance policy out of fear that the policy may be declined or that they may be charged a higher premium. However, there are three factors that you need to be aware of which might help you complete the application with complete accuracy:
- As mentioned above, the insurance company could deny paying on the policy if it determines that there were material inaccuracies on your application.
- During the application process, the insurance company conducts third-party verification of your health records, so it may have the information even if you don’t disclose it.
- The insurance company will likely approve your application – and not even charge you a higher premium – if you provide full disclosure of all health conditions.
It simply isn’t worth providing false information on your insurance application. If you do, you may spend years paying your premiums on a policy that your family will never collect on at the time of your death.
Which makes an even stronger case for getting life insurance when you are healthy
The time to apply for life insurance is when you’re in good health. Not only will your application be more likely to be approved, but there will be less incentive on your part to hide any health information.
A real-life example
Except for the two exclusions above, your life insurance policy will pay if you only made one or two premium payments. If you want proof, MCMHA.org host Neal Frankle – and his siblings – were able to get a solid start in life thanks to the receipt of life insurance proceeds from a policy taken out by his father just two months before his death.
Neal and his siblings were just teenagers at the time, and that life insurance policy – with just two payments made on it – provided them with opportunity that is benefiting them all even today.
It’s never too late to take out a life insurance policy!
This article originally appeared on MCMHA.org and was syndicated by MediaFeed.org.
Featured Image Credit: DepositPhotos.com.
