What does life insurance cover?

Life insurance covers most causes of death, with a few exceptions — and your beneficiaries can use the payout to cover anything they need, including everyday expenses, outstanding debts, childcare, and funeral costs.

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Tory CrowleyAssociate Editor & Licensed Life Insurance AgentTory Crowley is an associate life insurance and annuities editor and a licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.&Rebecca ShoenthalEditor & Licensed Life Insurance ExpertRebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

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Julia KaganJulia KaganContributing EditorJulia Kagan is a contributing editor at Policygenius, where she specializes in life insurance. Previously, Julia was the senior personal finance editor at Investopedia for nearly a decade, a vice president and editorial director at Consumer Reports, the editor of Psychology Today, and the vice president of content at Zagat Surveys.
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Ian Bloom, CFP®, RLP®Ian Bloom, CFP®, RLP®Certified Financial PlannerIan Bloom, CFP®, RLP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, he was a financial advisor at MetLife and MassMutual.

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Life insurance companies pay a death benefit to your beneficiaries if you die while your policy is active. There are some rare situations when you won't be covered by life insurance, such as if you lied on your application or if you die by suicide within the first two years of your policy.

Your beneficiaries will receive the payout as a tax-free lump sum and can use the money for anything, whether it’s a mortgage, college savings, or funeral expenses.

Key Takeaways

  • Life insurance covers most causes of death, with a few exceptions.

  • Life insurance doesn’t cover suicide for the first two years of the policy or death that occurs while committing a felony.

  • Beneficiaries can use the money from the payout to cover anything they want

  • Most beneficiaries use the funds they receive to cover funeral expenses, pay off debt, or replace lost income of the person who died.

What is covered by a life insurance policy?

What’s covered by life insurance falls into two categories: 

  • The causes of death insured by your life insurance policy, and 

  • The kind of expenses that can be paid with the policy’s death benefit.

It’s extremely rare that the insurer will need to intervene in either category, but it can happen. 

What causes of death are covered by life insurance?

Life insurance policies cover almost all deaths, with a few exclusions. As long as your policy is active when you die, life insurance providers will pay out if your death is caused by:

  • Natural causes: For example, a heart attack, old age, or illnesses such as cancer

  • An accident: Including accidental overdose from a prescribed medication

  • Suicide: As long as it occurs after the policy’s two-year suicide clause period ends 

  • Homicide: Unless the beneficiary played a role in the murder

  • War or terrorism: In most cases — although some insurers do include exclusions for these causes of death

What expenses are covered by life insurance?

Your beneficiaries can spend your policy’s death benefit however they want. 

Beneficiaries usually use the financial support for:

  • Everyday expenses: Including monthly bills, groceries, and other household essentials

  • Outstanding debts: Including a mortgage, credit card debt, private student loans, or auto loans 

  • Childcare: Replacing care provided by a spouse 

  • End-of-life expenses: Such as funeral expenses or end-of-life medical care

  • College costs: To fund continuing education for your spouse or tuition for your children

Some policies have add-ons called riders that allow you to withdraw part of the death benefit while you’re alive. You need to have a qualifying condition, such as a terminal illness or a disability, and – unlike the death benefit – the money can only go toward related medical costs.

→ Learn more about how to use life insurance proceeds

Ready to shop for life insurance?

Can you determine how the death benefit from your policy is spent?

When you buy a life insurance policy, you’ll be able to name your beneficiaries and how much money they’ll receive when you die. And while you can explain your wishes for the money, it will be up to your beneficiary to manage at their discretion after you’re gone. 

If you wish for the funds to be used in a specific way, we recommend setting up a trust and a trustee to carry out your wishes. A trust can ensure that the money is used only for expenses that you’ve approved. 

What is not covered by life insurance?

Your beneficiaries won’t get the death benefit if your policy has expired or in situations involving fraud, certain criminal activities, or policy exclusions:

  • Expired policies: Policies only stay active while you pay your premiums and as long as your policy’s term. If your coverage expires before you die, or you lose your coverage because you missed your payments, your beneficiaries won’t get the death benefit.

  • Exclusions: If you have a high-risk hobby, like skydiving, you can get cheaper coverage by adding an exclusion into your policy, but then the policy won’t pay out if your death is skydiving-related.

  • Fraud: If you lie on your life insurance application, your provider can cancel your policy while you’re alive or deny or reduce the payout when you pass away.

  • Criminal activity: If you die while committing a felony, your provider may not pay out. And if a beneficiary commits a crime to try to get your insurance money, they won’t get a payout either.

→ Learn more about when life insurance doesn’t pay out

Ready to shop for life insurance?

How quickly does a life insurance policy pay out?

  • When you die, your beneficiary will need to file a claim with the insurer to confirm that you’ve passed away so they can receive the death benefit. 

  • Life insurance companies usually take two weeks to two months to process and pay out a claim after it’s been filed. 

  • If you die within the first two years of the policy (the contestability period) your insurer can review your application for fraud and any questionable circumstances surrounding your death. A review could delay payment for up to 60 days.

  • Delayed or denied claims are extremely rare. As long as you’re honest on your application, your policy will cover almost any cause of death, leaving your family with financial assistance for any of their present and future needs.

Learn more about how long it takes to receive a life insurance payout

Authors

Tory Crowley is an associate life insurance and annuities editor and a licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Editor

Julia Kagan is a contributing editor at Policygenius, where she specializes in life insurance. Previously, Julia was the senior personal finance editor at Investopedia for nearly a decade, a vice president and editorial director at Consumer Reports, the editor of Psychology Today, and the vice president of content at Zagat Surveys.

Expert reviewer

Ian Bloom, CFP®, RLP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, he was a financial advisor at MetLife and MassMutual.

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