The death benefit from an active life insurance policy will cover almost every type of death, paying beneficiaries the policy’s full value.

The life insurance payout that beneficiaries receive can be used in any ways the beneficiaries like, whether to pay off a mortgage, support final expenses, investing in a child’s education, or even taking a vacation.

The common reasons that a life insurance policy would not pay out its death benefit include:

• The policyholder committed fraud when providing the insurance company with personal health information,
• The premiums are not up-to-date or the policy’s term has lapsed, or
• The policyholder (or a beneficiary) committed a criminal act that contributed to the policyholder’s death.

To understand the full levels of coverage for an existing life insurance policy with Fidelity Life, you can contact us directly to discuss your active policy.

Are there any limits on what you can use a death benefit for?

A life insurance death benefit can be used by the beneficiaries in any way they choose. A beneficiary may choose to cover the cost of an outstanding mortgage debt or final expenses with the death benefit payout, but they can also opt to put the funds towards savings, investments, or activities.

While most death benefits are not considered taxable income when directly distributed to a beneficiary, if the death benefit is held by the insurance company for a period of time agreed by the policyholder or if the death benefit contributes to an estate, there can be tax implications.

Types of death that are covered by life insurance

Generally, any type of death will be covered by an active life insurance policy. This includes natural causes, accidents, terminal illnesses, murder, and COVID-related deaths.

Suicide can be covered by a life insurance policy if it is not recognized as a concern during health screening and the suicide occurs after the insurers’ “contestability period” expires.

Reasons a life insurance policy may not pay a death benefit

Suicide

While many believe that suicide is not covered by life insurance, the reality is that most life insurance policies include a “suicide clause” — where suicides within the first few years of a policy will not be covered.

Fraud

If the policyholder withheld information or lied about their health status when they applied for an insurance policy, their death may not be covered.

Insurance companies will perform due diligence at the time of death to ensure that the policy they issued was not based on fraudulent information.

Criminal Death

A rare reason for not paying out a death benefit is when the policyholder is responsible for a criminal act that led to their death or if a beneficiary murders the policyholder.

Risky Jobs or Activities

When you apply for a life insurance policy, you will need to call out any risky sports or hobbies that you enjoy and provide your employment information.

If either your hobbies or your profession has an increased likelihood of accidental death, your insurer may limit the death benefit payout if your death occurs when engaging in those activities. However, this will be spelled out specifically when the policy is issued, so policyholders should be aware of this risk.

How long does it take for a life insurance policy to pay out?

When a policyholder dies, the insurance company will confirm the cause of death to ensure it aligns with the policyholder’s coverage.

In some cases, this can be a quick confirmation while other deaths may require a forensic investigation to validate the cause of death.

Insurers will then compare the health information provided by the policyholder with the cause of death to understand if there was any fraudulent information supplied by the policyholder, which could invalidate the policy.

Once cause of death and the policy’s validity is confirmed, the insurance company will work with beneficiaries to provide the death benefit payout in a timely manner. While, in some cases, death benefit payout can happen in a matter of weeks, more complex cases may require a fuller investigation that can delay the payout to beneficiaries.

If you are struggling with depression or have thoughts of suicide, know that you’re not alone.

The National Suicide Prevention Lifeline offers free and confidential support 24/7 at 1 ( 800) 273-8255 or via chat on their website. You can also get support through the Crisis Text Line by texting HOME to 741741. If you are a veteran or a family member of a veteran, get in touch with the Veterans Crisis Line by calling 1 ( 800) 273-8255 (ext 1) , texting 838255, or starting an online chat.