What Are the Different Death Benefits?

When it’s time for a life insurance policy to pay out, the timing of the cheque’s arrival can be different depending on the type of death benefit your policy comes with.

Below are the different types of death benefits available to choose from.

Immediate-Pay Death Benefits

Traditional Life Insurance pays any immediate death benefit minus the suicide and incontestable clauses. The “suicide clause” means that no life insurance policy will pay out if suicide is the cause of death of the policyholder within the first two years that they own the policy. “The incontestability period” is the period of time — usually two years — when the insurance provider can challenge the validity of a claim and investigate it based on the correctness of the information. 

Even though an inspection report is obtained, and in some cases a medical examination is performed, the company relies a great deal on the answers given on the application when deciding whether or not to issue a policy. It is important to remember that if an applicant fails to disclose information that would cause a policy not to be issued or to be differently rated, the policy may be withdrawn or a claim may be denied within this period.

Some traditional life policies have pre-existing lifestyle exclusions, like sky diving or foreign travel–related exclusions. These exclusions are circumstances under which a death isn’t covered. These can be high-risk activities, such as sky diving or scuba diving, and even military service in war zones or a civilian death caused by an “act of war.” There are also foreign country exclusions — like if you die in a country that’s under any kind of travel advisory or is facing civil unrest, you will not be covered. Thankfully, though, traditional life insurance policies generally do not have health-related death benefit exclusions.

Deferred Death Benefit

A deferred death benefit can be found on Guaranteed Issue and some Simplified Issue policies. It means that you are covered for a stated term, but if death occurs within the first two years, the benefit is limited to a return-of-premium plus interest.

The two primary deferred term policies providers in Canada are Industrial Alliance and Canada Protection Plan, underwritten by Foresters. Humania Assurance is another company that has made a big splash in the Simplified Issue marketplace. They offer immediate-pay policies but have limited exclusions on pre-existing conditions.

Death Benefits with Pre-Existing Illness Exclusions

These plans are almost a hybrid of the above two plans. Humania also provides these plans as a relatively new player in the no-medical life insurance market. 

It’s designed for people who, for medical reasons, don’t qualify for traditional life, disability, and critical illness insurance. It offers three separate policies, a 10- or 20-year term, and a premium refund option (75% after 20 years). The amounts of coverage available are up to $300,000 in case of death, up to $2,500 a month to cover loss of earnings, and up to $100,000 upon a diagnosis of cancer, heart attack, stroke, or coronary bypass surgery.

It’s available for purchase online and can be obtained without a medical exam. It provides better coverage than a deferred death benefit, which limits death benefit payouts to accidental deaths in the deferral period.

How it works is, if the insured dies of a pre-existing condition, usually within 24 months of the effective date, the death benefit is limited to a return-of-premium. A pre-existing condition is defined as “any illness or condition that manifests itself 24 months prior to the effective date.”

For example, if someone applies for Humania’s plan and has cancer but dies of a heart attack — assuming no heart conditions, medications, or problems — within the requisite 24 months, the plan would pay out.

For more details on No-Medical Life Insurance, please call 1-866-899-4849 and visit our No-Medical Life Insurance Quote Page.

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  • Ami Maishlish
    March 3, 2014 at 9:44 am

    Two things to remember and follow diligently; both involve reading, understanding and if something is unclear – asking:
    1. Read each and every question on the application carefully, interpret each question in the broadest sense, and answer each question in full, along with details such as the name and contact info for the doctor or treatment facility, dates, etc. For example, (nearly) everyone has had X ray diagnostics; these could be as simple as dental X rays. Likewise, “ears, eyes, nose or throat” assume that such includes eye glasses, laser vision correction, etc.
    2. Demand a copy of the insurance policy contract wording, and then read it carefully with particular attention to conditions, exclusions and limitations.

    Once the policy is issued and you have received it:
    a. Repeat #2 above; it should now also include a copy of your application for your careful review.
    b. Write a letter to the insurance company and ask them to confirm that they have completed their assessment of your acceptability to be insured under the policy and that there are no further matters outstanding relating to their acceptance of the insured risk. Then, file the response received from the insurance company with your insurance policy.

    This second part is particularly important for term insurance and especially for term insurance purchased as a member of a group, such as “mortgage” term life or critical illness insurance, “creditor” term life or critical illness insurance or “association” term life or critical illness insurance.

    Especially with those certificate-evidenced group term insurance policies, it is to your benefit to make sure that you have not just been approved to pay the premiums but that you have also been approved for coverage in the event of a claim.

    • LSM Insurance
      March 3, 2014 at 9:52 am

      Thanks Ami. You make some good points on reading the policy questions carefully. If the insured is unclear they can check with his/her doctor for clarification.

  • Joe Sercerchi
    March 2, 2014 at 12:56 pm

    Don’t forget the options on these policies such a first to die and last to die options. Each is different and may be right for client with a great estate option.
    Thought this should go in there with type of death benefit payouts.

    • LSM Insurance
      March 2, 2014 at 1:10 pm

      Thanks good point Joe. Joint first to die & last to die policies are generally not available on deferred and pre-existing condition policies.