Ask the Life Insurance Expert
QDo life insurance policies pay if a person dies of old age?
Yes, as long as the policy is in-force when the policyholder dies. A standard life insurance policy covers any cause of death--except for suicide within the policy's first two years.
During those first two years, an insurance company can deny a claim if it determines the policyholder misrepresented information on the application for life insurance, or if the policyholder commits suicide. This is why it's crucial you provide complete and honest information.
If you lie on the life insurance application, and the insurance company discovers the misrepresentation, your beneficiaries could miss out on the death benefit if you die within the first two years the policy is in effect. After two years, insurance companies will not contest the policy; even death by suicide is covered after the two-year period.
However, don't confuse term life and permanent life insurance with accidental death and disability insurance (AD&D). AD&D does not pay out when someone dies of old age or illness. AD&D pays only when someone dies from an accident or suffers a horrific injury, including loss of a limb, hand or foot, and loss of eyesight caused by an accident.
You can purchase AD&D as a standalone individual policy, as a rider on a life insurance policy, or through a group policy. Many employers offer AD&D insurance as an employee benefit.
AD&D is not a substitute for standard life insurance because it provides a death benefit only if you die in an accident. Over the course of your lifetime you're much more likely to die from heart disease, stroke or cancer.
However, AD&D can provide an extra layer of coverage on top of traditional life insurance. For example, if you had $100,000 in standard life insurance and $100,000 in AD&D, and died in an accident, the combined payout would be $200,000, a scenario known as "double indemnity."
For more, see life insurance basics.