Taking out life insurance may be one of the best things you can do for your loved ones. However, people considering taking life insurance usually have many questions. A common one is whether a car accident can affect life insurance.
Here, we will answer that question. Specifically, we’ll look at how a car accident can affect a current policy, your ability to get a future policy, and what happens if there is a death caused by a car accident. All you need to do is read on to find out more.
Understanding Life Insurance
Life insurance is a type of insurance policy designed to pay out a death benefit to your beneficiaries in the event of your death, regardless of the cause, barring some exceptions we look at below.
Life insurance policies fall under two main categories of: whole/permanent life insurance and term life insurance:
Term Life Insurance – This life insurance provides coverage for only a specified term, such as 20 or 30 years. That is, the insurance company pays the designated beneficiary the death benefit only if the policyholder dies during the term of the policy.
Permanent Life Insurance – This life insurance provides coverage for the entire lifetime of an insured person. So, the insurance company pays the designated beneficiary the death benefit whenever the policyholder dies.
Life Insurance and Exclusions
All life insurance policies come with exclusions, specific circumstances under which the insurance company may deny a claim or limit coverage.
Common exclusions include:
Suicide – Life policies carry suicide clauses stating that if the insured individual dies by suicide within a certain period, the coverage amount may be reduced, or the claim denied entirely.
Material Representation – Policies carry clauses stating that the insurer may deny a claim if it later finds that the insured person provides false or misleading information when applying. A common example would be lying about not having a medical condition during your medical exam.
High-Risk Behaviours or Illegal Activities – Many policies exclude coverage for certain activities (e.g., drunk driving). This means a claim will be denied if a policyholder’s death is caused by excluded activity.
The Underwriting Process and Car Accidents
Underwriting is the process of assessing various factors to determine the level of risk associated with insuring an individual. Generally, the higher the calculated risks, the higher your insurance premium. This can include the risk of car accidents.
When assessing risks to determine life insurance premiums, underwriters look at factors that impact the individual’s life expectancy. Generally, anything that reduces your life expectancy (increases the likelihood of death) makes you pose a higher risk to insurers.
So, when determining premiums for life insurance, underwriters look at factors like age, health status, occupation, and lifestyle. Your history with vehicles and car accidents can come into play, but it won’t be one of the biggest factors.
Car Accidents and Life Insurance
A car accident will not directly affect your life insurance. However, it can potentially affect life insurance in several ways. A car accident history can influence the perceived risk of insuring you.
Also, a car accident that causes serious injuries that impact your life expectancy can increase your risk of death and the risk of insuring you. Most car accidents won’t significantly affect your life insurance, but they can in more extreme scenarios.
A Car Accident Before Taking Life Insurance
One of the factors insurers consider when assessing your risk profile for life insurance is driving history.
The frequency and severity of accidents (particularly at-fault accidents) will influence the risk of insuring you. And if insurers determine that the risk of insuring you is high, your premium will be higher. This is the same reason why car insurance increases so much after a claim.
A Car Accident When Holding Life Insurance
A car accident will not affect your life insurance, with a possible exception being if it causes serious injuries that impact your life expectancy. Insurance companies can reserve the right to reassess the risks of insuring an individual to potentially adjust the cost, unless you have a guaranteed premium.
For example, consider an individual who is involved in a car accident and has severe head injuries, spinal cord injuries, or internal organ damage. Their insurance company may see them as having a higher risk of death. For this reason, they’ll raise the premium if they can.
However, many insurers offer a fixed premium that won’t change regardless of your health situation. But with term insurance, you’ll likely pay much more on renewal if you have a new health concern.
A Car Accident Resulting in Death
A car accident causing the death of a policyholder will not affect the life insurance, except if the accident was caused by one of the policy’s exclusions. An example would be if the collision was caused due to drunk driving or if the death was deemed to be a suicide.
Car accidents can affect your life insurance, but they often have no or minimal impact. It can have a significant impact if you’ve been in multiple at-fault collisions. Equally, if an accident has caused life-changing injuries, your insurer may increase your payment if you have a non-fixed premium or need to renew your term insurance.
In truth, due to such a wide range of factors, it can be difficult to give a definite answer without knowing the individual circumstances. That’s where Marathon Insurance can help. Contact us today, and we’ll happily answer any questions and guide you through the insurance process.
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