What is not covered by life insurance in Canada?

Life insurance is often seen as a financial safety net, but what if that safety net has gaps? Many Canadians assume their policy covers everything, only to discover exclusions that could leave their families without the expected payout.

From high-risk activities to undisclosed health conditions, certain circumstances can lead to denied claims. In this guide, we’ll break down the most common exclusions in life insurance policies in Canada so that you can protect yourself from unexpected loopholes.

What does life insurance typically cover?

While policies may vary, most life insurance plans cover deaths resulting from natural causes, accidents, and certain illnesses. Some policies also offer additional benefits, such as riders for terminal illness or accidental death. Here’s a closer look at what life insurance typically covers:

• Death from natural causes: Coverage includes deaths due to illnesses like heart disease, cancer, or other chronic conditions
• Accidental death: Most policies cover unexpected deaths caused by accidents, such as car crashes, plane crashes, drowning, or workplace incidents
• Terminal illness (with a rider): Some policies allow early access to the death benefit if diagnosed with a terminal illness
• Funeral and end-of-life expenses: The payout can be used to cover funeral costs, medical bills, and estate settlement fees
• Debt and mortgage protection: Beneficiaries can use the funds to pay off outstanding debts like mortgages, loans, or credit cards
• Income replacement for dependents: Provides financial security by replacing lost income for surviving family members
• Business protection (for business owners): This can be used to support business continuity or buy-sell agreements in case of a key person’s death
• Charitable contributions: Policyholders can designate a charity as a beneficiary to leave a lasting impact

What is not covered by life insurance?

Life insurance does not cover death due to suicide, dangerous activities, illegal activities, in case of misrepresented information, and other such scenarios. Insurers typically list these exclusions in the policy document. Here are the most common situations where life insurance does not provide a payout:

1. Suicide Clause

Most life insurance policies include a suicide exclusion period, typically lasting one to two years from the policy start date. If the insured dies by suicide within this period, the insurer will not pay out the death benefit—though premiums paid may be refunded. After this period, suicide is usually covered, but it’s important to check the terms of your specific policy.

2. Death due to risky activities

Insurance providers may deny claims if the insured dies while participating in high-risk activities such as:

• Skydiving
• Scuba diving
• Racing (car, motorcycle, or extreme sports)
• Private aviation (piloting a personal aircraft)

Since these activities involve significant risk, insurers may exclude them from standard policies or charge higher premiums. However, some companies offer additional riders that allow coverage for these activities.

3. Homicide with the beneficiary involved

Life insurance in Canada usually pays out in full if the insurer has been a victim of a homicide. However, there will be no payout if the beneficiary is found to be involved in the policyholder’s homicide. 

This falls under the “Slayer Rule,” which prevents anyone from financially benefiting from a crime they committed. If the beneficiary is suspected or convicted of murder, the insurer will withhold the payout until an investigation is complete.

4. Drug and alcohol-related deaths

If an insured individual dies while under the influence of drugs or alcohol, their life insurance claim may be denied. This applies to deaths caused by:

• Drunk driving accidents
• Overdoses of illegal or non-prescribed drugs
• Complications from substance abuse

Insurance companies assess medical records, toxicology reports, and police statements to determine if intoxication contributed to the death. If the investigation turns out to be true, the claim may be rejected.

5. Criminal acts and illegal activities

Life insurance does not cover deaths that occur while committing a crime. If the insured dies while engaging in illegal activities, the claim is likely to be denied. Examples include:

• Dying during a robbery or burglary attempt
• Fleeing from the police and getting into an accident
• Participating in gang-related violence

Since insurers consider these preventable and unlawful acts, they are not covered under standard life insurance policies.

6. Fraud and misrepresentation

Providing false or incomplete information on a life insurance application can lead to claim denials—even years later. Common misrepresentations include:

• Hiding pre-existing medical conditions
• Failing to disclose smoking or drug use
• Lying about high-risk hobbies or occupation

If an insurer discovers that the insured was dishonest on their application, they have the right to cancel the policy or deny a claim.

7. War and terrorism exclusions

Many life insurance policies have exclusions for war and acts of terrorism. This means that the claim may not be paid if the insured dies as a result of:

• Armed conflicts
• Acts of war (declared or undeclared)
• Terrorist attacks

However, military personnel often have specialized life insurance options through government programs or private insurers that cater to their specific risks.

8. Death in high-risk countries

If an insured person dies in a politically unstable, war-torn, or high-risk country, their life insurance may not provide coverage. Many insurers have a list of excluded countries where coverage is limited or voided due to:

• Civil unrest or violent conflicts
• High crime rates
• Government instability

Before traveling, it’s wise to check your policy and confirm whether coverage applies to your destination. Some insurers allow policyholders to purchase additional riders for specific international travel risks.

9. Undisclosed pre-existing medical conditions 

While some life insurance policies cover pre-existing conditions, failing to disclose them can lead to claim denial. If an insurer finds that the insured withheld information about a serious illness, they may void the policy.

However, guaranteed-issue life insurance policies may cover individuals with pre-existing conditions—though they usually have higher premiums and lower payouts.

10. Self-inflicted injuries beyond the suicide clause

Beyond the suicide exclusion period, reckless behavior that leads to death may still result in a denied claim. This includes:

• Deliberate self-harm
• Extreme stunts or life-threatening dares
• Assisted suicide (where laws prohibit it)

Since assisted suicide laws vary by province in Canada, some insurers may have specific clauses regarding Medical Assistance in Dying (MAiD).

Can I opt for life insurance in Canada if I have a hazardous hobby?

If you have a hazardous hobby, life insurance may still pay out, but there could be restrictions or additional costs involved. Insurers assess risky activities on a case-by-case basis during underwriting, which can lead to three possible outcomes:

1. Application denial: If the activity is considered too risky, the insurer may decline coverage entirely
2. Higher premiums: The insurer may approve your application but charge a higher premium due to the increased risk
3. Exclusion clause: The policy may be issued, but with an exclusion that prevents a payout if you die while engaging in the hazardous activity

To ensure full coverage, you may need to disclose your hobby upfront and explore options like specialty riders that cover high-risk activities.

How to avoid coverage gaps in a life insurance policy?

Coverage gaps in a life insurance policy can leave your loved ones financially vulnerable. To ensure you have comprehensive protection, follow these key steps:

• Be honest in your application: Disclose health conditions, smoking, and risky hobbies to prevent claim denial
• Understand exclusions: Check for exclusions like suicide (within the exclusion period), high-risk activities, or illegal acts
• Choose the right coverage: Ensure your policy covers your financial needs and convert term policies before they expire
• Keep payments up to date: Set up automatic payments to prevent lapses and avoid costly reinstatements
• Update your policy regularly: Adjust coverage and beneficiaries after major life events like marriage or having children