South Carolina Insurance Practice Exam

A life insurance policy normally contains a provision that restricts coverage in the event of death under all of the following situations EXCEPT?

1. Death of a fare-paying passenger

2. Death by suicide within two years

3. Death under the influence of drugs

4. Death during a natural disaster

The correct answer is: Death during a natural disaster

A life insurance policy typically includes provisions that outline situations where coverage may be restricted or excluded. This is to ensure that the insurer is not liable for claims resulting from high-risk activities or behaviors that significantly increase the likelihood of death. In the context of this question, one key aspect is understanding why certain situations are more likely to be excluded from coverage. For instance, suicide within the first two years of a policy is often excluded because insurers want to prevent moral hazard and ensure that individuals are not taking out policies with the intent to die soon after. Similarly, death resulting from drug influence may be restricted due to the reckless behavior associated with drug use, which increases the risk to the insurer. Covering such scenarios could lead to higher rates of claims and financial losses for the company. The situation of death during a natural disaster, however, is generally not excluded from coverage. Natural disasters are considered uncontrollable events that policyholders cannot influence or predict. As such, insurers typically include coverage for these kinds of incidents to meet consumer expectations and provide comprehensive protection. This is why this particular situation is the exception to the others listed.