Why would a life insurance policy be denied

The unfortunate truth is that sometimes life insurance claims get denied, and your beneficiary is left with a difficult battle or nothing at all. Knowing your policy and some of the most common reasons that life insurance claims get denied can help you avoid this outcome altogether. 

Life insurance is a death benefit that can help your loved ones deal with the financial impact after your death. Typically, you purchase a policy and pay a monthly premium to your insurer. In return, they pay out a lump sum after your death to your designated beneficiary.

The 5 most common reasons for these claims to be denied are:

1. Incorrect information in the application 
2. Nonpayment of premiums/policy lapse
3. Contestability period 
4. Policy exclusions
5. Insufficient documentation 

Keep reading to learn more about each of these situations. 

When you purchase a life insurance policy, you need to go through a fairly rigorous application process. This is so the insurer has the information they need in order to assess your risk and decide on your premiums and coverage.

In this application, you’ll answer questions about your physical and mental health. You have to disclose your age, your family’s medical history, any high-risk activities you engage in, the length of policy or coverage needed, and possibly more. 

The application is followed by a medical exam. This includes a physical exam where a doctor will check your height, weight, and blood pressure. They may also collect blood and urine samples as well as your medical history to get a full picture of your health. 

After both these things are provided, the insurer does a full assessment of the claim to determine the monthly premiums. 

A common reason for a life insurance claim to get denied is that people put misinformation in their application. This can be done intentionally or unintentionally. Sometimes people will include what they consider to be white lies to lower their premiums, or leave out information that they don’t consider important. 

Some examples of this: 

• Saying that you aren’t a smoker when you are or were in the past; 
• Being dishonest about your driving history; 
• Claiming that you don’t have a history with drugs or alcohol if you do;
• Downplaying the risk factors in your career or activities in your personal life. 

You may think being slightly dishonest about these things will lower your premiums or get you approved. But, if they find out during the application process that you have been dishonest, the consequences can be severe. You could be denied or even be accused of insurance fraud. 

If an investigation is done after the death and they discover the dishonesty at that point, your family could end up receiving a much lower amount of money or the claim could be denied entirely after years of you paying the premiums. 

Nonpayment of premiums or policy lapse

Life insurance is a contract between you and the insurer. You agree to pay them a monthly amount for a set number of years; in turn, they pay out a lump sum to your beneficiaries in the event of your death. If you don’t pay the monthly premiums for your life insurance, the policy lapses and you lose your coverage. 

Most life insurance policies will have a grace period where the policy will still hold after a lapse in payment. This grace period is typically 30 days, but could differ with each individual company and policy. If the policy lapses after you miss a payment, you can request to have the policy reinstated. Some insurers allow this within 5 years of the lapse, pending a medical review. Usually, you must also repay the missed payments — with interest. 

This isn’t to say all companies will allow this. It is completely at their discretion. Some companies will allow you to reinstate the payments, but may restart the contestability period. In some cases, you will be out of luck if you don’t pay the premiums, but you could cancel and “cash out” the remainder of the claim with a penalty. 

If you have life insurance through your employer, typically the premium will come out of your pay and you won’t even think about it. However, it is important to remember that if you leave your job, you lose that coverage completely. 

Contestability period 

The contestability period for a life insurance claim is the period of time when the insurer can investigate and deny claims. The period is typically within two or three years of purchasing the life insurance policy. This varies with different policies. 

In other situations there may only be an investigation if there is a red flag for the insurer. Red flags might include a suspicious cause of death or something that contradicts the application. However, if the death occurs during the contestability period, there is an investigation no matter the cause.

This doesn’t mean that your family will be left with nothing if you die within the first two or three years — it just means that a mandatory investigation will be performed. 

During the contestability period, the claim might be denied for any number of reasons. Typically, they will investigate to see if you answered the questions on your application honestly. If you didn’t, they can use that fact to deny your claim even if it is unrelated to the result of death. 

It’s important to be aware of the contestability period, but it isn’t likely that you or anyone else can control it as death is unpredictable in most cases.  

Policy exclusions

As I’ve mentioned a few times now, every life insurance policy is different. It is so important to know what you’re signing up for. 

A policy exclusion is a clause placed in the policy to eliminate coverage for a certain type of risk that they aren’t willing to ensure. Many policies have clauses that make it so that if you pass away under certain conditions, they don’t have to pay out. 

Some of the most common exclusions are as follows: 

Suicide. Some insurance companies have this clause in place to deter people from ending their life when they or their beneficiaries are struggling financially. Some policies will pay out if the death is a result of suicide — but only if it happens outside of the contestability period.

Extremely risky behaviour. Think skydiving, scuba diving, or rock climbing. The insurance company may argue that death due to a risky hobby is a “self inflicted injury,” and that if you weren’t engaging in reckless behaviour you would still be alive. Or, they might mention the fact you didn’t declare this behaviour on your application so the whole contract was in bad faith.

Intoxication. They could have a clause in their policy that excludes death by intoxication. If your cause of death is due to alcoholism or a drug overdose, they won’t pay out.

They might have an act of war exclusion if you’re in the military and die in the line of fire. This was more common in the past, but can still be found in some policies today.

There is usually a preexisting condition clause. This states that if the death was related to a condition that predates the purchase of the policy, your beneficiary won’t be paid out. These can be extremely difficult to prove. It can come down to something as simple as a single doctors visit that may not have seemed like a big deal, but was actually the beginning of a medical condition you couldn’t have predicted.

There could be a policy exclusion for almost anything. It’s crucial to know your specific policy and what your coverage is when purchasing the policy. Pay attention to the small details. It can sometimes be a good idea to have a lawyer read through it on your behalf in advance. 

Insufficient Documentation

Finally, insufficient documentation can result in a denial of life insurance. This would be something that falls on the responsibility of the beneficiary — not the policy holder. 

To be able to collect a life insurance policy you need specific documentation. You will always need a certified copy of the death certificate. You may also need to provide a copy of the insurance policy, the claims form, a physician’s statement, or full coroners report. If the death occurs outside of Canada, additional documentation might be required. 

It’s important to know what you need to submit, and to get the correct documents in order. Some extra documents may be more difficult to obtain, but if you try to claim life insurance without them, the process could be prolonged or result in a denial. 

Next Steps 

If you’re dealing with a life insurance claim denial, please feel free to reach out to our support team. It’s best to get help sooner, especially where these claims can be so tricky. We will do our best to see if we can answer your questions.

You can call us toll-free at 888-732-0470 or click here to request a free consultation.

Life insurance policies come with a number of contingencies that can void coverage. As with renters or auto insurance, each life insurance company has its own claim handling process that is unique to each policy. Regardless of the reason, denial of a claim during the emotional time period after a loved one’s death complicates the whole situation for ill-prepared families and heirs.

There are certain situations in which life insurance claims can be denied. If your life insurance claim is denied, you can take a number of steps that may help you receive your benefits. This article can help you understand why insurers may deny a life insurance claim and what you can do about it.

Reasons why life insurance claims are denied

Insurers deny the death benefit on life insurance claims for reasons of policy delinquency, material misrepresentation, contestable circumstances and documentation failure.

In more detail, insurers deny a life insurance claim for:

Policy delinquency

Policy delinquency wherein the policyholder failed to pay premiums on time, causing the policy to lapse. “The main reason a company will deny a death benefit is because coverage is not in force on an individual upon which the claim is made,” said Jack Dolan, spokesman for the American Council of Life Insurers, a Washington, D.C.-based trade organization. “Sometimes people let their policies expire and don’t inform their beneficiaries of the lapsed coverage.”

Material misrepresentation

Material misrepresentation on the initial life insurance application. Whether a heart murmur, a history of smoking or information around weight, untrue statements on an insurance application jeopardize the entire policy.

“In life insurance, the two things that affect pricing are your health and age,” said the consumer organization’s Bridgeland. “If he said he was 40 instead of 45 on the application, they may not cancel the policy, but they may subtract the additional premium due from the benefit amount.”

Other misrepresentations include:

• Lying about income
• Non-disclosure of another life insurance policy
• Incorrect application information provided by the agent
• Failure to mention treatments for minor ailments
• Misrepresentation of immigration status

Contestable circumstances

Contestable circumstances involve a death outside the scope of coverage, likely because the timing of the death falls within a contestable timeframe. A contestability period involves the first two to three years of a policy’s effective date in which insurers deny claims under certain circumstances. Contestable circumstances include things like suicide or dying while performing an illegal act. While policy exclusions continue to decline in contemporary offerings, older policies sometimes exclude death during military service, acts of war, aviation, dangerous pastimes such as scuba diving and mountain climbing, as well as for health perils such as HIV.

Documentation failure

Documentation failure refers to family or heirs failing to provide the necessary paperwork required to receive the death benefit. At the very least, insurers require a death certificate in order to start the payment process.

Why the contestability period matters

Contestability in the first couple years or so of a new life insurance policy involves a kind of probationary period when an insurer’s rights include a review of a death benefit to examine the payout for possible fraud or application misrepresentations.

While an investigation certainly delays payment of a death benefit, insurers pay on the policy so long as investigations lead to no conclusion of wrongdoing by a beneficiary. In the case of a homicide, for instance, insurers provide the payout only after police clear policy beneficiaries.

For David Spain, an Orlando, Fla.-based attorney who specializes in winning insurance claim settlements for denied beneficiaries, the contestability period lies at the center of the vast majority of claims he sees. But rather than a matter of insurers acting in bad faith to avoid paying a death benefit, Spain said many times policyholders and their heirs fail to grasp the nature, scope and complexities of the application coverage.

“What I see is overly complex applications for life insurance and overly detailed policies with exclusions that are calculated to benefit the insurance company that will be overlooked by most consumers,” he said. “I’ve seen people who were absolutely convinced that they had life insurance that would pay off the house, when what they had was an accidental death policy.”

What to do if a claim is denied

Receiving a life insurance claim denial letter strikes fear into the heart of beneficiaries who rely on replacement of the policyholder’s income. In truth, however, the only guarantee of a payout comes once the cash settles in the beneficiary’s account. An insurer’s finding of fundamental dishonesty by the policyholder voids the policy and the applicable death benefit. Additionally, a policyholder’s act of self harm or other violation within the contestable period disqualifies claim denials for appeal.

In cases with obvious mishandling of claims, state departments of insurance and attorneys generally offer easy–and free– resources that nudge insurers to pay on valid claims. And even if an insurer disqualifies a claim for appeals, potential beneficiaries who disagree with the decision exercise foresight by moving forward with an attorney.

Contact the insurer

Insurers spell out their reasons for denying claims in their initial denial letter. However, in the event the reasons lack clarity– or insufficient supporting details– the appropriate course of action includes a request for more information around the specific objections to payment of the death benefit.

In cases where denied beneficiaries appeal a claim, required documentation likely includes medical records, autopsy reports or insurance payment receipts.

In cases involving employer group life insurance and other similar policies, only a 60-day window exists to appeal the denial.

Contest the rejection

Beneficiaries with a denied benefit appeal claims by presenting evidence according to the process established by the insurer. While the self-representation comes at no financial cost, adding complex processes and stress to the middle of a grieving situation comes at an emotional cost.

In some cases, denied beneficiaries contact their state’s department of insurance or attorney general to take advantage of their expertise in insurance navigation. As some states employ insurance appeals specialists, state-level representation carries substantial weight.

When you need to get an attorney

“As soon as you get a denial or have not received a favorable result,” said plaintiff’s insurance attorney Spain, “you need to reach out to a contingency lawyer.”

Spain, who practices at the Orlando firm of Morgan & Morgan, said understanding the intricacies of insurance and how policies work gives plaintiffs an advantage over pro se representation.

“You can absolutely set back your case by trying to do it yourself,” he said.
Spain and other plaintiff insurance lawyers see potential clients and examine their case for appealing at no charge. When a legitimate case presents itself, these contingency lawyers provide representation their clients finance with a portion of any settlements won.

And while Spain boasts a success rate at trial of close to 100 percent, that’s not his first choice.

“I’ve resolved many cases simply by putting together the right records, the right arguments, the right case law and a letter explaining the position to the insurer,” he said. “Of course, then they know you’re serious, too.”

How to prevent having a claim denied

Of course, avoiding claim denials provides the most desired outcome for the policyholder and the beneficiary. Best practices to avoid a denied claim center on the policyholder’s approach to the insurance application. Specific considerations include:

• Application responses— thorough responses around health and health-related behaviors, including the occasional cigarette, prescription or other medications and risky hobbies
• Application understanding around terms and conditions— clarity around the conditions in which insurers pay the death benefit and the conditions in which they pay no benefit
• Application review— read and re-read the completed application as filled out by the agent

Frequently asked questions

What is the best life insurance?

Determining the best life insurance involves multiple moving parts that entail personal situations and desires. In other words, it depends.

Considerations when choosing a life insurance company includes the company’s history, its reputation for customer service, its financial stability and its pricing. These factors ultimately yield the customer experience and the policy value.

What kind of medical exams requirements exist around the purchase of life insurance?

A life insurance medical exam requires a basic physical exam including weight and height measurements and a blood pressure check. The medical examiner will also ask for prior medical exams and history and urine and blood samples.

What factors best determine if an insurer pays the death benefit?

On the assumption that no issues exist in terms of a policyholder’s life insurance application and that no contestability issues come into play, financial stability plays a key factor in an heir’s receipt of a death benefit.

AM Best and Demotech offer ratings and information about insurers’ financial stability.