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Life insurance is an invaluable protection to families after an unexpected loss. Yet often, beneficiaries file for life insurance payment, only to find that the company denies their claim. This can leave financial challenges in a time when the family thought they had protection.
Often, denials come from exclusions that the policyholder did not realize applied to their situation. These exclusions often show up in the fine print, where the life insurance provider outlines specific circumstances that do not allow payment on the policy.
While reading the fine print is always important, knowing what to look for can also help. Here are the top seven reasons a life insurance policy may be denied.
When you apply for life insurance, it’s vital that you properly represent yourself on the insurance application. Any incorrect information, including lies or information you did not intend to misrepresent, can lead to life insurance payout denial. Common areas where applicants will put improper information is concerning smoking, body mass, or drinking. Being dishonest could lead to a denial of your claim.
Sometimes, exclusions or incorrect information attempt to defraud the life insurance company and sneak something by. Other times it is merely a mistake. Either way, if the application is not entirely truthful, the company has the right to deny the claim.
Life insurance works because people pay in for many years before making a claim. To protect this process, life insurance companies require a contestability period. This period, often two years gives them the right to dig into the deceased individual’s medical records and background if they die within that period. If something is found during that period that indicates the person was not as healthy as they claimed to be, the company can deny the claim.
Many life insurance policies have a suicide clause. This clause allows the company to deny the claim if the deceased individual committed suicide. With this clause, the beneficiaries may receive the premiums back, but not the death benefit. Some states only allow suicide denial for a set period after the insurance policy was purchased.
Some dangerous activities may be excluded from life insurance protection. For example, someone who regularly participates in a high-risk activity, like skydiving, may have a clause in their life insurance policy that prevents a payout if that activity leads to death. Being honest about these activities on your application is vital to ensuring your family is adequately protected.
If someone is killed in a combat zone or a military service capacity, traditional life insurance will not pay. The inherent risk of military service is too high for most term life insurance policies. Soldiers can buy their life insurance policies through the military to cover this risk. Because of the clause excluding military service deaths, some life insurance companies will try to deny a service member’s family’s claim due to death for another non-military reason. For instance, if the person is killed in a car accident, the company may claim they can deny the claim since they are military members. Families need to be watching for this particular issue.
Failing to pay insurance premiums will lead to policy lapsing. If the policy expires for over 30 days, the life insurance company may cancel it and no longer payout. This can be problematic for older individuals who develop memory concerns and miss payments as a result. This problem is easy to avoid by signing up for automatic payments.
Term life insurance policies are significantly limited when insurance policyholders begin traveling abroad. Certain parts of the world are called high-risk zones, and living or traveling can negate a term life insurance policy. In areas where health risks are high, such as in malaria-prone countries, or where kidnappings are common among tourists, the chances of having life insurance denied is higher. Being honest about hobbies and travel habits when applying for life insurance can help avoid denial for this reason.
Life insurance policyholders need to carefully read the terms on their policies to understand what types of deaths are and are not covered. Answering questions honestly and thoroughly on all life insurance applications is also essential. Always ask for clarification if something about your life insurance policy is unclear so that you can be honest and straightforward with the insurance company. If a denial appears unfair, talk to a lawyer to ensure your policy pays as promised.
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