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Reasons your life insurance claim is denied

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Life insurance is an important part of your financial planning. It provides your chosen beneficiary (or beneficiaries) with a death benefit upon your passing. In some instances, that benefit may be denied, even with an active policy in place. To make sure your policy is distributed as you intended, be aware of why life insurance claims can be denied, and how you can prevent this from happening.

Why life insurance claims are denied

There are many different types of life insurance, but most policies operate the same way when it comes to evaluating claims. One of the most common reasons for having a life insurance claim denied is a lapse in payment of the policy premium. Regardless of how long you’ve had your policy, your insurer may cancel it if you’re late on your payment. Usually, you receive a 30-day grace period after your due date, but check your specific policy to find out whether you have access to this benefit. If you fail to make a payment before the grace period expires, the insurance company may cancel your policy. Which means your beneficiary will not receive a death benefit if you pass away.

Other reasons life insurance won’t pay out are with certain types of death. Suicide is not covered during the first two years of a policy. After that time period, the death benefit may go through, depending on your plan and the circumstances. Common exclusions also include murder by a beneficiary, or death caused by substance abuse. Death from risky activities like skydiving are also usually ineligible for a death benefit payout.

Another reason for denial is if the policy holder lied intentionally on their application. Life insurance policies are generally more expensive for smokers or individuals with pre-existing conditions. If the insurer discovers an intentional misrepresentation, they can deny the insurance claim.

Common reasons for life insurance payout denial:

  • Premium payment goes unpaid 
  • Suicide during the first two years (depending on the policy)
  • Murder by beneficiary
  • Death from substance abuse
  • Death from risky activities
  • Lying on life insurance application

Given the current times in 2020, some people wonder if life insurance covers pandemic deaths. According to the Insurance Information Institute, life insurance covers coronavirus-related deaths. The only exceptions would be in instances where the policy holder lapsed in their payments or lied on their application. 

What to do if a life insurance claim is denied

There are a few things the beneficiary can do if a life insurance claim is denied. Follow these steps to make sure you cover your bases before giving up on a rejected payout. 

Get details from the carrier

The life insurance company should send you a denial letter with specifics on why the claim was denied. It will outline the reason for the denial, which is usually fairly straightforward. Usually it’s because of non-payment on the policy, or because the cause of death wasn’t covered. 

The review period may also be more in-depth if the death occurs within the first two years of opening the policy — also known as the contestability period. The insurer may perform a more comprehensive evaluation to ensure the policy holder’s death was from a covered reason and that there were no purposeful inaccuracies in the application.

Formally contest the claim rejection

In rare instances, you may feel that the reason for claim rejection is unwarranted. In this case, you can contest the rejection. To initiate the process, contact your state’s attorney general or department of insurance to help you navigate next steps. You may opt to hire your own lawyer to help with the appeals process, but that can be costly. 

How to minimize the risk of your claim being denied

There are several ways you can minimize the risk of your claim being denied. Take a proactive approach throughout choosing and managing your life insurance policy to make things easier for your beneficiary.

  1. Choose a life insurance company with strong financial health

Insurance company bankruptcies generally don’t leave you hanging high and dry; existing policies are usually transferred to another insurer. But you can save yourself the headache by choosing an insurer with a good financial rating. Check out agencies like AM Best and Moody’s to determine how financially stable a company is. You can also search for a list of life insurance companies not paying claims, and avoid any that have recent controversies.

  1. Complete your application fully and honestly

Avoid rushing through your policy application, because even an accidental omission may be considered a misrepresentation when it comes time for your beneficiary to make a claim. Reach out to the insurer with any questions you have and review your answers before you submit the application.

  1. Read your insurance policy offer carefully

Once you receive your policy from your insurer, review it in full so you understand the terms. Look at the list of exclusions and talk to your beneficiary about what is and is not covered. Refrain from any listed risky or hazardous activities unless you purchase a rider policy that covers some of these specific events.

  1. Keep up with your premium payments

Remember to pay your premium on time, whether you choose monthly, quarterly or annual payments. Consider opting for automatic payments so you don’t mistakenly miss a payment. Once your grace period passes on a single missed payment, your insurer could cancel your entire policy with no reimbursement for the payments you did make.

The takeaway:

  • Life insurance claims can be denied for a number of reasons.
  • A denial letter will explain why the insurer won’t pay the death benefit.
  • It is possible to contest the decision.
  • Preemptive action can help ensure your life insurance claim is not denied.

Understanding the fine print of your life insurance policy and staying on top of your payments are the two most important aspects of ensuring a death benefit is paid. A death that occurs in the contestability period (usually the first two years of the plan) usually undergoes more scrutiny. But as long as the policy holder was honest on the original application and hasn’t let the policy lapse from missing payments, it’s very likely that the death benefit will remain intact.

Lauren Ward

Lauren Ward is a writer for Coverage.com. She specializes in all things personal finance, including insurance, loans, and real estate.

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