When taking out life insurance, there are many factors to consider. Factors include choosing the right type of policy for your needs, selecting a coverage amount that is right for your family, and confidently knowing your beneficiaries will receive the death benefit.
Life insurance companies approve most claims, but about 2% of claims are denied.
Knowing the reasons why life insurance will not pay out can help you ensure your dependants receive the financial assistance you have planned for them.
How do I Claim a Death Benefit?
Filing a life insurance claim is a simple process. Here is what you need to do to get the death benefit:
- Get in touch with the insurance company or the agent
You can start the claim filing process by contacting the insurance company or agent. If the insured bought the policy through an agent, the agent can act as an intermediary between you and the insurer. If the insured purchased the policy directly or you do not know who the agent is, you can contact the insurer directly.
- Obtain copies of the death certificate
You will need to submit a copy of the death certificate along with the claim form.
- Fill out the claim form and choose the payment option
In most cases, you can download the claim form from the insurer’s website. If the claim form is not available online, a company representative can help you obtain it.
Next, fill in the form, provide all relevant information, and select the payment option. If there are multiple beneficiaries, each may need to separately fill out a claim form and specify their payout preferences.
- Submit the claim form
Send the completed form along with a certified copy of the death certificate to the insurance company. Routine claims are usually processed within a week or two.
Some of the most common payout options are:
Lump Sum: You receive the entire death benefit amount.
Specific income: You receive the death benefit in installments. You get to choose how long you want to receive payments and the amount of each installment.
Lifetime income: You receive guaranteed payments until your death.
Life income with a certain period: You receive payments for life or for a certain period, whichever is longer.
Interest income: The insurer puts the proceeds in an interest bearing account and pays you interest on them as long as you live. After your death, the death benefit goes to the secondary beneficiary.
Reasons Why Your Claim May Be Denied
The unfortunate truth is sometimes life insurance claims are denied.
The most common reasons why life insurance will not pay out are:
- false information on the life insurance application
- suicide during the first two years of the policy
- policy exclusions
- policy lapse (either because of the nonpayment of premiums or because of the expiry of the policy term).
The Death Happened During the Contestability Period
All life insurance policies include a contestability period. It is a short window during which the insurer can contest a claim if they believe the insurer lied, withheld, or omitted pertinent information on their application. The contestability period lasts two years from the date on which the policy was issued.
When you take out a life insurance policy, you are obliged to answer questions related to your current health, medical history, and lifestyle. Some examples of information that you may have to disclose are:
- Medical History: You will need to list all health conditions that you have or have had, including mental health conditions. In addition, you will be asked to provide information regarding your prescription history and family medical history.
- Risky Behaviors: Common questions include: Do you smoke? Do you use tobacco in any other form? Have you ever been convicted of a felony? Have you received any Driving under the Influence (DUI) convictions? Have you ever received treatment or counseling for alcohol or drug abuse?
- Risky Hobbies: The insurer will ask you if you participate in any risky activity, like mountain climbing, car racing, or sky diving.
- Dangerous Occupations: Certain jobs have a higher-than-normal mortality risk. Examples include aviation, construction work, fishing industry work, law enforcement, firefighting, and mining. If you are involved in a profession that has a greater risk of fatal injury or death, you are likely to pay higher premiums.
The insurer collects all this information in order to accurately determine your life expectancy. Based on it, they decide whether or not to write you a policy and, if approved, how much premium to charge you.
If you die within the first two years of taking the policy and are found guilty of making a material misrepresentation, the insurer can deny the claim. Material misrepresentation, in the context of life insurance, is any false statement or omission that affects the insurer’s decision to accept or reject the application. For instance, failing to disclose a pre-existing chronic health condition, like diabetes or depression, is considered material misrepresentation. That is because if the insurer had known about it, it would likely have approved your application at a premium rate higher than the one you received or rejected your request for coverage.
The insurance carrier may request your medical records and other documents to verify if all the information provided by you is accurate, complete, and truthful.
Note that an insurer can contest a claim only during the contestability period. If the insurer finds out after the contestability period that you lied or withheld information on your application, it cannot use material misrepresentation as a pretext for denying the claim.
Death by Suicide in the First Two Years
All life insurance policies include a suicide clause or suicide provision. The suicide clause or provision is generally valid for the first two years of a policy, but this can vary, depending on your insurer.
If you commit suicide while the suicide clause is in effect, the insurer will not pay out the claim. However, the suicide provision does not invalidate your life insurance plan. That means your beneficiaries may receive a refund of the premiums.
If you die by suicide after two years of taking out a life insurance policy, the insurer will pay out the death benefit to your beneficiaries.
The suicide clause does not impact the payout in the event of a medically assisted death. Life insurance companies do not consider a physician-assisted death as suicide.
Death caused by overdose
A life insurance company may or may not reject a claim for drug overdose, depending on when the death occurred and other circumstances.
If the insured died due to drug overdose during the contestability period — the first two years of the policy — the insurance carrier is more likely to turn down the claim than after the contestability period is over.
Let us discuss each of these scenarios in detail:
Scenario 1: The Insured Dies From a Drug Overdose Two Years or More After Buying The Policy
If the insured passes away two years or more after the policy was purchased, the insurance carrier will pay out the claim. In such a situation, the insurer treats drug overdose like any other cause of death (for example, a health condition). This is regardless of whether the ingested drug was legal or illegal or whether the overdose was accidental or intentional.
Scenario 2: The Insured Dies From a Drug Overdose Within Two Years of Policy Purchase
This is where things get complicated. If the death occurs due to drug overdose in the contestability period, the beneficiaries are likely to receive the payout only if it can be proved the death was accidental.
Naturally, proving this can be more difficult if the insured consumed an illegal drug, like cocaine, methamphetamine, or heroin. If the drug was prescribed by a physician, it is much easier to argue that the insured accidentally ingested too much of something they were advised to take.
Note that the insurer can reject the claim even when the insured accidentally consumed too much prescription medication if the insured did not disclose the medical condition and the prescription drugs when applying for insurance.
Death Caused by Homicide
If the beneficiary is suspected of murdering the insured or being involved in the insured’s murder, the provider will not pay out the death benefit. Likewise, if the insured was murdered while participating in a criminal or unlawful activity, the claim will be turned down.
Death Caused by Illegal Activities
Life insurance carriers generally include illegal activities in the exclusion clause. The exclusion clause explicitly defines the specific risks which the insurer will not cover. The illegal activities included in this clause vary from death in an automobile accident due to speeding and driving under the influence, to consumption of illegal drugs, taking part in illegal protests and more. Since each policy is unique, read the fine print to know all the exclusions applicable to you.
Death Caused by Dangerous Activities
Your beneficiaries will not receive the proceeds from your policy death benefit if you die while participating in an activity that is on the exclusion list.
But what happens if the death is caused by a dangerous activity not excluded from the policy? Will the insurer pay out the benefit?
Whether or not the insurance carriers approves the claim depends on when the death occurred. If you frequently liked to participate in a dangerous activity but did not disclose it on your application, this is likely to be seen as material misrepresentation. As such, the insurer can contest and deny the claim.
Death Caused by War
Some life insurance policies may include a war exclusion clause. It ensures life insurance carriers are not obliged to pay for deaths caused by acts of war.
However, the war exclusion is now not as common as it was before. Many life insurance plans do cover war. Read the fine print of your policy to find out whether it covers deaths caused by acts of war.
The Policy Is No Longer Active
You must pay the premiums on a regular basis to keep your policy in force. If you miss a premium payment and do not catch up with it in the grace period, your policy will lapse, and you will no longer have coverage. If you pass away after your policy has lapsed, the insurance provider will not process the claim request.
The grace period is a short window that the policyholder has to pay the premium after the payment due date and maintain coverage. Generally, the grace period is 30 days, but it can be longer or shorter, depending on your insurer.
Your life insurance policy remains in force during the grace period. Should you die in this period, your beneficiary will receive the death benefit. The insurer, however, will deduct the premium amount you owed from the death benefit.
Outliving your term life policy
A term life insurance policy lasts for a specific period, referred to as the policy term. The policy term can be as short as one year or as long as 30-35 years. Most term life plans give the option to renew coverage as it reaches the expiry date. If you outlive the term and do not renew the policy, your policy will lapse. The insurer will not pay the death benefit if you pass away after the policy terminates.
How Can I Reduce the Risk of My Claim Being Denied?
The last thing you would want is to pay thousands of dollars in life insurance premiums only to have the claim filed by your beneficiaries denied. Now that you know the most common reasons why life insurance will not pay out, you can easily ensure your beneficiaries receive the death benefit after your death.
- Be honest
When it comes to filling in a life insurance application, honesty is really the best policy. If you willfully lie, withhold, or omit pertinent information, the insurer can deny the claim later on.
- Read the exclusions included in your policy
While suicide during the first two years of the policy is the most common exclusion, it is not the only one. Each life insurance is unique, so take a few moments to read the policy document to find out what is not covered. Some examples include pre-existing medical conditions, a dangerous hobby (like bungee jumping), and reckless endangerment (for example, if you pass away racing a car).
- Pay the Premiums on Time
Paying life insurance premiums on time every time ensures your policy will not lapse. But if you miss one payment, do not panic. You can pay your premium in the grace period — usually 30 days from a premium’s due date — without the coverage expiring.
After the grace period, your policy will lapse. You can always apply for a new policy, but you will likely have to pay more than your earlier premiums. That is because the cost of life insurance increases with age. Alternatively, you can ask the insurer to reinstate your policy.
Applying for your coverage’s reinstatement can be a good option if it has only been a few years since the policy lapsed and your health has not changed much over the years. If the insurer agrees, you will have to pay the missed premiums with interest. Your premium may go up if your health is not what it used to be, but not on account of your age.
What to Do if a Life Insurance Claim is Rejected?
Life insurance companies rarely deny a claim, but it can happen. If the life insurance carrier rejects your claim, it will provide you with a written explanation as to why it did so. If you think the claim was wrongly denied, you can contact the insurer with appropriate proof, such as:
- medical documents
- proof of premium payments
- autopsy report.
The insurer will tell you which documents (if any) you need to submit. If the insurer refuses to reverse its decision, you can choose to contest it. Consider speaking to a lawyer - but keep in mind legally contesting a denial of claim can be expensive. Before taking this drastic step, make sure you have a strong case.
It is very rare for life insurers to deny a claim. But it is not impossible. However for most people who fill out the life insurance application truthfully and pass away of natural causes, this will not be an issue. Knowing the common reasons why life insurance will not pay out is the best way to ensure your beneficiary receives the death benefit.
In the unlikely event that your claim is turned down, the insurer will notify their reason for denial in writing. You can contest the rejection, but first make sure you can prove there was some error on the insurer’s part.
Frequently Asked Questions
What happens if your life insurance policy lapses?
If your policy has lapsed and you now want life insurance protection, you have two options: you can have the policy reinstated or purchase a new policy.
Life insurance companies typically allow up to five years to reinstate a lapsed policy. To get a policy reinstated, you will have to:
- Fill out the reinstatement application and answer all health questions truthfully.
- Attest that your health has not changed since you took the policy.
It is important that you provide all the requested information truthfully. Otherwise, your policy could become void at death. Life insurance carriers do not have to issue the death benefit if a policyholder intentionally lied on the application.
Your insurance provider may access your medical records and ask you to undergo a new medical examination. If the insurance provider agrees to your request, you will have to pay all the unpaid premiums with interest. The insurer can increase your premium rate if they believe your health is different from before, but not because you are older.
If the insurance carrier rejects your reinstatement application, the other option is to buy a new policy. Obtain as many quotes as possible to ensure you do not pay more for coverage than you must.
How long do life insurance providers take to pay out a claim?
Processing a life insurance claim may take anywhere between a few days to 60 days or more. Here are the steps for claiming a life insurance benefit:
- Request claim forms (or download them directly from the insurer’s website if that is an option).
- Fill out the claim form and attach a copy of the death certificate and other relevant documents.
- Submit the completed forms.
Routine claims are generally handled within one or two weeks. If the insurer requires additional information, they will contact you. In the unlikely event that your claim is rejected, the insurer will notify you in writing of their decision.
How often do life insurers deny claims?
Estimates suggest that roughly 2% of claims are rejected. Most rejected claims are due to material misrepresentation. Other reasons why life insurance will not pay out include death by suicide within the first two policy years, illegal drug overdose, death while participating in an illegal or an excluded activity, and death after the policy lapsed.
Can I contest a claim denial directly with the life insurance provider?
Yes, you can. But it is better if you first make sure you have solid proof that there has been a mistake. Otherwise, appealing against the rejection is not worth the effort.