Life insurance is meant as a sort of “safety net” that ensures your family’s financial security in the event of your death. However, life insurance companies are not immediately required to pay out every death benefit claim received. In fact, life insurance is a BIG business, and insurance companies make their profits by collecting premiums and NOT paying out thousands, and possibly even tens-of-thousands, of claims each and every year. This is why state and federal laws are in place to protect insureds and their beneficiaries. Despite these laws, insurance companies continue to unlawfully delay and deny payment on claims in bad faith. Nevertheless, not every denial of a claim is done for a nefarious reason. Here are three reasons that your life insurance claim may be legally denied after your death.
Lying about your age is one thing but lying on your life insurance application is something completely different. Most life insurance policies include a two-year contestability period. This means that if a claim arises within the first two years of the policy’s issue date, the life insurance company is entitled to review the life insurance application for accuracy. If any material misrepresentation was made on the application (even if unrelated to the cause of death), your beneficiary’s claim could be denied. This comes as a shock to many, as the misrepresentation — such as an undisclosed alcoholism diagnosis — does NOT have to cause the insured’s death. The life insurance company can legally claim that the policy would never have been issued had the truth been told on the application, regardless of the actual cause of death. For example, if the insured fails to disclose his or her history of alcoholism but dies from a no-fault car accident and was not drinking behind the wheel, the claim can still be denied.
You Didn’t Pay!
As with any other contract, if you don’t pay your life insurance premium the insurance company isn’t required to honor the policy. State laws require that life insurance companies must provide at least a 30-day grace period if you do miss a payment, and each state has specific notice requirements with regard to the applicable grace period. Once the grace period expires, though, the policy is cancelled and the life insurance company can legally keep all premiums paid to date. In other words, you lose coverage and all premiums paid prior to the lapse are lawfully kept by the insurer. If you do wish to apply for reinstatement of your coverage, the life insurance company can then deny reinstatement if your health has changed since the original policy application. And if the policy is no longer active when the insured passes away? Expect a claim denial but don’t just accept it! ALWAYS have it reviewed by an experienced life insurance attorney. If the life insurer failed to provide “proper” notice (in compliance with applicable state law) of the grace period or made some other error in cancelling the policy, you may still have a fighting chance. To avoid the need for a life insurance lawyer, remember to stay current with payments, and for the elderly or anyone who suffers from serious medical issues, make sure a close family member or friend can help keep track of your payment due dates and check your mailbox for any grace period or lapse notices received.
Your Cause of Death is Excluded!
In order to mitigate risk in issuing a life insurance policy, insurance companies sometimes limit the types of deaths covered under the policy. For example, death as a result of participating in an unusually risky pastime may be excluded from payment. If you die skydiving, flying your own plane, or scuba diving, many policies explicitly exclude coverage for these risky activities. Other common exclusions include deaths by suicide, deaths occurring in the commission of (or attempted commission of) a felony, and deaths related to alcohol or drug intoxication, even if caused or contributed to by accidental overdose of a prescription medication.
It is important to note that every death by suicide is not immediately excluded from payment. However, generally death by suicide within a policy’s two-year contestability period will be. These “suicide clauses” vary from company to company and are intended to protect life insurance companies from applicant insureds purchasing life insurance while contemplating suicide. Always have your life insurance claim denial reviewed by a life insurance attorney to determine whether a denial is legitimate, even when the insured dies by suicide or “suspected” suicide.
- After a death occurs, not every life insurance claim is approved and paid. Sometimes life insurance companies delay or deny payment for unlawful reasons. However, there are perfectly legal reasons an insurance company may deny a claim.
- If you lied on your life insurance application and the company finds out within two years of the policy’s issue date, payment on the claim may be denied after your death.
- If you fall behind on premium payments more than 30 days, your policy may lapse for nonpayment, leaving you unprotected in the event of your death.
- If you die while participating in an extremely risky hobby, the insurance company may refuse to pay the claim.
- If you take your own life during the first two years of the policy, if you die while attempting to commit a crime, or if you overdose (even on prescription medication), your beneficiary or beneficiaries may not receive death benefits as a result of a “suicide clause” or other policy exclusion.
If you believe a life insurance company is wrongfully trying to delay or deny your life insurance claim, contact us for a free case evaluation today. The Life & Property Insurance Law Offices of Heather D. Lee can help you navigate the difficult claims process, demand that the company pay what you are rightfully owed, and represent your best interests throughout the case. We look forward to reviewing your claim!