The primary purpose of life insurance is to protect family members financially after their loved one’s death. However, a life insurance policy is not offering guaranteed protection. In many cases, insurance companies keep their promise and pay the benefits to the beneficiary after the insured’s death. Very often, however, life insurance claims get denied for a variety of reasons. Why would a life insurance claim be denied? As your insurance agent, we want you to be prepared in understanding why your claim could be denied so we’ve put together a list with the most common reasons why and when life insurance companies won’t pay beneficiaries out.
- The death happened during the contestability period/failure to disclose a medical condition or other pertinent information. If an insured dies within the first two years from the date a life insurance policy becomes effective, the insurance company has the right to contest the policy. If, while contesting the policy, the insurance company finds information not reflected on the application, it may deny coverage. The insurance company may refuse to pay out the death benefit, even if their death had nothing to do with the misrepresentation.
- The type of death wasn’t covered in the policy. Every life insurance contract has several exclusions that describe situations that the policy does not cover. These exclusions are worded very carefully by insurance companies so as to encompass many possible scenarios that they can use as reasons to deny life insurance policies. Here are some of the most common exclusions life insurers invoke as reasons to refuse to pay out death claim benefits: death by suicide, drug or alcohol abuse, homicide, illegal activities, or acts of war.
- The employer failed to submit a waiver of premium. Whenever employees choose to participate in their employer-provided life insurance programs, they enroll into group life insurance plans. Many of such group plans provide coverage not only to the employees but also to their qualified dependents. The employer’s role is often very important in explaining the benefits to its covered employees. Unfortunately, often, an employer will misrepresent information about life insurance coverage to its employees which can result in denied benefits after the employee’s death.
- Policy premiums were not paid, leading to a lapse in payment. Usually, a life insurance policy is only active for as long as premiums are paid. When no premium is made when it is due, a policy may lapse/terminate. Denied claims due to lapse are very common and insurance companies often use nonpayment of premiums as a reason to deny a claim even when a claim should be paid.
- There is no beneficiary designation on file. Another reason to be denied a life insurance claim is if the insured failed to name a beneficiary. Every policy has provisions regarding who should get the proceeds if there is no designated beneficiary. When a beneficiary is not named, an insurance company will pay the proceeds either according to the law of the state where the policy was taken out or according to the policy terms. Such claims may result in lengthy delays and denial as insurance companies may pay the benefits to the wrong person.
- The beneficiary was not updated after a major life change. When people divorce, marry, have children, etc., they usually want to change beneficiaries on their life insurance policies. If they fail to do so, several people may have claims to the same policy proceeds after their death. If this is the case, a claim may be delayed because an insurance company is preparing to file an interpleader.
- The beneficiary on the policy is a minor. When an insured lists a minor child as a beneficiary, a life insurance claim may be delayed, because a minor child cannot receive the proceeds without a guardian.
- Outliving a Term Life Insurance Policy. If you have term life insurance, you could potentially outlive the policy’s term, meaning there would be no death benefit payout. If you need longer coverage, the policy might allow you to renew (at a higher price) when you reach the end of the term. You may also be able to convert a term life policy to a permanent life insurance policy, but there’s a time window to do it. Make sure you know your policy’s deadline if you’re interested in converting it.
Every delay or denial should be reviewed by an experienced life insurance attorney and contested if it appears that a claim was wrongfully delayed or denied. At Kerrigan, O’Malley & Bailey Insurance Agency, you and your family are very important to us. Call us at 978-365-2302 or visit our website at www.koinsurance.com to discuss your life insurance needs. We can provide coverage from many insurance carriers so you receive the insurance for your budget and needs!