One of the best things you can do for your family is to protect their financial future with a life insurance policy. The last thing you want is for their death benefits to be denied after you’ve passed. It’s a rare possibility, but it can happen. If you buy your plan from a reputable life insurance company and make your payments on time, then you don’t have much to worry about. However, it’s important to understand how and why an insurer can contest or delay payment on a claim so you can avoid this problem for your family.
Reasons A Claim Could Be Denied
Like we said, a life insurance claim denial isn’t common. In fact, it’s fairly easy to avoid. Below we’ve highlighted the reasons a claim can be denied or delayed so you understand what to do to avoid this situation.
Failure To Pay Policy Premiums
If you are not up to date on your premium payments when you pass away, your family may not be eligible for a payout. In fact, this is the most common reason for life insurance claim denials. So, it’s important that you pay your premiums on time, every time. If you don’t keep up with the payments your policy will eventually lapse. However, your insurance company typically notifies you of the late payment. Depending on your state, your insurance company may have to legally give you a grace period, typically about a month to pay the outstanding balance before they cancel the policy. This helps for those times when you need a little extra time to catch up.
Lying On Your Application
You are generally required to disclose any medical conditions and other risks such as dangerous hobbies when you apply for life insurance. The life insurance claim can be denied if you fail to give accurate information on your application. This is because your life expectancy is the base factor in determining your premiums, and whether or not you are eligible for a policy at all. Omitting important details on your application is known as “material misrepresentation”.
An incomplete or false application is another common reason for denials. Life insurance policies generally have a contestability period, which lasts about 2 years depending on the company and your state laws. During this time your insurance company can look into your policy and if they find a misrepresentation, they can decide the policy is void. If you pass away during this time, your insurer has the right to, and most likely will, investigate your family’s claim. If the company finds any misinformation, the company has two options: one, if the misinformation was small enough, they may look at how much you should have been paying on your premium and deduct that amount from the death benefit before releasing it to your beneficiaries, and two is out right denying the claim.
These options depend entirely on the insurance company, how big the misrepresentation was, and your state laws. So, the best thing you can do is just be honest on your application. Even if you have higher risks or health problems there are several life insurance policies that can and will cover you with the correct information.
Things You Should Expect To Disclose
Here are some examples of the kind of important information you have to disclose:
- Medical history – You have to provide information on any current health conditions including your mental health. You also need to provide prescription history and family health history.
- Dangerous hobbies – If you regularly participate in a dangerous hobby such as racing, mountain climbing, recreational piloting, and scuba diving you must tell your life insurance company.
- Dangerous behavior – You have to disclose if you’re a smoker, have a criminal record, dangerous driving record such as a DUI conviction, or other traffic violations.
- Dangerous jobs – Anyone with a dangerous job may have higher rates because of their daily risks at work. This includes construction workers, active military, firefighters, police, and pilots.
Contestable circumstances depend on how you pass away. Certain types of death can be excluded from coverage, most often linked with the contestability period we mentioned above. For example, if you say you are not a smoker and then pass away due to emphysema. Other contestable circumstances incur dying while performing an illegal act. While newer policies are starting to have less and less exclusions, older policies may exclude death during military service, acts of war, piloting a plane recreationally, scuba diving and mountain climbing.
Another contestable circumstance is suicide. Most life insurance policies come with a suicide clause, which states that benefits will not be paid if the policyholder commits suicide within a certain period of time after buying the policy (typically 2 years). Meaning your insurer may deny your family’s claim if you pass away due to suicide within that time period. If you or someone you know is having suicidal thoughts, please contact the National Suicide Prevention Lifeline at (800)-273-8255.
Not Providing Documentation
This one is less common, but it can happen so we’re putting it here just in case. When your family contacts the life insurance company to start the claims process, they will most likely be asked for certain documentation, at the very least they need the death certificate. If your beneficiaries don’t provide the documentation in time their claim can be denied.
Policy Term Has Expired
You could outlive the term of your term life insurance policy, which would result in no death benefits payment. If your policy is about to expire and you need coverage for longer you may be able to renew your policy (at a higher cost) at the end of your term. You may also be able to convert your term policy into a permanent life policy, but there is a window of opportunity to do so. If you’re interested in converting, make sure you know the deadline, so you don’t miss it.
No Designated Beneficiary
A life insurance claim may also be denied if the insured failed to name a beneficiary. Every policy stipulates who should receive the proceeds in the absence of a designated beneficiary. In the absence of a designated beneficiary, an insurance company will distribute the proceeds in accordance with the applicable state law or the policy terms. As insurance companies may mistakenly pay benefits to the wrong person, such claims may result in lengthy delays or denial.
What To Do If A Claim Is Denied
If you receive a claim denial letter it can be scary, especially if you relied on your loved one’s income and the money would supplement that income. If the insurance company finds that the policy holder died of suicide within their clause’s time frame or find another violation during the contestability period, the claim will not only be denied, it can also be disqualified from an appeal. However, other denials can be appealed, below are the steps you can take if you’ve received a denial letter.
Contact The Company
In the initial denial letter, the insurance company will detail the reason they’ve denied the claim. However, if the reasons are unclear or don’t have sufficient supporting information, the best thing to do is request additional information regarding their specific objections to paying out the death benefits. For example, if the denial just says “violation of terms” you can request what the violation was specifically and any documents that “prove” the violation. You should know if you are dealing with a life insurance policy that came from an employer there is typically only 60 days from the denial letter to file an appeal so don’t put off contacting them.
Contest The Decision
All insurance companies have an appeals process. You will have to file the appeal and provide evidence that the denial was incorrect. For example, if the denial is due to a lapsed policy, you would provide them with the receipts from payment premiums to prove the policy was in fact up to date. You have the option to represent yourself during this appeal. However, while self-representation is free, it comes with added emotional stress due to going through this complex process on top of grieving. In certain cases, you can contact your state’s insurance department or attorney general for help through the appeals process. Generally, the state departments of insurance and attorney general’s office offer easy and free resources to help get your death benefit as long as the claim was valid. Having state representation carries some serious weight during the appeals process so consider contacting them for help.
Working With EZ
It is important to understand why life insurance claims can be denied in order to ensure that your family receives the benefits you want to leave for them. And if you’re in the market for a policy that will safeguard your family’s financial future, be sure to compare policies from different companies and work with a knowledgeable agent. To get started simply enter your zip code into the bar below. Or you can contact one of our licensed agents today at 877-670-3560.