Life insurance policies are supposed to protect families and dependents in the unfortunate event of a loved one’s death. Life insurance policies are valid, legally binding contracts between policyholders and insurance companies. So, how is it that life insurance companies can deny paying beneficiaries after they have lost their loved ones? There are 5 common reasons for which insurers can deny a claim:
1) Suicide or health related deaths (for accidental policies)
So-called “Accidental Death & Dismemberment” policies (AD&D) are commonly sold under the impression that if the insured dies of a non-natural, “accidental” cause, a death benefit will be paid to his or her beneficiaries. However, insurance companies often define “accident” in an arbitrarily specific manner, in which long lists of provisions must be satisfied before they agree to pay out. For this reason, companies will frequently base their denial on evidence surrounding the circumstances of the insured’s death. It should be noted that AD&D policies never cover suicide or health-related deaths, since both of these scenarios would not qualify as an “accident.”
2) Death during first 2 years of policy
In most states, the first two years of a life insurance policy are considered the “contestability period,” i.e. the period of time during which an insurance company can review and fact-check information on a life insurance application (see our previous blog post). If the insured dies during the contestability period, the company will do a full investigation of the individual’s medical records as well as any other information requested on the application. This means that if there were any misrepresentations, falsities, or omissions on the application, the insurance company may retroactively cancel the policy and refund premiums instead of paying the full death benefit. This is an extremely common tactic among insurance companies, even when the misrepresentation in question is unrelated to the insured’s death.
Additionally, most life insurance policies contain a two-year “suicide clause,” in which claims can be denied in the event of a policyholder’s suicide. This is meant to deter people from buying policies with the intention of committing suicide shortly afterward, thereby leaving large life insurance benefits for their family members. However, suicide is not always clear-cut, and life insurance companies will frequently deny claims when there exists a mere possibility of suicide.
3) Nonpayment of premiums
When you buy a life insurance policy, the insurance company’s obligation to pay out is contingent on the policyholder having paid the premiums (see our previous blog post). If you forget to pay, the insurance company will typically provide a “grace period” for making late payments of around one month from the due date. If you do not pay within the grace period, the policy will “lapse,” and you will no longer be covered. Even if you’ve been paying diligently for decades, your policy can be terminated after missing one premium payment.
In most cases, life insurance policies should pay out in the event of homicide. However, there are specific circumstances in which insurance companies could deny a beneficiary’s claim in the event of the insured’s murder. For instance, if the beneficiary is under investigation for homicide of the insured, then the beneficiary will not receive the death benefit until cleared of any involvement in the insured’s death. Additionally, life insurance companies will almost never pay out if the insured was murdered while participating in unlawful/criminal activity.
5) Policy clause said it doesn’t pay out for…
Insurance companies will frequently stipulate that they don’t have to pay the benefit for arbitrary reasons. This is especially the case in AD&D policies, in which companies will define “accidental” death in a manner which is deliberately hard to satisfy. Common provisions are that the insured must die within 90 days of the injury which caused his or her death and that death in an airplane is not covered if you are a pilot.
Life insurance companies often cite one of these reasons when denying beneficiaries’ claims, even when they are legally required to pay out. If your life insurance or AD&D claim has been unlawfully delayed or denied, don’t hesitate to contact an experienced life insurance lawyer for a free case evaluation.