Here’s an explanation of the most common reasons a life insurance company refuses to pay a claim, how you can prevent your beneficiaries’ claims from being denied, and what to do if the life insurance company denies your claim, from the noted life insurance lawyers at Boonswang Law.
Why Do Life Insurance Companies Deny Claims?
Life insurance companies seize any opportunity to deny claims because they only make money for their shareholders when they don’t pay out. This means that many, many claims are denied in bad faith, for the flimsiest of reasons.
5 Common Reasons for Life Insurance Claim Denials or Delays
Death During the Contestability Period
The two years after the day that the insured purchases a life insurance policy is called the contestability period. During the contestability period, the insurance company can deny a claim for death benefits due to any mistake or omission on the insured’s initial application and medical questionnaire, even if the mistake has nothing to do with the cause of death.
Suicide during the contestability period will also result in claim denial. This is to dissuade those contemplating suicide from taking out life insurance policies to benefit their loved ones, knowing they will die soon.
If you or someone you know is struggling with thoughts of suicide, call the National Suicide Prevention Hotline at 1-800-273-8255 to access their national network of local crisis centers that provide free and confidential emotional support to people in suicidal crisis or emotional distress 24 hours a day, 7 days a week.
Misrepresentation on the Application or Medical Questionnaire
If the insured intentionally or mistakenly omits or misstates information of any kind during the contestability period, the insurer will deny your claim. This is also true if the omission or misstatement was made by an insurance agent preparing the insured’s application and medical questionnaire.
Insurance companies will also deny claims outside of the contestability period for alleged misrepresentation, whether or not the alleged misrepresentation had anything to do with the insured’s cause of death. These denials can frequently be overturned!
Death Excluded from Coverage
Common exclusions include:
- Suicide (often if within 2 years of taking out the policy)
- Death during an illegal act
- Death by drug overdose
- Death by alcohol poisoning
- Death occurring while visiting a high-risk travel destination
- Death due to an Act of War
If you or someone you know is abusing alcohol or drugs call the Substance Abuse and Mental Health Services Administration (SAMHSA) hotline at 1-800-662-HELP (4357) for free and confidential help, 24 hours a day.
Lapsed Policy Due to Non-Payment of Premiums
If a beneficiary is told that the claim is denied due to policy lapse or termination, the inquiry should not stop there. It is common for policies to lapse due to no fault of the insured.
For example, if an employer fails to pay group life insurance premiums on the insured’s behalf and then fails to provide the required notices and conversion forms to the insured, the employer is at fault for the lapse in coverage and the claim can be paid.
If an insurance company cannot show that it sent the insured the required notices of impending lapse, the claim can be paid. If the insured was entitled to a waiver of premiums due to disability, but did not receive that waiver, the claim can be paid.
If the insured changed the beneficiary designation just before dying, or there is an allegation of fraud or undue influence related to a change of beneficiary, the insurer will not pay out until that is resolved.
If the insured is vague in the beneficiary designation, for example, designating “all my children” rather than naming each of the children, a beneficiary dispute may arise. Did he mean all of his children from all marriages? Did he intend to include children born outside of his marriages? Did he intend to include stepchildren? The insurer will not pay out until this is resolved.
If the insured’s named beneficiary cannot be found or has died, and there is no contingent beneficiary, the insurer will investigate and will eventually pay the death benefit to the insured’s estate.
How to Prevent Claim Rejection
An insured can take these three (3) steps to make sure their intended beneficiaries get the death benefit they’ve paid for.
- Disclose Medical History and Lifestyle Habits
The insured should disclose all past and current medical conditions, diseases, surgeries, and medication. The insured should also disclose all lifestyle habits, such as smoking and alcohol use. If the insured engages in any activities or hobbies considered dangerous by the insurer, the insured should disclose that as well.
If the insured hides any of these facts, they risk their beneficiary’s claim being denied for misrepresentation, especially if the insured dies within two years of purchasing the policy or the cause of death is related to the misrepresented fact.
If you or a loved one is struggling with alcohol abuse, call the Substance Abuse and Mental Health Services Administration (SAMHSA) hotline at 1-800-662-HELP (4357) for free and confidential help, 24 hours a day.
- Proofread Application Prepared by Agent
Frequently, errors and omissions are the fault of an insurance agent who prepared the application and medical questionnaire on behalf of the insured. The insured should always proofread these documents carefully before signing them.
- Specify the Name of a Beneficiary and a Contingent Beneficiary
The most effective way to make sure the death benefit will pass to the intended parties is to specify primary and contingent beneficiaries by name. Do not name a minor child as a beneficiary, as this child cannot directly receive the death benefit and the court will appoint a receiver or trustee to manage the funds.
How Do I Deal with a Rejected Insurance Claim?
Contact the Insurance Company
Be sure to get the reason for denial in writing. Ask the claims agent if any additional information or documentation would overturn the denial.
Contest the Denied Claim
By law, you must be given the forms to contest the claim denial. You must have reasons other than “the denial is wrong” or “the denial is unfair” to overturn the denial.
Frequently, the reason for the claim denial seems iron-clad on its face, but the facts behind the reason show that there was no fault on the part of the insured. In those cases, the claim denial can be overturned entirely, or the life insurance company will settle for the death benefit amount minus what the insured would have paid in premiums.
When Does a Life Insurance Beneficiary Need an Attorney?
As soon as your claim is denied (or even if you think your claim is going to be denied), contact a life insurance beneficiary attorney. This will not cost you anything because beneficiary attorneys work on contingency, meaning they only get paid if they win.
An experienced life insurance beneficiary attorney will investigate the facts behind the denial and the facts of the cause of death and will be able to uncover whether the policy legally lapsed, the insured was at fault for misrepresentation, or the death was indeed excluded from coverage. Often a claim that is initially denied is paid or settled once an attorney gets involved.
Let the Experienced Life Insurance Beneficiary Attorneys at Boonswang Law Help You Get Paid
Boonswang Law has helped thousands of beneficiaries just like you contest a claim denial and get paid. Contact us today for your free, no-obligation case evaluation. Remember, we don’t get paid unless you do!