Understanding why a life insurance claim might be denied
Life insurance companies pay out billions in life insurance claims every year in fact, $78.4 billion in death benefits was paid out in the year 2019 alone, according to the American Council for Life Insurers.1 But claims do occasionally get denied, usually for one of the three reasons listed below.
A lapsed policy
If for some reason you have neglected to pay your premiums regularly and your grace period for making a payment has expired, your policy could lapse and the death claim may be denied. A policy that has lapsed and ultimately terminated for nonpayment means that if you were to die, your beneficiary would not receive a death benefit payout.
In order for a life insurance claim to be paid, it must be an active, in-force policy. If you're having trouble making your life insurance premiums, be proactive and contact your agent or company representative right away to discuss your options. He or she may be able to help you get back on track before a lapse for nonpayment occurs.
“Material misrepresentations” are misleading or false statements on a life insurance application. For example, you don't want to be untruthful about your age or important medical information such as a chronic ailment or a history of smoking. Usually, within your life insurance policy, there is an "incontestability provision." If you should die during this contestability period and the insurance provider determines that your application included material misrepresentations, a life insurance claim could be denied.
Honesty is always the best policy. If you're unsure about how to answer any questions on your life insurance application, let your agent or company representative know. Don't guess!
The policyholder's type of death is excluded from coverage
Some policies have exclusions for deaths that occur while partaking in risky activities such as piloting a plane or scuba diving. Suicides are also typically excluded from coverage for a period of time after your policy's issue date, but that exclusion is usually dropped after two years.
Every life insurance policy has exclusions, and they can differ greatly between carriers. For this reason, it's always important to know the specifics of your life insurance policy, particularly if you encounter a high level of personal risk in your line of work or if you regularly engage in hazardous hobbies/sports.
What you can do
There are a few simple precautions you can take in an effort to avoid having your life insurance claim denied in the future. First and foremost: make your premium payments regularly, and make them on time. Of course, you may not be able to make your payments in the event that you become incapacitated, which is why it's important that you discuss the specifics of your life insurance policy with everyone who stands to benefit from it, and also any person you've appointed as your Durable Power of Attorney.
Be sure to let your loved ones know the name of your insurance provider, how much your beneficiaries should stand to gain (if you choose to disclose that information), whether you make your payments monthly or quarterly, and where all necessary paperwork for your policy is located. Keep your policy safe in a special folder, file, or deposit box, but don't keep its location secret. Your beneficiaries should also know that if a life insurance claim from a loved one is ever denied, they generally have a limited amount of time to take action once they've been informed of the claim's denial.
Steps to file a claim
- Notify the insurance agent or company that the policyholder has died. The agent or a company representative can help you navigate the insurance claim process. Or, if the life insurance policy was issued through an employer, ask them to notify the company for you to begin the claims process.
- Have the policy handy to help expedite the process. While most life insurance companies can assist you in finding the policy of your loved one, having a copy of the actual policy and the policy number can help them quickly locate the correct policy. It's also a good way to confirm the actual death benefit and any other policy riders that may apply - such as an accidental death benefit rider. Keep in mind that this initial step is only to open or establish a life insurance claim, and that you'll most likely be required to complete a claim form and secure a certified copy of the death certificate.
- If you don't have a copy of the policy, have no policy number, and are unsure as to the name of the life insurance company that issued the policy, check with your state's insurance department, as well as their unclaimed property office. You can find the required contact info for your state's insurance department at the National Association of Insurance Commissioner's website. You can also search for unclaimed property (which includes life insurance claims) in any state on the National Association of Unclaimed Property Administrator's website.
Under normal circumstances, you shouldn't have long to wait once the claim process has started and all the required documentation has been received. However, there may be a delay if the life insurance policy is contested, but this typically only occurs if there is a clear reason to believe that fraud or certain types of misrepresentation or misstatements are made on the original application.
Please note, this is only a general overview of actions commonly undertaken to initiate a life insurance claim. Claims requirements and procedures may vary among carriers.
For more information on the many benefits of life insurance, as well as how to locate a missing life insurance policy, visit the Protective Learning Center.