What to do if your life insurance company denies a claim
Experiencing a life insurance claim denial can make the already emotional time even more overwhelming. Each life insurance policy comes with a list of contingencies that can void coverage, but in some cases, you may be able to take steps to contest the rejection. If you are facing a denied life insurance claim, Bankrate’s team of insurance experts have a list of strategies that might help. We’ll review common reasons why insurers may deny a life insurance claim and what you can do about it.
Key takeaways
- Life insurance claims may be denied for policy delinquency, material misrepresentation, contestable circumstances or documentation failure.
- Misrepresentations may include lying about medical history, occupation and hobbies.
- A contestability period typically lasts for the first two to three years after the policy becomes effective, during which insurers may deny claims under certain circumstances.
- Be honest on your application and understanding the policy terms and conditions may help avoid a potential claim denial for your beneficiaries.
Why was my life insurance claim denied?
When denying a claim, life insurers typically cite policy delinquency, material misrepresentation, contestable circumstances or documentation failure as a reason for doing so. Here is what you need to know about each of these circumstances.
Policy delinquency
Policy delinquency occurs when a policyholder fails to pay their life insurance premiums on time, causing their coverage to lapse. If this happens, the life insurance policy will not be in force at the time of the insured’s death.
This is one of the most common reasons life insurance policy beneficiaries see their claims denied. The policyholder may have let their coverage lapse and failed to inform their beneficiaries before they died, unintentionally leaving their beneficiaries without a death benefit.
Material misrepresentation
When initially applying for a life insurance policy, it is crucial that the policyholder is honest and forthcoming about their medical history and health status. Whether it is a heart murmur, a history of smoking or information about weight, untrue statements on an insurance application may jeopardize the entire policy. Lying on a life insurance policy carries with it serious consequences, one of which includes potential claim denial for the beneficiaries following the death of the insured.
Other common misrepresentations include:
- Lying about income
- Non-disclosure of another life insurance policy
- Incorrect application information provided by the agent
- False information about occupation or hobbies
- False or incomplete information about medical history
Contestable circumstances
Contestable circumstances involve a death outside the scope of coverage, likely because the timing of the death falls within a contestable timeframe. A contestability period typically lasts the first two to three years following a policy’s effective date. During this period, insurers may deny claims under certain circumstances.
Contestable circumstances usually include things like suicide or dying while performing an illegal act. While some policy exclusions in contemporary policies are less common, older policies sometimes exclude death during military service, aviation and health conditions such as HIV.
Documentation failure
Documentation failure refers to family or heirs failing to provide the necessary paperwork required to receive the death benefit. At the very least, insurers usually require a death certificate in order to start the payment process for the beneficiaries.
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Whole life insurance combines life insurance with an investment component.
- Coverage for life
- Tax-deferred savings benefit if premiums are paid
- 3 variations of permanent insurance: whole life, universal life and variable life include investment component
Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time.
- Fixed premium over term
- No savings benefits
- Outliving policy or policy cancellation results in no money back
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Why the contestability period matters
Contestability in the first couple years of a new life insurance policy is not unlike a probationary period. During the contestability period, an insurer retains the right to review the initial policy application and death benefit for possible misrepresentations or life insurance fraud.
While an investigation may delay payment of a death benefit, insurers should pay on the policy so long as investigations lead to no conclusion of wrongdoing. In the case of a homicide, for instance, insurers may provide the payout only after police clear policy beneficiaries.
What to do if a claim is denied
Receiving a life insurance claim denial letter may be stressful for beneficiaries who are financially dependent on life insurance benefits. Depending on the reason for the claim denial, you may have some options to contest the denial. In cases with obvious mishandling of claims, your state’s department of insurance and your attorney may offer helpful resources to argue why the claim should be paid out.
Contact the insurer
Insurers generally spell out their reasons for denying claims in their initial denial letter. However, in the event the reasons lack clarity – or insufficient supporting details – you may want to request more information around the specific objections to payment of the death benefit.
Providing additional supporting documentation may help you contest the denial. This may include medical records, autopsy reports or insurance payment receipts. For instance, if you produce receipts of the policyholder paying their premium on time, you may be able to disprove policy delinquency. Or, if you have autopsy results, this may help prove that the policyholder did not die by suicide during the contestability period.
In cases involving employer group life insurance or other similar policies, you will need to move quickly if you want to contest. Typically, you only have a 60-day window to appeal the denial.
Contest the rejection
Beneficiaries with a denied benefit may be able to appeal the claim by presenting evidence according to the process established by the insurer. This process and how long it takes will vary by insurer. In some cases, denied beneficiaries may want to contact their state’s department of insurance or attorney general for their expertise in insurance navigation. Some states even employ insurance appeals specialists, and state-level representation may have substantial weight to an insurer.
How to avoid a life insurance claim denial
Avoiding a claim denial in the first place may save you the headache of appealing a denied claim. Although the burden of avoiding a claim denial typically lies with the policyholder, these best practices may help ensure a smooth claim payout process.
- Be forthcoming on your application: While omitting some information may seem like a quick way to get a cheaper life insurance rate, it may harm your beneficiaries in the long run. Being honest on your life insurance application may help you avoid claim denials due to material misrepresentation.
- Understand the terms and conditions: It may be a good idea to meet with a licensed life insurance professional before committing to a policy. A life insurance agent or broker can guide you through the different types of life insurance policies and help you grasp the finer points of your chosen contract.
- Arrange for automatic payments: Paying your premium automatically all but eliminates the chances of you forgetting to pay and causing your coverage to lapse.
- Review your application: Before you submit your final life insurance application, carefully review it to help catch any errors.
- Talk to your beneficiaries: Making sure that your beneficiaries understand your policy and how it pays out can be a hard conversation, but one that may be worth having to help facilitate the death benefit payout.
Frequently asked questions
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The best life insurance company is different for every applicant. Life insurance quotes do not vary much from company to company, so figuring out which policy type and company could meet your needs is likely more important than price. Comparing different policy types and considering your own life insurance goals may be the quickest way to narrow down the best life insurance type and company for you.
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Life insurance claims denials are fairly uncommon, but they do happen. According to a Reinsurance Group of America survey, 1-3 percent of life insurance claims are investigated or denied for fraud or misrepresentation.
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It is possible for a life insurer to deny a claim for smoking. If the policyholder lied on their application and said they were a nonsmoker, and the insurer later finds out that this is untrue, it has grounds to cancel the policy or deny paying the death benefit to beneficiaries.
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