Top reasons for life insurance claim denials
Business owners and individuals take out life insurance policies for peace of mind. They want their loved ones and business partners to be comfortable if they pass unexpectedly, and they want to make sure all their debts are covered when they do.
However, as straightforward as the concept of life insurance can be, it’s not guaranteed peace of mind for your family. There can actually be situations where insurance claims are denied, such as these below.
Within the contestability period
Many people request the services of insurance lawyers when their insurance company doesn’t pay promptly because of their set contestability period. Typically, an insurance company has two years to review your coverage and application to discover anything you may have misrepresented.
This period is put in place to protect them from fraud, but it can put a considerable amount of stress on a family or business’s shoulders. With such a significant delay in what could eventually be a payout with a lawyer’s help, beneficiaries have to cover funeral and related costs while they wait for a verdict.
The death type wasn’t covered
Even though life insurance covers many death types, such as pandemic illnesses, natural causes, accidents, murder, and suicide, there are many death types that the majority of life insurance providers don’t cover.
If you are involved in recreational, risky activities like auto racing, scuba diving, and hang gliding, a claim may be denied. The policy may also not be paid out if death is by suicide within the contestability period or murder by the beneficiary.
Ex-spouses as beneficiaries
Depending on which state you live in, an insurance claim may be denied if the beneficiary is an ex-spouse. In 24 states, pre-divorce designations are kept in place when a divorce is finalized. However, in the remaining 26 states, those designations are revoked when the couple divorces.
This law is put in place because some divorcing couples don’t always change their life insurance policies to reflect new life situations and business arrangements before the policyholder passes. The default laws are in place to reflect the deceased’s probable intent.
Payments have lapsed
One of the most common reasons why life insurance claims are denied is a payment lapse. The lapse may have been accidental or intentional, but the result is the same – the insurance company won’t pay out.
Because everyday living and business costs are rising, families are looking for ways to save money. In many situations, insurances are one of the first costs to be cut. Sometimes, payments can even bounce due to insufficient funds in the policy holder’s bank account.
Unfortunately, sometimes it’s not until the beneficiary tries to claim the life insurance do they come to realize that the policy is no longer valid.
Failure to disclose personal information
Insurance companies use the information you give them to measure your policy payout risk. If the policyholder had not been honest, the beneficiary might be denied the funds from the life insurance.
For example, if they didn’t divulge a pre-existing heart condition, then died from heart failure, the insurance company may deny on the basis of failure to disclose personal information.
While many claim denials are valid, some people can fall victim to unfair insurance company tactics that see them lose money they are entitled to. To know the likely outcome of your unique situation, it can sometimes be worth consulting a life insurance lawyer when taking out a policy and claiming for one.