4 most common reasons why a life insurance claim is denied

Like any insurance claim, life insurance claims can be denied for various reasons, which are likely outlined somewhere in the fine print of your policy agreement. When a claim is made, the insurance company will do an audit of your policy to make sure the policyholder has fulfilled their obligations. When entering into a life insurance policy, it’s important to know how your beneficiary may have to deal with a denied claim and which reasons are the most common.

1. The death happened during the contestability period.

The contestability period typically lasts two years from when you purchase the policy and allows for the insurance company to investigate the policy application, medical records and the circumstances of the death, leaving them the legal ability to deny the claim should they uncover any misrepresentation by the policyholder. Misrepresentation on the application is the most common reason for denial and examples may include failing to mention smoking habits, a history of alcohol or drug use. The insurance company may refuse to pay out the death benefit, even if their death had nothing to do with the misrepresentation.

2. The type of death wasn’t covered in the policy.

The cause of death used to be a larger factor for denial, reasons such as suicide or participating in dangerous activity. But more recently these types of claims are being paid out like any claim would be. However, for suicide, many insurance companies will only pay if the claim happens past the contestability period. It is important to check your policy and have these conversations with your insurance company when purchasing your plan so there are no surprises.

3. Lack of clarity of the beneficiary

There are a variety of reasons a claim may be denied or delayed due to there not being a clear secondary or final beneficiary. It’s important to keep your life insurance policy up to date as things in life change. These are the most common reasons that create complex situations on a claim:

• • There is no beneficiary designation on file.
• • The beneficiary was changed after a divorce.
• • The beneficiary on the policy is a minor.
• • The life insurance policy was included in a will or a trust, which has no control over an insurance policy contract.
• • The beneficiary was not updated after a major life change.
• • The insured did not specify a person, only a “child” or “relative.”
• • The insured named only one beneficiary who is no longer alive.

4. Policy premiums were not paid, leading to a lapse in payment 

Insurance companies are looking for reasons to not pay your claim and the easiest reason is a lapse in coverage due to not making a payment on time. If possible, we always recommend having your insurance premium payments on auto withdrawal from a bank account to avoid this costly mistake.