Understanding more about why life insurance claims are denied

When a couple makes the important decision to purchase life insurance, they will undoubtedly gain considerable comfort about the future. This comfort, of course, comes from knowing that they’ll be able to weather the storm financially should the unimaginable transpire.

While anyone who purchases life insurance — term or whole — should be commended for their prudence, it’s nevertheless important for them to understand that there are scenarios in which the insurance company could decline to pay proceeds from the policy.

Some of the more common scenarios in which this situation transpires include:

• Violations of an incontestability clause: The majority of life insurance policies contain incontestability clauses dictating that the insurer can deny payment if its later determined that the application of the now-deceased applicant contained some error or omission. While the time limit for examining the application information is generally two years, it’s indefinite as far as fraud is concerned.
• Suicide: While this is an understandably sensitive topic, it must be noted that most life insurance policies have clauses indicating that no benefits will be paid if the insured takes their own life within two years of the policy taking effect. The situation can become even more confusing if an existing policy is replaced, as it can serve to essentially restart the two-year timeframe.
• Failure to pay premiums/policy ends: If the term life insurance policy purchased by the insured runs out prior to the death of a loved one or the insured had fallen behind on their premiums, the insurer will uniformly deny benefits. The only silver lining here, however, is that most insurers will provide notice of either scenario, or even provide a grace period to catch up on missed payments.

All this naturally begs the question as to what, if anything, people can do to protect themselves.

According to experts, consumers should consider the following:

• Carefully review the initial application and be as forthright as possible with your answers, leaving nothing out
• Always pay premiums, and take steps to notify the insurer if you move or change the financial institution from which payments are drawn
• If benefits are initially denied understand that there is likely an appeals process and that the help of a skilled legal professional can go a long way

Source: WMUR, “Money Matters: Why a life insurance claim may be denied,” Marc Hebert, March 9, 2017