As part of your financial planning, you need to prioritize life insurance. It accords your beneficiaries a good life even after you have passed on. In some instances, despite having an active policy, this benefit may be denied. To make sure the life insurance fulfills its intended purpose, you and your beneficiaries need to be aware of the circumstances under which a life insurance claim can be denied to prevent such occurrences.
Insurers usually examine the terms of the policy thoroughly before releasing any funds to the beneficiary. Suppose the insurer determines that some policy sections were violated. In that case, they may refund the premiums to your estate, and they will also not pay the agreed lump sum to the beneficiaries. Therefore you and your heirs should not give the insurer an excuse not to pay claims. In this article, we will look at these circumstances and the adjustments you can make for your life insurance to be valid.
Death Occurs During The Contestability Duration
The contestability period is one or two years after your life insurance takes effect. During this period, the company looks into the information given to determine whether there is any misrepresentation. The contestability period is meant to protect the insurance company from any fraudulent activity. Therefore if you die during this period, the insurer will investigate whether you gave the correct information. If there is any misrepresentation, the beneficiaries will be denied the benefits. For example, if you lied about a particular health condition and got involved in an auto accident, the insurer can still withhold the benefits. Minor omissions, however, can be ignored.
Any misrepresentation realized after this period will not prevent payments to the beneficiaries. Suppose the insurer discovers the policy was taken as a plot to murder the principal for the personal gain of a beneficiary, the benefits will not be paid even after the contestability duration has elapsed.
The Type Of Death Is Not Covered In The Insurance Policy
There was a time insurers used exclusion clauses that focused on the type of death. For example, if the principal died when involving themselves in risky activities, the life insurance claim would be rejected. Dying during the war was also a common exclusion by insurance companies. However, such exclusion clauses are no longer included. The exclusions that exist include;
- Suicide during the first two years (depends on the insurer)
- The murder of the principal to benefit from the life insurance
- Death from substance abuse
Therefore before taking the life insurance, you have first to read their terms and conditions to determine whether they have such exclusion clauses.
If Relevant Personal Information Is Not Disclosed
Most insurance companies fail to pay benefits due to a lack of the relevant information that helps them assess the risk of policy payout. If you make an application for coverage but do not answer some questions correctly, that may be a ground for insurance payout denial. However, not all incorrect information rules out your claim. For example, writing the wrong address or driving license number will consider an unintentional error and not a misrepresentation. On the other hand, if you fail to include a conviction for drunk driving, it may be grounds for payout denial, but only if the information is identified during the contestability period. If the information is discovered after this period, then the payment cannot be denied.
Some misrepresentations will reduce the payout or lead to the insurer withholding the benefits entirely even after the contestability period. An example of such is if you convince a physician to give a false medical report.
Failing To Pay Premiums
Insurers strictly require policyholders to keep their end of the bargain by observing the premium payments religiously. You will not collect any claims if you allow your premium to lapse. Insurers always give policyholders a grace period of 30 days before imposing any penalties. Therefore, authorizing an automatic deduction from your checking account is the best way to avoid forgetting the premium payments. Also, for some companies, excess amounts may be rolled over to cover the next month’s cost.
How To Contest A Payout Denial
A beneficiary may launch a claim against denial of the benefit as long as they have substantial reasons that indicate why the company should proceed to pay the benefits. First, make a call to the company and inform them that the denial was incorrect; the issue will be solved administratively. Additionally, you can seek legal advice from an attorney or initiate a court process if negotiations with the insurance company fail.
Denial of life insurance sometimes may mean that a beneficiary will not be comfortable after your demise. However, some circumstances that lead to rejection can be solved to avoid getting to that point. You can solve this by being transparent in every information you give your insurer and paying premiums to the latter. Also, go through the terms and conditions of a policy and watch out for any exclusion clauses.