Life insurance policies come with a number of contingencies that can void coverage. Just like with renters or auto insurance, each life insurance company has its own claims handling process that is unique to each policy. Regardless of the reason, a claim denial during the emotional time period following the death of a loved one complicates the entire situation for ill-prepared families and heirs.
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There are certain situations in which life insurance claims may be denied. If your life insurance claim is denied, there are a number of steps you can take that may help you receive your benefits. This article can help you understand why insurers may deny a life insurance claim and what you can do about it.
reasons why life insurance claims are denied
Insurers deny the death benefit on life insurance claims based on policy delinquency, material misrepresentation, contestable circumstances, and lack of documentation.
More specifically, insurers deny a life insurance claim for:
breach of policies
policy default where the policyholder failed to pay premiums on time, causing the policy to lapse. “The main reason a company will deny a death benefit is because the coverage is not in force for the person on whom the claim is made,” said Jack Dolan, a spokesman for the American Council of Life Insurers, a trade organization with headquartered in washington, d.c. . “Sometimes people let their policies lapse and don’t tell their beneficiaries about the expired coverage.”
material misrepresentation in the initial life insurance application. Whether it’s a heart murmur, a smoking history, or weight information, false statements on an insurance application jeopardize the entire policy.
“In life insurance, the two things that affect prices are your health and your age,” said the consumer organization’s Bridgeland. “If he said he was 40 instead of 45 on the application, they can’t cancel the policy, but they can subtract the additional premium due from the benefit amount.”
other misrepresentations include:
- lying about income
- non-disclosure of another life insurance policy
- incorrect request information provided by the agent
- lack of mention of treatments for minor ailments
- falsifying immigration status
- App Answers: Detailed answers about health and health-related behaviors, including the occasional cigarette, prescription or other medications, and risky hobbies
- application understanding around terms and conditions: clarity around the conditions under which insurers pay the death benefit and the conditions under which they do not pay any benefit
- application review: read and reread the entire application as filled out by the agent
Contestable circumstances involve a death outside the scope of coverage, likely because the time of death falls within a contestable time frame. A contest period involves the first two or three years of a policy’s effective date in which insurers deny claims under certain circumstances. moot circumstances include things like suicide or dying while performing an illegal act. While policy exclusions continue to decline in contemporary offerings, older policies sometimes exclude death during military service, acts of war, aviation, dangerous hobbies such as scuba diving and mountaineering, as well as health hazards like hiv.
lack of documentation means that the family or heirs do not provide the necessary documentation to receive the death benefit. At a minimum, insurers require a death certificate to start the payment process.
why is the challenge period important
Challenging in the first two years or so of a new life insurance policy involves a kind of trial period when an insurer’s rights include a review of a death benefit to examine payment for possible fraud or misrepresentation of the application.
While an investigation certainly delays the payment of a death benefit, insurers pay the policy as long as the investigations do not lead to the conclusion that a beneficiary has committed a crime. in the case of a homicide, for example, insurers provide payment only after the police clear the beneficiaries of the policy.
for david spain, an attorney based in orlando, fla. who specializes in winning insurance claim settlements for denied beneficiaries, the contest period is at the heart of the vast majority of claims he sees. But rather than insurers acting in bad faith to avoid paying a death benefit, Spain said policyholders and their heirs often do not understand the nature, scope and complexities of coverage on request.
“What I see are overly complex applications for life insurance and overly detailed policies with exclusions calculated to benefit the insurance company that most consumers will overlook,” he said. “I’ve seen people who were absolutely convinced they had life insurance that would pay for the house, when what they had was an accidental death policy.”
what to do if a claim is denied
Receiving a life insurance claim denial letter strikes fear into the hearts of beneficiaries who depend on the replacement of the policyholder’s income. In truth, however, the only guarantee of a payment occurs once the cash is deposited into the beneficiary’s account. An insurer’s finding of fundamental dishonesty on the part of the policyholder voids the policy and the applicable death benefit. in addition, the policyholder’s act of self-injury or other violation within the contestable period disqualifies claim denials for appeal.
In cases where claims are handled improperly, state insurance departments and attorneys often offer free and easy resources that encourage insurers to pay valid claims. And even if an insurer disqualifies a claim for appeals, potential beneficiaries who disagree with the decision exercise foresight by moving forward with an attorney.
contact the insurer
Insurers explain in detail their reasons for denying claims in their initial denial letter. however, in the event that the reasons are unclear, or the supporting details are insufficient, the appropriate course of action includes a request for more information about the specific objections to payment of the death benefit.
In cases where denied beneficiaries appeal a claim, the required documentation will likely include medical records, autopsy reports, or insurance payment receipts.
In cases involving employer group life insurance and other similar policies, there is only a 60-day window to appeal the denial.
dispute the rejection
Beneficiaries with a denied benefit claim an appeal by submitting evidence according to the process established by the insurer. While there is no financial cost to self-advocacy, adding complex processes and stress in the midst of a grieving situation comes at an emotional cost.
In some cases, denied beneficiaries contact their state insurance department or attorney general to take advantage of their insurance navigation expertise. Since some states employ insurance appeals specialists, representation at the state level carries considerable weight.
when you need to get a lawyer
“As soon as you get a denial or have not received a favorable result,” said the plaintiff’s insurance attorney, Spain, “you should contact a contingency attorney.”
spain, who works at the orlando de morgan & Morgan said that understanding the intricacies of insurance and how policies work gives plaintiffs an advantage over pro se representation.
“You can absolutely set your case back if you try to do it yourself,” he said. Spain and other insurance claimant attorneys see potential clients and review your case for free appeal. when a legitimate case arises, these contingency attorneys provide financial representation to their clients with a portion of the settlements won.
and although spain has a trial success rate close to 100%, that is not your first option.
“I have resolved many cases simply by gathering the correct records, the correct arguments, the correct case law and a letter explaining the position to the insurer,” he said. “Of course, then they know you’re serious, too.”
how to prevent a claim from being denied
Of course, avoiding claim denials provides the most desired outcome for the policyholder and beneficiary. best practices to avoid a denied claim center in the policyholder’s approach to the insurance application. specific considerations include:
frequently asked questions
what is the best life insurance?
Determining the best life insurance involves multiple moving parts involving personal situations and desires. in other words, it depends.
Considerations when choosing a life insurance company include the company’s history, reputation for customer service, financial stability, and pricing. These factors ultimately drive the customer experience and policy value.
what kind of medical exam requirements are there around buying life insurance?
A life insurance medical exam requires a basic physical exam that includes weight and height measurements and a blood pressure check. The medical examiner will also request prior medical examinations and history, and urine and blood samples.
what factors best determine whether an insurer pays the death benefit?
assuming there are no issues in terms of the policyholder’s life insurance application and no contest issues come into play, financial stability plays a key factor in receiving a death benefit by an heir.
am best and demotech offer ratings and information on the financial stability of insurers.