Why Does Life Insurance Get Denied?
When someone buys a life insurance policy, this is meant to protect a family in the event that passes away and their income is lost. While most families assume that they will receive some form of financial compensation if their loved one passes away, there is always a chance that the claim from the beneficiary is denied. This can be devastating for a family that is already wondering how they are going to make ends meet as they grieve the passing of a loved one. It is important for everyone to know some of the most common reasons for a denied life insurance claim.
Most life insurance policies have something called a contestability period that usually remains in effect for around two years after they have been purchased. If the individual passes away during this period, the life insurance company might have the right to investigate whether any of the information on the life insurance application was fraudulent. If this is the case, the carrier might refuse to pay the death benefit. Worse, they might deny this benefit even if the incorrect information had nothing to do with the cause of death. For example, someone might die in a car accident but there was a chronic medical condition that was omitted that did not contribute to the car accident. Usually, this contestability period is not a problem as long as the individual lives beyond it.
Like car insurance companies refusing to pay for certain types of accidents, not every cause of death is going to be covered by the life insurance policy. For example, some people pass away while participating in dangerous activities such as helicopter skiing, skydiving, or rock climbing. Some life insurance companies also exclude war as a cause of death. Extreme activities increase the risk of death, which increases the risk to insurance companies.
While these types of exclusions are rare today, some companies still try to deny payments for these causes of death. It is critical for everyone to read their policy and understand which causes of death are covered and which ones are not. In the end, the only cause of death that is routinely excluded is suicide.
Finally, the last reason has to do with premiums. Life insurance companies are strict when it comes to holding its policyholders to its terms and policies. If the premium lapsed, some beneficiaries might not be allowed tocollectt. Usually, there is a grace period of around a month. Policyholders can pay this premium and not be charged interest. Anyone who expects a life insurance benefit to be paid out must keep up with the premiums. This is a critical step in making sure benefits get paid out.