This week’s subject is why a life insurance claim may be denied. You know, the death of a loved one is a difficult time and most people buy life insurance to replace the income that is gone when someone leaves this earth. Now, once a life insurance policy is purchased, many think that they’ve solved this financial problem. But the purchase of a policy doesn’t necessarily guarantee that the death benefit will be paid. Insurers examine the terms of the policies carefully before paying claims.
Now, here are some common reasons that the proceeds from a policy aren’t paid to the beneficiaries. The first one is called the incontestability clause. Now this allows the insurer to deny paying a claim if the insurer finds the applicant made misstatements on the application and subsequently died. Now the period for dealing with these misstatements is usually two years. However, if the applicant deliberately tried to defraud the company, there is essentially no time limit to contest the policy benefits.
Now, if the cause of death was suicide, the insurance company typically has a two-year incontestability clause for suicide. Now, remember with these policies that if you take an old, existing policy and you replace it with a new policy, you are likely to start this incontestability clause all over again with the new carrier.
Also, other reasons that policies lapse is because people just don’t pay the premiums on a policy. In the case of term insurance, it might have run out. If you had 10-year terms and you’re past the 10 years, the policy may no longer be enforced at that point in time. Now, typically insurance companies will try to contact you and if you haven’t paid a premium, there’s a 30-day grace period in which you can pay the premium and they will reinstate the policy just as it was. Longer than that, it may not get reinstated the same way or you might actually lose the coverage.
Now, if the policy is a whole life policy or universal life, you may be able to use the cash value in the policy to pay the premiums or actually make loans against the premiums. Now there are some things that you can do as an insurer that can help make sure that the death benefit does get claimed. Review the insurance application carefully when you apply for insurance and be honest. Do not withhold any information, even though you think it is not pertinent. Pay the premium on time and a lot of companies will actually ask you to give another individual’s name where they can send a premium notice to, if you don’t pay the premium.
Let’s say you move to another state and you forget to notify the insurance company, for example. Also, if your policy is a group life insurance policy through your employer, make sure that it is still in force each year and that the employer hasn’t changed the coverage. Especially if the employer is paying for the coverage.
And finally, if you are denied coverage, at least your beneficiaries are, there is an appeal process that insurance companies have in order for you to follow.