Reasons for Life Insurance Denials

The basic idea of life insurance policies is to provide protection to families and dependents in the unfortunate event that a loved one dies. A life insurance policy is a valid, legally binding contract that is made between the policyholder and the insurance company. However, there are instances whereby beneficiaries are denied claims to a deceased loved one’s life insurance. This article and a subsequent one will discuss five common reasons insurers deny claims.

It is important to note that as with any contract there are terms and conditions in place that must be adhered to. And often it is when these terms and conditions are breached that a life insurance company will deny a claim. The five most common reasons life insurance companies deny claims are:

1. Suicide or health-related deaths - Accidental Death and Dismemberment policies are often sold under the impression that if the policyholder dies of a non-natural, ‘accidental’ cause, the death benefits will be paid to their beneficiaries. However, it must be noted that insurance companies often define an accident in very arbitrary ways. As a result, it requires that a long list of provisions be satisfied before a payout can be made. It is for this very reason that companies frequently deny paying out beneficiaries based on the evidence surrounding the circumstances of the policyholder’s death. Accidental Death and Dismemberment policies never cover suicide or health-related deaths as they do not qualify as an accident.

2. Death within the first two years of the policy - in most states an insurance policy in its first two years is considered as the “contestability period”. It is during this time that the insurance policy is allowed to review a policyholder’s coverage for anything that they misrepresented during the application process. It is designed to protect the life insurance company from fraud. It is during this time that the policy reviews and fact-checks information on life insurance applications. As such, if the policyholder dies during the contestability period a full investigation of the policyholder’s medical records and any other information requested on the application will be made. If there are any discrepancies, omissions or falsifications the insurance company may cancel the policy and refund premiums instead of paying the full death benefit. This is commonly used by insurance companies even when the misrepresentation has nothing to do with the policyholder’s death. Further, most life insurance policies have what is referred to as a 2-year suicide clause. Based on this clause the insurance company can deny claims in the event that the policyholder commits suicide. The idea behind the suicide clause is to stop people from buying policies with the intention of committing suicide shortly afterward and leaving large life insurance benefits to their family members. That being said, suicide is not always clear and life insurance companies will still deny claims when there is a possibility of suicide.

If your life insurance or accidental death and dismemberment claim has been denied you are likely looking for Anchorage insurance companies