Although rare, insurers sometimes deny life insurance claims.
“It’s hard to fake being dead,” says Brendan Bridgeland, former executive director and current board member of Cambridge, Mass. nonprofit consumer organization Center for Insurance Research.
Beyond the issue of dead or not dead, life insurance policies also come with a number of contingencies that void coverage. Regardless of the reason, denial of a claim during the emotional time period after a loved one’s death complicates the whole situation for ill-prepared families and heirs.
Reasons why life insurance claims are denied
Insurers deny the death benefit on life insurance claims for reasons of policy delinquency, material misrepresentation, contestable circumstances and documentation failure.
In more detail, insurers deny a life insurance claim for:
- Policy delinquency wherein 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 coverage is not in force on an individual upon which the claim is made,” says Jack Dolan, spokesman for the American Council of Life Insurers, a Washington, D.C.-based trade organization. “Sometimes people let their policies expire and don’t inform their beneficiaries of the lapsed coverage.”
- Material misrepresentation on the initial life insurance application. Whether a heart murmur, a history of smoking or information around weight, untrue statements on an insurance application jeopardize the entire policy.
“In life insurance, the two things that affect pricing are your health and age,” says the consumer organization’s Bridgeland. “If he said he was 40 instead of 45 on the application, they may not cancel the policy, but they may subtract the additional premium due from the benefit amount.”
Other misrepresentations include:
- Lying about income
- Non-disclosure of another life insurance policy
- Incorrect application information provided by the agent
- Failure to mention treatments for minor ailments
- Misrepresentation of immigration status
- Contestable circumstances involve a death outside the scope of coverage, likely because the timing of the death falls within a contestable timeframe. A contestability period involves the first two to three years of a policy’s effective date in which insurers deny claims under certain circumstances. Contestable 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 pastimes such as scuba diving and mountain climbing, as well as for health perils such as HIV.
- Documentation failure refers to family or heirs failing to provide the necessary paperwork required to receive the death benefit. At the very least, insurers require a death certificate in order to start the payment process.
Why the contestability period matters
Contestability in the first couple years or so of a new life insurance policy involves a kind of probationary period when an insurer’s rights include a review of a death benefit to examine the payout for possible fraud or application misrepresentations.
While an investigation certainly delays payment of a death benefit, insurers pay on the policy so long as investigations lead to no conclusion of wrongdoing by a beneficiary. In the case of a homicide, for instance, insurers provide the payout only after police clear policy beneficiaries.
For David Spain, an Orlando, Fla.-based attorney who specializes in winning insurance claim settlements for denied beneficiaries, the contestability period lies at the center of the vast majority of claims he sees. But rather than a matter of insurers acting in bad faith to avoid paying a death benefit, Spain says many times policyholders and their heirs fail to grasp the nature, scope and complexities of the application coverage.
“What I see is overly complex applications for life insurance and overly detailed policies with exclusions that are calculated to benefit the insurance company that will be overlooked by most consumers,” he says. “I’ve seen people who were absolutely convinced that they had life insurance that would pay off 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 heart of beneficiaries who rely on replacement of the policyholder’s income. In truth, however, the only guarantee of a payout comes once the cash settles in the beneficiary’s account. An insurer’s finding of fundamental dishonesty by the policyholder voids the policy and the applicable death benefit. Additionally, a policyholder’s act of self harm or other violation within the contestable period disqualifies claim denials for appeal.
In cases with obvious mishandling of claims, state departments of insurance and attorneys generally offer easy–and free– resources that nudge insurers to pay on 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 spell out their reasons for denying claims in their initial denial letter. However, in the event the reasons lack clarity– or insufficient supporting details– the appropriate course of action includes a request for more information around the specific objections to payment of the death benefit.
In cases where denied beneficiaries appeal a claim, required documentation likely includes medical records, autopsy reports or insurance payment receipts.
In cases involving employer group life insurance and other similar policies, only a 60-day window exists to appeal the denial.
Contest the rejection
Beneficiaries with a denied benefit appeal claims by presenting evidence according to the process established by the insurer. While the self-representation comes at no financial cost, adding complex processes and stress to the middle of a grieving situation comes at an emotional cost.
In some cases, denied beneficiaries contact their state’s department of insurance or attorney general to take advantage of their expertise in insurance navigation. As some states employ insurance appeals specialists, state-level representation carries substantial weight.
How to prevent having a claim denied
Of course, avoiding claim denials provides the most desired outcome for the policyholder and the beneficiary. Best practices to avoid a denied claim center on the policyholder’s approach to the insurance application. Specific considerations include:
- Application responses— thorough responses around 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 in which insurers pay the death benefit and the conditions in which they pay no benefit
- Application review— read and re-read the completed application as filled out by the agent
When you need to get an attorney
“As soon as you get a denial or have not received a favorable result,” says plaintiff’s insurance attorney Spain, “you need to reach out to a contingency lawyer.”
Spain, who practices at the Orlando firm of Morgan & Morgan, says understanding the intricacies of insurance and how policies work gives plaintiffs an advantage over pro se representation.
“You can absolutely set back your case by trying to do it yourself,” he says.
Spain and other plaintiff insurance lawyers see potential clients and examine their case for appealing at no charge. When a legitimate case presents itself, these contingency lawyers provide representation their clients finance with a portion of any settlements won.
And while Spain boasts a success rate at trial of close to 100 percent, that’s not his first choice.
“I’ve resolved many cases simply by putting together the right records, the right arguments, the right case law and a letter explaining the position to the insurer,” he says. “Of course, then they know you’re serious, too.”
Frequently asked questions
What is the best life insurance?
Determining the best life insurance involves multiple moving parts that entail personal situations and desires. In other words, it depends.
Considerations when choosing a life insurance company includes the company’s history, its reputation for customer service, its financial stability and its pricing. These factors ultimately yield the customer experience and the policy value.
What kind of medical exams requirements exist around the purchase of life insurance?
As COVID-19 sparks mortality reminders and the related need for life insurance, some insurers now provide an automated underwriting process along with waived medical exams and blood tests to comply with social distancing requirements.
What factors best determine if an insurer pays the death benefit?
On the assumption that no issues exist in terms of a policyholder’s life insurance application and that no contestability issues come into play, financial stability plays a key factor in an heir’s receipt of a death benefit.