Life Insurance Denial: What You Need To Know

Life insurance is a crucial part of securing your family's financial future. However, not everyone who applies for life insurance is approved. There are several reasons why life insurance claims are denied or why applicants are rejected.

Firstly, insurance companies assess the risk of insuring an individual by examining their medical and non-medical history. This includes analysing health status, age, lifestyle choices, financial history, and criminal records. If an applicant is deemed too risky, their claim may be denied.

Secondly, life insurance policies have specific exclusions and limitations. For example, deaths resulting from illegal activities, suicide, or dangerous hobbies may not be covered. Additionally, there is a contestability period, typically two years, during which insurers can investigate and deny claims if they find misrepresentations or omissions in the application.

Furthermore, failure to keep up with policy premiums or provide accurate and complete information can lead to claim denials.

Understanding these reasons for denial can help individuals take proactive steps to secure their coverage and ensure their loved ones receive the intended benefits.

Health issues

In addition to pre-existing conditions, life insurance companies may deny coverage if they find issues during the medical exam required as part of the application process. For example, blood or protein in the urine can indicate kidney disease and lead to a denial. Similarly, blood samples can reveal high alcohol consumption, which can also be a reason for denial.

It is important to note that not disclosing relevant health information or providing inaccurate information on the life insurance application can also lead to a denial of coverage or a claim. Life insurance companies carefully examine the terms of policies and application information before approving coverage or paying claims.

Non-medical reasons

High-Risk Hobbies and Behaviours

Engaging in risky hobbies and behaviours, such as skydiving, auto racing, rock climbing, surfing, scuba diving, and substance abuse, can lead to a denial of life insurance. Insurance companies view these activities as increasing the likelihood of a claim and may choose to deny coverage as a result.

Dangerous Occupations

Certain occupations are considered more hazardous than others, resulting in more frequent death claims. These include construction workers, farmers, ranchers, electrical power-line installers, repairers, and active-duty military service members. People in these professions may be denied life insurance or face higher premiums if their applications are approved.

Financial Reasons

Financial instability, such as a poor credit score, significant debt, or a history of bankruptcy, can also lead to life insurance denial. Insurers may interpret these factors as an indication of an inability to afford premiums or an increased risk of defaulting on payments.

Criminal Record

A criminal history, including convictions for driving under the influence (DUI), can be a significant factor in life insurance denial. Insurers view criminal records as an indication of high-risk behaviours and lifestyle choices. However, each insurer evaluates criminal histories on a case-by-case basis, considering the circumstances and severity of the crimes.

Driving Record

A poor driving record, including accidents, reckless driving, speeding tickets, or multiple DUIs, can increase your risk profile and lead to life insurance denial. Insurers consider driving records as an indicator of overall risk and the likelihood of future claims.

Age

Older individuals may find it more challenging to obtain life insurance, especially term life insurance. Insurers often have age limits for term life insurance policies, and those over a certain age may be denied coverage or offered shorter-term policies.

Policy expiration

Life insurance coverage falls under two main categories: term and whole life. Term life insurance is the most common and affordable type. It covers you for a specified time period, usually 10, 20, or 30 years. Whole life insurance, on the other hand, covers you for your entire life.

If you have a term life insurance policy and the policy expires before your death, your loved ones won't receive a death benefit. This is because once your term policy expires, the policy is no longer in force, meaning you no longer have existing coverage. However, this doesn't mean you can't get more coverage. Many term life insurance policies allow for extending coverage, or you could purchase a new term or whole life policy.

It's important to note that if you fail to pay your premiums, your policy may lapse, and the insurer may terminate your coverage. Some insurers may offer a short grace period to get up-to-date with payments, typically between 30 and 90 days. If you don't keep up with your premiums, it may be challenging to reinstate your policy, and you may have to pay more than you were before. There could also be tax implications, and you may have to pay reinstatement fees and surrender charges.

To avoid losing coverage due to policy expiration, it's a good idea to regularly review and update your life insurance policy, especially after significant life events such as marriage, birth, or divorce. This will ensure that your insurer has the most up-to-date information and reduce the risk of your beneficiaries losing the policy and delaying payout.

Misrepresentation on the application

Misrepresentation on a life insurance application can lead to a claim being denied or a policy being invalidated. This is a common reason for insurers to reject claims.

Life insurance companies are very thorough when examining the terms of policies before paying out claims. They will carefully scrutinise the information provided on the application form, as well as other records, to ensure that policyholders have fulfilled their obligations.

If a carrier determines that you violated your policy terms, it can refund your premiums to your estate and pay your beneficiaries nothing. Therefore, it is important to be completely honest and accurate when filling out a life insurance application.

The contestability period, which typically lasts for the first two years of the policy, is a crucial time. If the insured person dies within this period, the insurer can investigate the accuracy of the information provided on the application form. If any misrepresentations are discovered, the insurer may deny the claim, even if the cause of death was unrelated to the misrepresentation. For example, if you lied about a medical condition but died in an unrelated car accident, your insurer could still deny the death benefit.

However, it is important to note that minor omissions or inaccuracies, such as an incorrect address or driver's license number, are generally not considered grounds for denial. These would be considered errors rather than intentional misrepresentations.

In some cases, misrepresentations of facts may be grounds for denying or reducing a death benefit, even if they are discovered after the contestability period has ended. For instance, if the insurer learns that you convinced a physician to provide false information to hide a medical condition, this could result in a denied claim.

To avoid having your claim denied due to misrepresentation, it is essential to be truthful and provide accurate information on your life insurance application. Review the application carefully before submitting it, and make sure to disclose any relevant information that could impact the insurer's decision.

Death circumstances

The type of death is a key factor in whether a life insurance claim is denied or not. Here are some death circumstances that could result in a denied claim:

Death During the Contestability Period

Life insurance policies typically have a contestability period, which lasts for the first two years of the policy. If the insured person dies during this period, the insurance company can investigate the circumstances of the death and application information to determine if any inaccuracies or misrepresentations were made. If the insurer finds that the policyholder provided false information or withheld relevant details, they may deny the claim, even if the cause of death is typically covered.

Type of Death Not Covered in the Policy

Life insurance policies usually contain exclusions that specify the types of death that are not covered. For example, death resulting from illegal activities, suicide, or homicide may be excluded from coverage. Engaging in dangerous hobbies or activities, such as skydiving or scuba diving, could also be listed as exclusions. It's important to carefully review the policy to understand what types of death are excluded from coverage.

Death from Illegal or Criminal Activity

If the insured person dies while engaging in illegal or criminal activities, the insurance company can refuse to pay the death benefit. This includes obvious illegal acts, such as using illicit drugs or committing a felony, but it may also apply to lesser-known illegal activities, such as trespassing.

Death from Suicide

Most life insurance policies include a suicide clause, which states that the insurer will not pay the death benefit if the policyholder commits suicide within a specified period, usually the first two years of the policy. Instead, the insurer may refund the premiums paid into the policy.

Death from Homicide

In the event of the policyholder's death by homicide, insurers will conduct a thorough investigation to determine the cause and circumstances. If the beneficiaries are found to be at fault or responsible for the death, they may be excluded from receiving the death benefit. The benefit may then be redirected to a contingent beneficiary or the policyowner's estate.

Frequently asked questions