Insurance companies can and will deny claims when possible. Here are some of the common reasons for denying life insurance claims and what you should know about them.
Death during the contestability period
Life insurance policies have contestability periods. These are set amounts of time during which the insurer can investigate the validity of the information you gave on your life insurance application. For most policies, the contestability period lasts for two years after the policy takes effect. If the insurer discovers that you lied about something on the application — for example, having a chronic condition — they can choose to deny the claim. Keep in mind that the lie does not have to have any impact on the cause of death; as long as it is uncovered, the company can refuse to pay.
The cause of death is excluded from coverage
Like any other type of insurance policy, life insurance providers will outline certain circumstances where coverage is voided. For example, if the insured individual dies while engaging in reckless or high risk activity, the company may not pay out. However, this is becoming less and less common. Now, the primary cause of death excluded from coverage is suicide.
Payments were not made
Missed payments are bad for business, and can allow a company to choose to deny any life insurance claim made. Most companies offer a 30 day grace period to make up for a missed payment without having coverage canceled or benefits denied. To prevent this from occurring, set up automatic payments.
No beneficiary is named
In this case, the benefit is paid out, but not in the way most expect. Instead, it is paid out to the estate. Once this happens, the estate goes through probate before anyone can receive the benefits of the policy. As this is a long process, anyone with a life insurance policy should name at least one beneficiary.
Policy holders should take precautions to prevent a claim from being denied as well as speak with their beneficiaries about what to do should a denial occur. To learn more about life insurance coverage, speak with an insurance broker.
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