8 Reasons Your Life Insurance Claim Will Get Denied
Life Insurance provides peace of mind. In the unfortunate event of your death, your family will be taken care of, right? – – – I truly wish things were this cut and dry.
The truth is that your life insurance policy is only as good as the care you put into issuing it in the first place. It’s like a seed. If planted in the right place, at the right time, with proper care – it will be there for you many years later when you come back to reap your rewards.
However, if you don’t know the rules or best practices, and decide to cut corners along the way, why should you be confident in your investment?
In an attempt to save you from becoming another life insurance claim horror story, here are eight reasons your life insurance policy could be denied. Know them so you can avoid them!
1 – White Lies On The Application
Who can blame you; the incentive to provide “fudged information” on your life insurance application can be large. After all, your policy has to be approved before you can make a claim – and everyone has something to hide (driving history, smoking, dangerous travel, drug use, depression, etc). Regardless, insurance companies have an arsenal of tricks at their disposal to uncover your hidden or misrepresented information.
Safeguard: It may be hard to swallow at the time of application, but the best policy is to always tell the truth up front. White lies tend to turn black over time.
2 – Genuine Laps of Memory
Okay, so you’re supposed to tell the truth when filling out your life insurance application. What if you can’t remember the truth? A common example is recalling whether you’ve been to the doctor in the last six months – even a routine checkup. It can seem like an innocent question, but is a real game-changer if improperly disclosed.
Safeguard: The point isn’t to get a better snap memory – it’s to ensure that you take the time to accurately answer every question on your life insurance application to the best of your ability. If you can’t remember, take the necessary steps to find out the correct answer. You’re potentially nullifying your policy by guessing.
3 – An Underqualified Agent
Given the timeframe life insurance covers, many people only fill out one or two policies during the course of their life. For this reason, having an experienced agent as your guide is essential. Leaning on their experience, you expose yourself to the full options at your disposal and acquire the best policy for you. Alternatively, dealing with an inexperienced/underqualified agent can be potentially disastrous, as unforeseen circumstances are much more likely to prevent your claim from fulfillment.
Safeguard: Make sure you’re dealing with an experienced agent from a credible company with references and a proven track record of success.
4 – Underwriting Is Done At Time of Claim
Many creditor policies are easy to apply for because they do the underwriting at the time of claim, avoiding all the costs of underwriting at the time of issue. The problem with this is that the applications that would have been rated or declined are not discovered until it’s too late – and the claim is denied.
Safeguard: Do not purchase a policy if the underwriting is conducted at the time of claim.
5 – Defaulting On Mortgage Payments
For many reasons, pairing your life insurance policy with your bank mortgage is a bad idea. In general, banks have far more ways to deny a claim than a personal policy. For instance:
- Should you die within two years of coverage, the insurer will validate your answers to your provided health questions, regardless of whether they are “material facts.”
- Since your premiums are included in your mortgage payments, if you default on your mortgage payments, your policy can go with it.
- If you die as a result of committing a criminal offence, your policy will be terminated-regardless of whether charges are laid.
These examples are just the tip of the iceberg.
Safeguard: Buy a personal life insurance policy that is separate from your mortgage.
6 – Expired Policy
Life insurance acceptance is half the battle. Without adequate financial contributions, policies have a nasty habit of expiring. To return to the seed example, they need to be nurtured. Just as you must water your plants, you must pay your premiums or your policy is going to wither away and die – quickly. Even with permanent insurance, the cash value of the policy may not be enough to cover the operating costs, resulting in a denied claim upon death.
Safeguard: Enter into a life insurance policy with premiums you are able to keep up with.
7 – Insufficient Documentation
When the insured person dies and it’s time to process the claim, the life insurance company needs both a claim form and an official copy of the death certificate. Many people believe that the death certificate they receive from their funeral home will do – it won’t.
Safeguard: Although it’s hard to stay composed when a loved-one dies, it’s very important to get your official documentation in order, or your claim could be denied.
8 – Suicide
It’s tough to talk about, but the fact is that suicide results in many life insurance claims getting denied. If death results within two years of the purchase of a life insurance policy, the claim can be delayed until the cause of death is uncovered, and ultimately denied depending on the resulting evidence.
Safeguard: Be mindful of how cause of death can affect your life insurance policy, and in turn affect the people you are trying to protect.