Numerous occurrences might cancel the coverage of life insurance policies. Each life insurance company has its own claim handling procedure that is particular to each policy, just like renters’ or auto insurance. No matter the rationale, denying a claim during the difficult time following a loved one’s passing makes things more difficult for unprepared families and heirs.
Life insurance claims may be rejected in several circumstances. There are several actions you can take if your life insurance claim is rejected in order to increase your chances of receiving compensation. You can learn from this article why an insurer could reject a life insurance claim and what you can do to fight back.
Reasons why your life insurance claim can be rejected
For reasons including policy lapse, serious misrepresentation, contestable conditions, and inadequate paperwork, insurers reject death benefits on life insurance claims.
For the following reasons, insurers reject a life insurance claim:
Failure to pay premiums on time by the policyholder, which results in the policy lapse. According to Jack Dolan, spokesman for the American Council of Life Insurers, a trade group based in Washington, D.C., “the major reason a company will refuse a death benefit is because coverage is not in place on an individual against which the claim is made.” “Sometimes people don’t notify their beneficiaries that their policies have expired and let them go into effect.”
Misrepresentation of the goods
On the initial life insurance application, there was a material misstatement. Untrue representations on an insurance application, whether about a heart murmur, a smoking history, or weight, imperil the entire coverage.
“Your health and age are the two factors that affect life insurance pricing,” said Bridgeland of the consumer association. “If he said on the application that he was 40 rather than 45, they may not terminate the policy, but they may deduct the higher premium payable from the benefit amount.”
Other examples of misrepresentations include:
- Lying about one’s income
- Failure to disclose second life insurance policy
- The agent gave incorrect application information.
- Treatments for minor ailments are not mentioned.
- Immigrant status misrepresentation
Circumstances that are disputable
Contestable conditions involve a death that occurs outside the scope of coverage, most often because the death occurred during a contestable timeframe. A contestability period is the first two to three years after the effective date of a policy during which insurers deny claims under specified conditions. Suicide or dying while committing an illegal conduct are examples of contestable circumstances. While insurance exclusions are decreasing in modern offerings, older policies may exclude death during military duty, acts of war, aviation, dangerous sports such as scuba diving and mountain climbing, and health risks such as HIV.
Failure to document
Documentation failure occurs when family members or heirs fail to present the requisite papers to obtain the death benefit. In order to begin the payment process, insurers want a death certificate at the very least.
Why is the contestability period important in life insurance claims?
Contestability in the first couple of years or so of a new life insurance policy involves a probationary period during which an insurer’s rights include a review of a death benefit to assess the payout for probable fraud or application misrepresentation.
While an inquiry undoubtedly delays payment of a death benefit, insurers continue to pay on the policy as long as no evidence of misconduct by a beneficiary is found. In the case of a homicide, for example, insurers pay out only after authorities have cleared policy beneficiaries.
The contestability period is essential to the vast majority of claims seen by David Spain, an Orlando, Fla.-based attorney who specializes in winning insurance claim settlements for denied beneficiaries. Instead of insurers operating in bad faith to avoid paying a death benefit, Spain claims that many times policyholders and their heirs fail to understand the nature, breadth, and intricacies of the application coverage.
“What I see is too complex life insurance applications and overly comprehensive policies with exclusions meant to benefit the insurance business that most people will overlook,” he said. “I’ve seen clients who were persuaded they had life insurance that would pay off their mortgage when all they really had was an accidental death policy.”
What to do if my life insurance claim is denied
Beneficiaries who rely on the policyholder’s income are terrified when they receive a life insurance claim denial letter. In reality, the only certainty of a payout occurs once the money is deposited into the beneficiary’s account. When an insurer discovers that the policyholder has committed fundamental dishonesty, the policy and the applicable death benefit are voided. Furthermore, a policyholder’s act of self-harm or other violation during the contestable period precludes claim denials from being appealed.
In cases of evident claim mishandling, state insurance departments and attorneys often provide simple-and-free resources that urge insurers to pay on valid claims. Even if an insurer rules a claim ineligible for appeal, potential beneficiaries who disagree with the decision show foresight by consulting with an attorney.
Contact the insurance company
In their initial denial letter, insurers explain why they are denying claims. However, if the reasons are unclear or there is inadequate supporting evidence, the appropriate course of action is to obtain more information about the specific objections to payment of the death benefit.
Medical documents, autopsy reports, or insurance payment receipts are likely to be required documentation in circumstances where denied beneficiaries appeal a claim.
In cases involving employer group life insurance and other similar policies, the appeal period is merely 60 days.
Do not acceot the rejection
Beneficiaries who have had their benefits denied may appeal their claims by producing evidence in accordance with the method outlined by the insurer. While self-representation has no financial cost, adding complex processes and stress to a grieving scenario has an emotional cost.
In some circumstances, refused beneficiaries contact their state’s insurance department or attorney general to take advantage of their insurance navigation experience. Because some states employ insurance appeals specialists, state-level representation is quite important.
Get a laywer
“As soon as you get a denial or a negative result,” plaintiff’s insurance attorney Spain advised, “you should contact a contingency lawyer.”
Spain, a partner at Morgan & Morgan in Orlando, believes that understanding the complexities of insurance and how plans function offers plaintiffs an advantage over pro se representation.
“Trying to do it yourself can completely set back your case,” he warned.
Spain and other plaintiff insurance lawyers meet with potential clients and evaluate their cases for free. When a valid case arises, these contingency lawyers provide counsel that their client’s fund with a percentage of any settlements obtained.
And, while Spain has a near-perfect trial success rate, that is not his first option.
“I’ve handled several situations simply by assembling the correct facts, arguments, case law, and a letter presenting the position to the insurance,” he added. “Of sure, they’ll know you’re serious.”
What to do to prevent your claims from being denied
Naturally, avoiding claim denials is the most desirable outcome for both the policyholder and the recipient. The policyholder’s approach to the insurance application is crucial to best practices for avoiding a refused claim. Particular considerations include:
- Application replies—detailed responses about health and health-related activities such as smoking, prescription or other medications, and dangerous hobbies.
- Understanding of application terms and conditions—clarity on the conditions under which insurers pay the death benefit and those under which they do not pay any benefit.
- Application review entails reading and rereading the completed application as completed by the agent.
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?
A life insurance medical exam requires a basic physical exam including weight and height measurements and a blood pressure check. The medical examiner will also ask for prior medical exams and history and urine and blood samples.
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.