The death of aÂ loved oneÂ is hard to take and while aÂ life insuranceÂ payoutÂ can ease the burden and allow you to continue leaving comfortably, it won’t take the grief or the heartbreak away. What’s more, if thatÂ life insurance policyÂ refuses toÂ payout, it can make the situation even worse, adding more stress, anxiety, anger, and frustration to an already emotional period.
But why would aÂ life insurance claimÂ be refused; what are theÂ causes of deathÂ that may cause yourÂ lifeÂ insurance coverageÂ to become null and void? If you or aÂ loved oneÂ has aÂ life policy, this article could provide some essential information as we look at the reasons aÂ death claimÂ may be refused.
WhatÂ Causes of DeathÂ are Not Covered?
The extent of yourÂ lifeÂ insurance coverageÂ will depend on your specific policy and this is something you should check when filing yourÂ life insurance application. Speak with yourÂ insurance agent, ask questions, and always do your due diligence so that you know what you’re buying into and what sort of deaths it will provide cover for.
Life insurance policiesÂ have something known as aÂ contestability period, which typically lasts for 1 to 2 years and begins as soon as the policy starts. If theÂ policyholderÂ dies during this time, they will investigate and contest the death.Â
This is generally true whether her you die of aÂ heart attack, cancer or suicide. However, if this period has passed, they may only contest the death if it results from one of the following.
Suicide is a contentious issue where life insurance is concerned. On the one hand, it’s a very serious issue and one that’s often the result of mental health problems, so there are those who believe it is deserving of the same respect as any other illness.Â
On the other hand, theÂ lifeÂ insurance companiesÂ are concerned that allowing such coverage will encourage desperate people to kill themselves so theirÂ loved onesÂ will be financially secure.
It’s a touchy subject, and that’s why many companies refuse to go anywhere near it. Some will outright refuse to pay outÂ for suicide, but the majority have aÂ suicide clause, whereby they onlyÂ payoutÂ if the death occurs after a specificÂ period of time.
If it occurs before this time, they may return the premiums or pay nothing at all. And if they have reason to believe that theÂ policyholderÂ took their own life just for financial gain, they will almost certainly investigate and may refuse to pay.
Dangerous Hobbies and Driving
If you die in aÂ car accidentÂ and it is deemed that you were driving drunk, your policy may notÂ payout.Â Car accidentÂ deaths are common, and this is aÂ cause of deathÂ that policies do generally cover, but only when you weren’t doing something illegal or driving recklessly.
Deaths from extreme activities like bungee jumping orÂ skydivingÂ may be questioned, especially if these hobbies were not reported during the application.Â
Your claim can be denied if you are committing an illegal act at the time of your death. This can include everything from being chased by the police to trespassing. A benefit may also be refused if you die for an intentional drug overdose using non-prescription drugs.Â
Smoking or Pre-existingÂ Health Issue
Honesty is key, and if you lie during the application or “forget” to tell them about your smoking status or pre-existingÂ medical conditions, they may refuse toÂ payout. It doesn’t matter if they performed aÂ medical examÂ or not; the onus is not on them to spot your lie, it’s on you not to tell it in the first place.
This is one of the most common reasons for anÂ insurance contractÂ to be declared void, as applicants go in search of the cheapest premiums they can get and do everything they can to bring those costs down. They may also believe they will get away with their lies, either because they will give up smoking in a few months or years or because they will die from something other than their preexisting condition.
But lying in this manner is risky. You have to ask yourself whether it’s worth paying $100 a month for a valid policy that willÂ payoutÂ without issue or $50 for a policy that will likely be refused and will cause endless stress for your beneficiaries.
Life insurance benefits generally don’t extend to the battlefield. If you’re a solider on the front line, your risk of death increases significantly, and many insurance policies won’t cover you for this. This is true even if you’re not in active duty at the time you take out the policy. More importantly, it also applies to correspondents and journalists.
You don’t invalidate your policy by going to a war-torn country and reporting, but if you die resulting from that trip, your policy will notÂ payout.
Your life insurance policy likely won’t pay forÂ dismembermentÂ orÂ critical illness, but there are additional policies and add-ons that will provide cover. You can get these alongsideÂ permanent life insuranceÂ andÂ term life insuranceÂ to provide you with more cover and peace of mind.Â
They will come at a significant extra cost, but unlike traditional life insurance, they willÂ payoutÂ when you are still alive and may make life easier after experiencing a tragic accident or serious illness.
We recommend focusing on getting life insurance first, securing theÂ amount of coverageÂ you need from a permanent orÂ termÂ life policy, and only then seeing if there is room in your budget for these additional options.
How Often DoÂ Life Insurance PoliciesÂ Payout?
We have recommended life insurance many times at PocketYourDollars and will continue to do so. We often state that it is essential if you have dependents and want to ensure they’re cared for when you die. But as much as we recommend it and as simple as the process of applying often is, there is one simple fact that we often overlook:
LifeÂ insurance companiesÂ rarelyÂ payout.
It’s a stat you may have seen elsewhere and it’s 100% true. However, contrary to what you might have heard or assumed; this is not the result of a refusal to pay theÂ death benefitÂ when theÂ policyholderÂ passes away. Sure, this accounts for some of those non-payments, but for the most part, it’s down to one of the following:
TheÂ PolicyholderÂ Survives the Term
The majority ofÂ life insurance policiesÂ are set to fixed terms, such as 10, 20 or 30 years. If anything happens during thisÂ period of time, yourÂ loved onesÂ collect yourÂ death benefit, but if you survive, the policy ends, no money is paid out, and if you want another policy you will need to pay a larger sum.
TheÂ PolicyholderÂ Accepts theÂ Cash Value
WholeÂ lifeÂ insuranceÂ policiesÂ are like investments crossed with life insurance. YourÂ loved onesÂ get aÂ death benefitÂ if you die, but it also accrues interest and can be cashed out. When this happens, the insurer collects, you get a sum of money, and it feels like a win-win, but in reality, the insurer has just dodged a bullet.
TheÂ PolicyholderÂ Stops Making Payments
As soon as you stop making yourÂ premium payments, you lose cover and you run the risk of your policy being canceled. This is true for pretty much anyÂ type of policyÂ and it happens regardless of theÂ policy term.Â
Unlike aÂ credit cardÂ company, which may chase you for payments, aÂ lifeÂ insurance companyÂ will place the burden of responsibility on you. After all, a creditor loses money when you don’t pay, whereas aÂ lifeÂ insurance companyÂ comes out on top.
This often happens when individuals take out substantialÂ life insurance policiesÂ at a young age, only to suffer drastically changing circumstances. Imagine, for instance, that you’re 20-years-old and you buy a house with your spouse-to-be, with a view to settling down and starting a family. You assume that you’ll need it for a long time, so you take out a 30-year-term.
But 10 years down the line, your spouse leaves you, the family you wanted didn’t happen, and you’re all alone with no dependents, and with growing debts, bills, and obligations. At that point, life insurance becomes a burden, so you may stop making payments, thus allowing theÂ insurance companyÂ to profit from 10 years of insurance premiums.
Summary: It’s Not That Cut-Throat
You don’t have to look far to find consumers who feel they have been wronged byÂ lifeÂ insurance companies, consumers who will expend a great deal of time and effort into calling out these companies for their perceived wrongdoings. But they often exaggerate the situation due to their extreme anger and this creates unrealistic anxieties and expectations.
The truth is, while there are people who have been genuinely wronged, they are in the extreme minority. The vast majority ofÂ family membersÂ who were refused aÂ death benefitÂ were let down by theÂ policyholderÂ and by the lies they told on their policy.
PolicyholdersÂ lie about their weight, smoking status, andÂ medicalÂ conditions, and when caught up in this lie, they often claim they made an honest mistake. But the truth is, most life insurance companies will overlook simple mistakes and only really care when it’s obvious that theÂ policyholderÂ lied.Â
And let’s be honest, it doesn’t matter how forgetful you are, you’re not going to forget that you’re a chain smoker, alcoholic, drug user, extreme sports fan or that you recently had a medical crisis!
If the policy was filed honestly, you shouldnât have an issue when you collect, even if it’s still in theÂ contestability period. As discussed above,Â lifeÂ insurance companiesÂ stack the dice in their favor. They use statistics and probability to carefully set the premiums and benefits, and they rely onÂ policyholdersÂ forgetting to pay and outliving the term. They don’t need to “rob” you in order to make a profit. So, be honest when applying and you won’t have anything to fear.
What Causes of Death are not Covered by Life Insurance? is a post from Pocket Your Dollars.